ELEPHANT & CASTLE GROUP INC - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
---------

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 29, 2002
COMMISSION FILE NO. 1-12134
CUSIP NO. 286199-20-3

ELEPHANT & CASTLE GROUP INC.
(NAME OF ISSUER)
----------------

Province of British Columbia Not Applicable
- ---------------------------- --------------
(State or other (IRS Employer Identifi-
jurisdiction of cation Number)
incorporation)

1190 Hornby Street
Vancouver, B.C. Canada V6Z 2K5
- ---------------------------- -------

(Address of principal execu- (Zip Code)
tive offices)

Registrant's telephone number including area code: (604) 684-6451

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 13 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to filing requirements
for the past 90 days. YES /X/ NO / /

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not 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-K or any amendment to this
Form 10-K. / /

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). YES / / NO /X/

Aggregate market value of voting stock held by non-affiliates of the Registrant
as at February 25, 2003: U.S. $ 1,286,000 (CDN $1,922,000).

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Number of shares outstanding of Issuer's Common Stock as of December 29, 2002:
5,144,604.

Issuer's revenues during the fiscal year ended December 29, 2002:
CDN $ 43,520,000 (converts at applicable exchange rates to U.S. $ 27,716,000).

Securities registered pursuant to Section 12(b) of the Act:

None.

Securities registered pursuant to Section 12(g) of the Act:

(a) Calculated as of February 25, 2003

FORWARD-LOOKING STATEMENTS

This annual report on Form 10-K contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995, including
statements made with respect to the results of operations and businesses of the
Company. Words such as "may," "should," "believe," "anticipate," "estimate,"
"expect," "intend," "plan" and similar expressions are intended to identify
forward-looking statements. These forward-looking statements are based upon
management's current plans, expectations, estimates and assumptions and are
subject to a number of risks and uncertainties that could significantly affect
current plans, anticipated actions and the Company's financial condition and
results of operations. Factors that may cause actual results to differ
materially from those discussed in such-forward looking statements include,
among other, the following possibilities: (i) fluctuations in foreign currency
exchange rates; (ii) heightened competition, the entry of new competitors; (iii)
the inability to carry out development plans or to do so without delays; (iv)
loss of key executives; and (v) general economic and business conditions. The
Company does not intend to update these cautionary statements.

ITEM 1 DESCRIPTION OF BUSINESS

GENERAL

The Company owns and operates pub and casual dining restaurants in the
United States and Canada, and is actively engaged in restaurant franchising
activities. As of the date of this report, the Company currently owns and
operates a chain of 17 full-service casual dining restaurants and pubs, 12 of
which are located in

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Canada and 5 of which are located in the United States.

All seventeen of the Registrant's restaurants are operated under the name
"Elephant & Castle", an English pub concept, five of which are in the United
States. In addition to the owned and operated units, there are 6 Elephant &
Castle franchises, of which 3 are in Canada and 3 are in the United States.

During the year which is the subject of this report, the Company also owned
and operated an "Alamo Steakhouse & Grill" red meat steakhouse at the Mall of
America, Bloomington, Minnesota. This restaurant was closed in January 2003. In
2002, the Company also had three "Alamo Steakhouse & Grill" franchises in the
USA. Following the Company's decision to close its only Alamo store, two of the
three Alamo franchises have given notice that they wish to cancel their
franchise agreements. The Company has no future plans to expand the "Alamo
Steakhouse & Grill" brand.

2002 RESULTS OF OPERATIONS

In 2002, the Company's sales were CDN $43,520,000 compared to CDN
$46,833,000 for 2001. Sales in 2001 included CDN $3,571,000 from the
discontinued Rainforest Cafe operation (Zero in 2002).Excluding Rainforest Cafe,
sales in 2002 were CDN $258,000 higher than in 2001.

During the fiscal year ended December 29, 2002, the Company generated a net
loss of CDN $(2,111,000) compared to a net loss of CDN $(128,000) for the
corresponding period in 2001. The net loss for the year ended December 29, 2002
includes CDN $2,382,000 of costs resulting from the write-down of goodwill and
other intangible assets in accordance with current recommendations of the
Canadian Institute of Chartered Accountants.

General and administrative expenses increased from 6.4% of sales in 2001 to
8.1% of sales in 2002. This reflects increased insurance costs, and building
head office infrastructures. Interest on long term debt decreased to CDN
$899,000 in 2002 from CDN $1,404,000 in 2001 as a result of reducing debt levels
and a favorable movement in the value of the Canadian dollar versus the US
dollar.

No new restaurants or franchises were opened in 2002, although one new
joint venture deal and two new Elephant & Castle franchise agreements were
signed. During 2002 the Company closed one Company owned Elephant & Castle
restaurant in Bellingham Washington, and announced the planned closure of its
only owned "Alamo Steakhouse & Grill" restaurant at the Mall of America,
Bloomington, Minnesota.

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FINANCINGS

During 2001, the Company and its principal lender, General Electric
Investment Private Placement Partners II ("GEIPPPII") agreed to a restructuring
of the Company's indebtedness to GEIPPP II. Under this Agreement, the Company
issued 2,600,000 Shares of Common Stock and issued US$5,000,000 of Senior Notes
plus US$5,000,000 of Junior Notes in exchange for the cancellation of the
US$9,000,000 of Secured Subordinated Convertible Notes, referred to above, and
US$1,000,000 of other Notes, referred to below, and the forgiveness of
approximately US$600,000 of interest. The Senior Notes are repayable in
quarterly installments over five years and bear interest at 6% per annum. The
Junior Notes are convertible into Common Stock at agreed conversion prices,
subject to certain performance criteria, mature on September 1, 2005, and also
bear interest at 6% per annum. As a consequence of such restructuring, GEIPPP II
is currently the owner of 62% of the Company's Common Shares, and holds certain
warrants and conversion rights to increase its ownership percentage. GEIPPP II
currently has two representatives on the Company's Board of Directors, and the
capacity to elect a majority of the members of the Board.

The Company first entered into a financial relationship with GEIPPP II in
1995. GEIPPP II invested U.S. $1,000,000 in the Company's Common Shares, and
ultimately provided U.S. $9,000,000 in exchange for subordinated convertible
notes. In October, 1999 the Company granted a security interest to GEIPPP II
over substantially all of its assets in exchange for a waiver of certain
interest payments, waiver of existing defaults and a relaxation of certain
financial covenants.

PRIOR FINANCING. In February of 1999, the Company completed an additional
private placement equity financing with a group of U.S. investors. In total the
Company raised U.S. $3,265,000 (CDN $4,897,500) from the sale and issuance of
additional Subordinated Convertible Notes (the "`99 Notes"). The `99 Notes, as
issued, have a five year term, bear interest at 8% per annum payable quarterly
in arrears commencing on June 30, 1999, in cash or Common Shares, to the extent
fully registered Common Shares of the Company are available, at the option of
the Company. All of the `99 Notes unpaid and not converted by December 31, 2003
are immediately due and payable on such date, together with a 25% premium on the
unpaid principal amount thereof.

US$1,582,000 of the `99 Notes were converted into Common Stock at $2 per
Share (after adjustment for the 1 for 2 stock consolidation) in exchange for the
waiver of penalties associated with the delay in registration of the underlying
securities and adjustment to the one year warrants to the terms noted below.
GEIPPP II participated in the `99 Financing, and purchased U.S. $2,000,000
additional of the 1999 Notes, U.S. $1,000,000 of which was subsequently
converted into 500,000 Common Shares (adjusted for the 1 for 2 stock
consolidation). The balance US$1,000,000 of `99 Notes held by GEIPPP II were
exchanged in the reorganization of the

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financing.

US$683,000 in face amount of the `99 Notes remain outstanding. The Company
has a right of optional redemption of the remaining `99 Notes at 100% of par,
plus accrued and unpaid interest, from time to time, if the market price for the
Company's Common Shares equals or exceeds 150% of the conversion price of
US$4.00 for fifteen (15) consecutive trading days.

RESTAURANTS IN OPERATION

ELEPHANT & CASTLE. At the Elephant & Castle restaurants, the Company seeks
to distinguish itself from competitive restaurants by its distinctive British
style and Tudor decor, and by featuring a wide variety of menu items including a
large number of English-style dishes. The Company's restaurants offer a broad
menu at popular prices. The menu is regularly updated to keep up with current
trends in customers' tastes. Although all of the Company's restaurants provide
full liquor service, alcoholic beverages are primarily served to complement
meals.

HOTEL RESTAURANTS. The Company has agreements for the operation of
restaurants in 7 hotel locations in Canada and the United States. The Winnipeg
Delta Elephant & Castle restaurant was opened on May 18, 1994. The Philadelphia
Crowne Plaza unit was opened on February 28, 1995, and the San Diego Holiday Inn
was opened on July 1, 1996. The Boston Club Quarters, and Seattle West Coast
Grand restaurants were added in 1997.

The Company opened its Chicago Club Quarters restaurant in April of 2001
and hopes to build additional hotel restaurant units at first-class hotels over
the next several years. During 2002 the Company signed its first managed joint
venture agreement to open an Elephant & Castle Restaurant in a newly built hotel
in San Francisco, CA. Capital costs and profits are to be shared between the
Company and its joint venture partner. The Company believes that joint venture
opportunities offer significant potential for future growth.

In the opinion of management, the three key ingredients in the selection of
hotel based units are: (1) the control of occupancy costs; (2) the capacity to
work synergistically with a hotel management seeking to divorce itself from
direct involvement in food and beverage operations; and (3) the Company's
ability to control the menu, kitchen and restaurant amenities. The location of
the hotel in the vicinity of other drivers of restaurant business is a key
consideration

MALL RESTAURANTS. The Company's mall restaurants average approximately
6,000 square feet, with a typical seating capacity of 225.(See Item 2,
Properties). The restaurants are open 7 days a week

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for lunch, dinner and late-night dining. Average unit sales are approximately
CDN $1,200,000 with a sales mix of approximately 60% food and approximately 40%
alcoholic beverages. Due to their location at major downtown and suburban malls
and office complexes, the Elephant & Castle restaurants cater to both shoppers
and office workers, but are not considered to be destination locations

FRANCHISING. Management of the Company believes that the Company's "brand"
identification is a valuable asset. Six franchised locations of the Elephant &
Castle brand are now open, including three that opened during 2001, one in
association with a Holiday Inn in Harrisburg, PA, one in association with a
Clarion hotel in Cherry Hill, NJ and one in association with a Delta hotel in
Vancouver, BC. Agreements for two new Elephant & Castle franchises in the US
were signed in 2002 and are due to open in 2003. One Alamo Steakhouse & Grill
franchise still operates in Colorado Springs, Colorado. This franchise opened in
2001, and is expected to continue to operate as a franchise.

The Company signed a sub-franchise agreement with Canadian Niagara Hotels
for the right to develop a Rainforest Cafe in Niagara, Ontario. This unit opened
in May, 2001. In 2002, the Company assigned this sub-franchise in exchange for a
finders fee of 1% of sales for the following 10 years.

Future activities are intended to include an expansion of the Company's
franchising activities for the Elephant & Castle brand. No further franchises of
the Alamo Steakhouse & Grill or Rainforest Cafe brands are anticipated.

FUTURE COMPANY GROWTH. For future growth of the Company's revenue and
profit opportunities, management intends to concentrate exclusively on its
Elephant & Castle concept. This is expected to involve development of Company
owned and operated locations, joint ventures and management arrangements with
hotel operators and franchises. Any added units will be predominantly
hotel-based or in high traffic, urban centre locations. The Company's intention
is to cluster restaurants in prime locations in chosen geographic regions. Key
points for consideration include the need for consistency in use and revenues
resulting therefrom. Future developments will be out of internally generated
cash flow plus bank borrowings to the extent they are available and permitted
under existing agreements. The Company's future growth is restricted by the
Company's limited availability of capital.

ADDITIONAL INFORMATION

a. FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS.

During each of the last three years, the Company considers that it has been
substantially engaged in a single line of business - the ownership and operation
of casual dining restaurants - and does not

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separately segment its financial results.

b. NARRATIVE DESCRIPTION OF THE BUSINESS.

i. PRINCIPAL PRODUCTS OR SERVICES AND THEIR MARKETS. See Description of
the Business - General.

ii. DISTRIBUTION METHODS. The Company focuses on the casual dining
segment. The Company has not set out to establish its restaurants as
"destination locations". Instead, it relies primarily on its high-traffic,
convenient downtown and suburban mall, and most recently, high-occupancy hotel
locations, consumer satisfaction and reputation to attract new and repeat
customers.

The Company conducts many local promotions and loyalty programs geared to
the neighborhoods and markets the restaurants serve, and supports these with
print and direct mail advertising. During fiscal 2002, the Company's
expenditures for advertising and promotional activities were approximately 2% of
its revenues.

iii. STATUS OF NEW DEVELOPMENTS. The Company is constantly in the process
of examining, evaluating and undertaking various new restaurant opportunities.
The Company has a signed joint venture agreement to open an Elephant & Castle
restaurant in a new Club Quarters hotel opening in San Francisco, and signed
Franchise Agreements for two new Elephant & Castle franchises. All three
locations will open during 2003. The Company is actively seeking further joint
venture and franchise opportunities for the Elephant & Castle brand.

iv. RELATIONSHIP WITH HOTEL OPERATORS. The Registrant's relationship with
hotel operators is predicated on (i) shared investment in significant physical
improvements to the facility at the onset of the occupancy; (ii) costs of
occupancy measured by a percentage of the unit's revenues; (iii) adequate time
to recruit and train a restaurant staff of Registrant's selection; and (iv)
reliance upon restaurant operator's control of the physical environment and menu
selections. In addition to its Holiday Inn locations in San Diego, California
and Philadelphia, Pennsylvania, the Registrant currently operates hotel
restaurants at the Delta Hotel (Winnipeg, Canada), Club Quarters Hotels (Boston,
Massachusetts and Chicago, Illinois), West Coast Grand Hotel on Fifth (Seattle,
Washington) and Rosedale Hotel (Vancouver, Canada). Management considers its
relationship with Hotel Operators currently to be satisfactory. The Rosedale
Hotel Restaurant operates under the name "Rosie's on Robson", but management
view and report it as an Elephant & Castle restaurant.

v. COMPETITORS AND COMPETITIVE BUSINESS CONDITIONS. The restaurant and
food service industry is highly competitive and fragmented. There are an
uncountable number of restaurants and other

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food and beverage service operations that complete directly and indirectly with
the Company. In addition, many restaurant chains have significantly greater
financial resources and higher sales volumes than the Company. Restaurant
revenues are affected by changing consumer tastes and discretionary spending
priorities, local economic conditions, demographic trends, traffic patterns, the
ability of business customers to deduct restaurant expenses, the increasing
trend towards prohibition of smoking in restaurants and the type, number and
location of competing restaurants. In addition, factors such as inflation and
increased food, liquor, labour and other employee compensation costs can
adversely affect profitability. The Company believes that its ability to compete
effectively and successfully will depend on, among other things, management's
ability to continue to offer quality food for moderate prices, management's
ability to control labour costs, and ultimately on the executive determinations
as to extensions of the brand (i.e., selection of sites for new locations and
related strategies).

vi. SUPPLIERS. Food products and related restaurant supplies are purchased
both through head office purchasing programs and also at the restaurant level
from specified food producers, independent wholesale food distributors and
manufacturers. This process enables the Company to ensure timeliness and quality
of procurement. Management believes all essential food and beverage products are
available from multiple sources in all of the locations it serves, and that it
is not dependent on any one of a limited number of suppliers.

vii. DEPENDENCE ON CONSUMER/BRAND LOYALTY. Elephant & Castle appeals to a
diverse customer base, including business and professional people who occupy
offices in the vicinity of the restaurants, shoppers from the malls, downtown
tourists, and others. The Company's locations and broad menu attract traffic
from lunch through mid-afternoon, dinner and into the evening hours. Most of the
Company's restaurants are open seven days and evenings, each week. All items on
the menu are available for take-out, although take-out customers account for
less than 2% of total restaurant sales.

viii. TRADEMARKS; LICENSES. The Company has registered "The Elephant &
Castle Pub & Restaurant" with the Canadian Trademarks Office, and with the
United States Patent and Trademark Office. The Company acquired "The Elephant &
Castle" trademark in the United States. The Company agreed to pay U.S. $50,000
(CDN $75,000), plus a one-time fee of U.S. $5,000 (CDN $7,500) per location for
the first ten locations for the mark. The Company regards its "Elephant &
Castle" trademark as having substantial value and as being an important factor
in the marketing of its restaurants. The Company also believes that its
trademark rights in relation to "The Alamo Steakhouse & Grill" have on-going
value, and will therefore continue to protect these rights. The Company is not
aware of any infringing uses that could materially affect its business or any
prior claim to

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the trademarks in its business.

ix. GOVERNMENTAL LICENSES AND APPROVALS. The Company is subject to various
rules, regulations and laws affecting its business. Each of the Company's
restaurants is subject to licensing and regulations by a number of governmental
authorities, including alcoholic beverage control and health, safety and fire
agencies in the state, province or municipality in which the restaurant is
located. Difficulties in obtaining or failure to obtain the required licenses or
approvals could prevent or delay the development of a new restaurant in a new
location. Management believes the Company is in compliance in all material
respects with all relevant regulations. The Company has never experienced
unusual difficulties or delays in obtaining the required licenses or approvals
required to open a new restaurant.

Various Canadian federal and provincial labour laws govern the Company's
relationship with its employees, including such matters as minimum wage
requirements, overtime and other working conditions. Significant additional
government-imposed increases in minimum wage, paid leaves of absences and
mandated health benefits, or increased tax reporting and tax payment
requirements for employees who receive gratuities, may impose significant
burdens on the Company. The Company's restaurants in the United States are
subject to similar requirements.

Alcoholic beverage control regulations require each of the Company's
restaurants to apply to a state authority and, in certain locations, county and
municipal authorities, for a license and permit to sell alcoholic beverages in
the premises. Typically, licenses must be renewed annually and may be revoked or
suspended for cause at any time. Alcoholic beverage control regulations relate
to numerous aspects of the daily operations of the Company's restaurants. The
Company has not encountered any material problems related to alcoholic beverage
licensing to date. The failure to receive or retain, or a delay in obtaining a
liquor license in a particular location could adversely affect the Company's
ability to obtain such a license elsewhere.

x. EFFECT OF EXISTING AND PROBABLE GOVERNMENTAL REGULATIONS. The Company
is subject to "dram-shop" statutes in California, Pennsylvania and Washington
and may become subject to similar proposed legislation in Canada. "Dram-shop"
statutes generally provide a person injured by an intoxicated person the right
to recover damages from an establishment which wrongfully served alcoholic
beverages to such a person. The Company carries liquor liability coverage which
it believes to be consistent with the coverage carried by other entities in the
restaurant industry. Even though the Company is covered by insurance, a judgment
against the Company under a "dram-shop" statute in excess of the Company's
liability coverage could have a material adverse effect on the Company. The
Company has never been the subject of a "dram-shop"

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claim.

xi. RESEARCH AND DEVELOPMENT. The Company places significant emphasis on
the design and interior decor of its restaurants.

The Company's Elephant & Castle unit designs requires somewhat higher
capital costs and furniture and fixtures investment to open a new restaurant
than is typical in the industry. Landlord contributions defray a part or a
substantial part of interior design and decor at a typical new restaurant. The
Company believes that its design and decor features enhance the dining
experience. Each restaurant typically features a prominent "British Bar", and
large dining areas. Additionally, several offer patio seating, which adds
substantially to seasonal capacity, revenues and profits. Table layouts are
flexible, permitting re-arrangement of seating to accommodate large groups and
effective utilization of maximum seating capacity.

The Company also believes that the location of a restaurant is important to
its success. In general, significant time and resources are spent in determining
whether a prospective site is acceptable. Traditional Elephant & Castle
restaurants were located at high-profile sites at malls/office complexes within
larger metropolitan areas. In selecting future sites, the Registrant analyzes
demographic information for each prospective site, hotel occupancy, hotel
uses, and factors such as visibility, traffic patterns, accessibility,
proximity of shopping areas, offices, parks, tourist attractions, and
competitive restaurants.

xii. COSTS AND EFFECTS OF COMPLIANCE WITH ENVIRONMENTAL LAWS. The Company
is not aware of, and does not anticipate any significant costs related to
compliance with environmental laws.

xiii. NUMBER OF TOTAL EMPLOYEES AND FULL-TIME EMPLOYEES. As of December 29,
2002, the Company employed approximately 780 persons on a full-time and
part-time basis. 20 of such persons serve in administrative or executive
capacities, approximately 68 serve as restaurant management personnel and the
remainder are hourly workers in the Company's restaurant operations. The
Company believes that its working conditions and compensation packages are
competitive with those offered by its competitors. Management considers the
Company's relations with its employees to be good, and its rate of employee
turnover to be low in relation to industry standards. The Company has an
agreement with the union which represented the former workers at the
predecessor restaurant located at the Holiday Inn unit in Philadelphia which
requires the Registrant to seek new hires first from among the pool of
available union hiring hall personnel. The Company's service personnel at the
San Diego Elephant & Castle unit and Rosie's on Robson are separately
unionized.

The Company has sought to attract and retain high-quality, knowledgeable
restaurant management and staff. Each restaurant is

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managed by one general manager, and from one to three assistant managers
depending on volume. Most restaurants, again depending on volume, also have one
kitchen manager and one to three assistant kitchen managers. On average, general
managers have about five years' experience with the Company. The Company also
employs two regional managers and may be required to add additional supervisory
people as the chain expands. As the Company adds new restaurants, its future
success may depend in part on its ability to continue to attract and train
capable additional managers. The Company also anticipates that the opening of
additional restaurants including at hotel sites in the United States will
require a commensurate increase in employees. The Company does not expect a
proportionate increase in the number of corporate or administrative personnel.
Restaurant managers, many of whom have moved up through the ranks, are required
to complete a training program during which they are instructed in areas
including food quality and preparations, customer service, alcohol service,
liquor liability avoidance and employee relations. The Company believes its
training programs for managers and other employees are comparable to the
training provided for managers and other employees at substantially larger
restaurant chains. Restaurant managers are also provided with operations manuals
relating to food and beverage standards and other expectations of restaurant
operations. Management has made a conscious commitment to provide customer
service of the highest standards. In addition to evaluations made by the
customers, the Company uses a "designated customer" quality control program to
independently monitor service and operations. "Designated customers" are
independent people utilised to test the standards of food, beverage and service
by passing as customers of the restaurant without the knowledge of management or
staff. Done on a periodic basis, their findings are reported to corporate
management as an independent control mechanism with respect to the quality of
food and service at the Company's restaurant units. Efficient, attentive and
friendly service is integral to the Company's overall concept. Any new employee
at all functional levels is closely supervised after his or her on-the-job
training. Management regularly solicits employee suggestions concerning
operations, and endeavors to be responsive to legitimate employee concerns.

The Company believes its commitment to employee morale is also critical to
its long-term success. The Company has compiled a favorable record of employee
retention. The average tenure of the current restaurant general managers in the
Elephant & Castle chain is 5 years. The Company considers the quality of its
employee interaction with customers to be an important element of its business
strategy.

xiv. AVAILABLE INFORMATION. The Company files annual and quarterly reports
with the Securities and Exchange Commission ("SEC").
Its Commission file number is 1-12134. The public may read and copy any
materials filed by the Company with the SEC at the SEC's public reference room,
450 5th Street, N.W., Washington, D.C.

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The public may obtain information on the operation of the public reference room
by calling the SEC at 1-800-SEC-0330. The Company's internet website address
is: www.elephantcastle.com

The Company makes available, free of charge, through its internet website,
its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports
on Form 8-K, and amendments to those reports, each as soon as reasonably
practicable after the same are electronically filed with, or furnished to the
SEC.

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ITEM 2 PROPERTIES

The Company currently operates 6 mall based restaurants. All of such
facilities are leased properties. The following table provides opening date,
square footage and indoor seating capacity information with respect to each of
the mall based restaurants currently in operation:

(a) Outdoor/patio seating is available at a number of the locations, and not
included herein.

All of the restaurants are located on leased sites. The Company owns the
furnishings, fixtures and equipment in each of its mall based restaurants.
Existing restaurant leases have expirations ranging from 2003 through 2017
(including existing renewal options). The Company does not anticipate any
difficulties renewing its existing leases as they expire, should it wish to do
so. Mall leases typically provide for fixed rent plus payment of certain
escalations and operating expenses, against a percentage at restaurant sales.

The Company's hotel restaurant leases are more typically focused on a
percentage of restaurant sales, against a minimum base rental. Thus, while the
Company's aggregate annual minimum rent continues to increase, such rent per
facility and per square foot controlled by the Company is declining.

The Company's facilities at Hotels and other non-mall locations are as
follows:

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The following table sets forth, for all restaurants by location, the
earliest expiration date of the leases and the minimum annual rent:

* Full year's rent, not allowing for mid-year termination
** No minimum annual rent, percentage of sales rent only

In addition to the properties listed above, as of December 29, 2002 the Company
still operated its "Alamo Steakhouse & Grill" restaurant at the Mall of America,
Minneapolis. Annual rent for this location was CDN$366,000 which was payable
on a monthly basis through January 31, 2003. No further liability exists at
this location.

The above schedule also omits a lease for the restaurant location at
Bellingham, WA. which the Company closed in October 2002, but for which the
lease termination is under negotiation with the landlord. (See Item 3 - legal
proceedings).

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ITEM 3 LEGAL PROCEEDINGS

From time to time lawsuits are filed against the Company in the ordinary
course of business. The Company is not currently a party to any litigation which
would, if adversely determined, have a material adverse effect on the Company or
its business and is not aware of any such threatened litigation.

In 1989 and 1990, the Canadian subsidiary received notices of assessment
from Canadian Customs and Revenue Agency and the Ontario Ministry of Revenue
regarding a construction allowance received in 1984 from the landlord for its
former Sarnia, Ontario location. The reassessment has been under appeal since
1989. Including interest and penalties, the assessment demand totals $1,118,000.
The Company continues to contest the total amount owed, and holds a provision of
$585,000 against the dispute. The difference between the Company's reserve and
the tax assessment relates specifically to a partial settlement in the Company's
favour from 2001 which the Company believes is not reflected in the assessment
demand. Canadian Customs and Revenue Agency have been unable to produce adequate
paperwork in support of their claim.

On October 14, 2002 the Company closed its unsuccessful Elephant & Castle
restaurant located in Bellingham, WA. The lease of this location was due to
expire in 2005. The company is in the process of negotiating an agreement with
the landlord to terminate the lease early in exchange for the surrender of
substantially all of the assets at that location, and the payment of a to be
agreed level of compensation for loss of rent. Provision for the disposal of
assets, payment for loss of rent and other closing costs was made, resulting in
a charge to earnings of CDN$425,000 in 2002. The Company has recently received a
summons from the Landlord claiming CDN$457,000 damages upon breach of lease. The
Company believes this amount to be excessive.

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ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

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PART II

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

(a) The Company's Common Stock was traded on NASDAQ - small cap market from
June 29, 1993, until it lost that listing on March 22, 2000 as a result of
having failed to maintain a minimum bid price of $1.00. The shares continue to
be traded on the NASD electronic bulletin board OTCBB (PUBSF).

The range of high and low sales prices for the Common Stock from January 1,
2001, to the end of 2002 has been:

(b) The approximate number of record holders of the Company's common stock as
of January 2003 is 500.

(c) The Company has never paid any dividends in respect of any of its capital
stock and the Company presently has no intention or ability to pay any dividends
in the foreseeable future.

-17-

(d) Securities authorized for issuance under equity compensation plans.

Equity based compensation plans in force as at December 29, 2002:

-18-

ITEM 6 SELECTED FINANCIAL DATA
(IN THOUSANDS OF CANADIAN DOLLARS EXCEPT PER
SHARE INFORMATION WHICH IS SET FORTH IN
CANADIAN DOLLARS)

Prior year comparatives have been adjusted to reflect the Company's
change of accounting policy by which all gains and losses arising from the
translation of Foreign Currency are now included in net income. This policy
was adopted for the year ending December 29, 2002 in line with the new
recommendations of the Canadian Institute of Chartered Accountants, and has
been applied retroactively to prior years:
2001 net income decreased by $425
2000 net loss increased by $596
1999 net loss reduced by $981
1998 net loss increased by $1,110

a) The increase in Shareholder's Equity in 2001 was occasioned by a
refinancing arrangement with GEIPPPII, pursuant to which a portion of the
Company's debt with GEIPPPII was restructured to junior notes which are
mandatorily convertible into common shares under certain circumstances. In
the event of the failure of the Company to achieve such targets, the junior
notes and interest thereon will become payable to GEIPPPII as debt.

b) Adjusted for the Company's 1 for 2 stock consolidation on March 23, 2000.

-19-

ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

FIFTY TWO WEEKS ENDED DECEMBER 29, 2002 VS. FIFTY TWO WEEKS ENDED DECEMBER 30,
2001

The Company owns, operates and franchises casual full dining brand name
restaurants in Canada and the United States. Its principal brand is "Elephant
and Castle". Since 1996 the Company has also operated red meat restaurants under
the name "Alamo Steakhouse & Grill." 2002 was most noteworthy for the
announcement of plans to close the Company's only owned "Alamo Steakhouse &
Grill" and the subsequent decision by two out of three Alamo Steakhouse & Grill
franchisees to cancel their agreements.

Restaurant operations continued to be adversely impacted by the economic
slowdown during the 1st and 2nd quarters of 2002, particularly at the Company's
hotel/downtown locations, which have a higher dependency on the business
traveller and tourism. The US stores experienced greater impact than the
Canadian stores.

NET INCOME (LOSS)

For the fifty two weeks ended December 29, 2002, the Company generated a
net loss of CDN $(2,111,000) compared to a net loss of CDN $(128,000) for the
fifty two week period in 2001. Earnings per share for the current period were a
loss of CDN $(0.41) compared to a loss per share of CDN $(0.03) in 2001. The
average number of shares outstanding increased from 3,890,000 in 2001 to
5,163,354 for the current year, reflecting the full year effect of 2,600,000
shares of common stock which were issued in the second half of 2001.

Included in the year 2002 loss are the write off of goodwill and other
intangible assets in line with current recommendations of the Canadian Institute
of Chartered Accountants (CDN $2,382,000). Also included are CDN $366,000 of
costs relating to the closure of the Alamo Steakhouse & Grill restaurant (CDN
$288,000)and the closure of the Elephant & Castle restaurant in Bellingham,
Washington (CDN $425,000) partially offset by the release of a previous
over-provision of costs for the closure of the Franklin Mills operation (CDN
$347,000).

SALES

Sales decreased during the fifty two weeks ended December 29, 2002 to CDN
$43,520,000 from CDN $46,833,000 in 2001. Sales in 2001 included CDN $3,571,000
from the discontinued Rainforest Cafe operation (Zero in 2002). Excluding
Rainforest Cafe, sales in 2002 were CDN $258,000 higher than in 2001.

-20-

For the twelve Canadian E&C Corporate locations open throughout both
periods, sales for the fifty two weeks ended December 29, 2002 totaled CDN
$19,533,600 and were down 4% compared to the fifty two weeks ended December 30,
2001.

For the five US Corporate locations open throughout both periods, sales for
the 2002 period were US $10,793,000 and were flat compared to the prior year.

FOOD AND BEVERAGE COSTS

Overall, food and beverage costs, as a percentage of sales, improved to
27.4% for the fifty two weeks ended December 29, 2002, compared to 28.2% for the
fifty two weeks ended December 30, 2001.

LABOUR AND BENEFITS COSTS

Labour and benefits decreased from 32.2% of sales in 2001 to 31.4% in the
current period.

OCCUPANCY AND OTHER OPERATING COSTS

Occupancy and other operating expenses increased as a percentage of sales
from 25.6% in 2001 to 25.9% in the current period.

RESTAURANT CLOSING COSTS

Included in the 2002 results are costs of CDN $366,000 to reflect the
closure of the Alamo Steakhouse & Grill restaurant in Minneapolis, and the
Elephant & Castle restaurant in Bellingham, WA, offset by the release of a
previous over-provision of closure costs for the Franklin Mills operation.

There were no similar closure costs or provisions in 2001.

DEPRECIATION AND AMORTIZATION EXPENSE

Depreciation and amortization costs increased to 5.0% of sales for the
current period from 3.9% last year

INCOME FROM RESTAURANT OPERATIONS

The Company generated income from restaurant operations of CDN $4,147,000
compared to CDN $4,711,000 for 2001.

-21-

GENERAL AND ADMINISTRATIVE COSTS

General and administrative costs increased from 6.4% of sales in 2001 to
8.1% in the current period, primarily as a result of increased insurance costs
and the need to build head office infrastructure to support growth planned for
2003. In dollar terms, general and administrative costs increased from CDN
$3,010,000 for 2001 to CDN $3,521,000 for 2002.

INTEREST ON LONG TERM DEBT

Interest on long term debt was CDN $899,000 for the fifty two weeks ended
December 29, 2002, compared to CDN $1,404,000 in 2001. The decrease is
attributable to the repayment of debt principal and a favorable movement in the
value of the Canadian Dollar versus the US dollar.

INCOME/(LOSS) BEFORE TAXES

The Company generated a loss before income taxes of CDN $(2,377,000) for
2002 compared to a loss of CDN $(128,000) for 2001. As discussed above, the
Company experienced a negative impact from the write down of goodwill and other
intangible assets ($2,382,000) and the cost of closing two stores ($366,000).

INCOME TAXES

The Company generated a loss before taxes of CDN $(2,377,000) in the fifty
two week period ended December 29, 2002. The Company has loss carry-forwards
relating to prior years. The net tax credit for the year ending December 29,
2002 of $266,000 reflects revaluation of the tax asset relating to these losses,
offset by an increase in the provision to cover taxes owed by predecessor
companies.

NET INCOME (LOSS)

For the fifty two weeks ended December 29 2002, the Company's net loss was
CDN $(2,111,000) compared to a net loss of CDN $(128,000) for the fifty two week
period in 2001. Earnings per share for the current period was a loss of CDN
$(0.41), compared to a loss of CDN $(0.03) in 2001. The average number of shares
outstanding increased from 3,890,000 in 2001 to 5,163,354 for the current year.

-22-

FIFTY TWO WEEKS ENDED DECEMBER 30, 2001 VS. FIFTY THREE WEEKS ENDED
DECEMBER 31, 2000

The Company owns, operates and franchises casual full dining brand name
restaurants in Canada and the United States. Its two principal brands are
"Elephant and Castle" and "Alamo Steakhouse & Grill." 2001 was most noteworthy
for a renegotiation of the Company's indebtedness to its principal creditor,
General Electric Investment Private Placement Partners II (GEIPPP II), the
opening of a major new Elephant & Castle Restaurant at the Club Quarters Hotel
in Chicago, Illinois, and the opening of six (6) franchised restaurants, three
(3) Elephant & Castle, and three (3) Alamo Steakhouse & Grill.

In 2001, the Company also closed its last Canadian Rainforest Cafe
Restaurant in Vancouver, Canada. This marked the end of an unsuccessful venture
in Canadian Rainforest Restaurants. Full provision for the write down of the
Company's investments in Canadian Rainforest Restaurants, as well as a separate
twin restaurant concept in Franklin Mills Mall, Franklin Mills, Pennsylvania,
was made in fiscal 2000.

Restaurant operations were adversely impacted by the economic slowdown
during the 4th quarter of 2001, particularly at its hotel/downtown locations,
which have a higher dependency on the business traveller and tourism. The US
stores experienced greater impact than the Canadian stores.

NET INCOME

For the fifty two weeks ended December 30, 2001, the Company generated net
loss of CDN $(128,000) compared to a net loss of CDN ($12, 412,000) for the
fifty three week period in 2000. Earnings per share for the current period were
a loss of CDN $(0.03) compared to a loss per share of CDN ($4.74) in 2000. The
average number of shares outstanding increased from 2,619,000 in 2000 to
3,890,000 for the current year.

Included in the year 2000 loss are costs relating to the closure of the
Franklin Mills `twin' restaurant (CDN$4,787,000) and provision for the
write-down of the Company's investment in the Canadian Rainforest Cafe
restaurants joint venture (CDN$4,939,000). There are no similar closure costs or
provisions in 2001.

The 2000 net income excluding the operating loss of the Franklin Mills and
Canadian Rainforest restaurant ventures and the one-time items mentioned above
was CDN $49,000 or CDN $0.02 per share.

-23-

SALES

Sales decreased during the fifty two weeks ended December 30, 2001 to CDN
$46,833,000 from CDN $50,084,000 in 2000.

For the twelve Canadian E&C Corporate locations open throughout both
periods, sales for the fifty two weeks ended December 30, 2001 totaled CDN
$21,476,000 and were down 1.2% compared to the fifty three weeks ended December
31, 2000. Without the fifty-third week in 2000, sales were up approximately 1%
in 2001 over the prior period.

For the six US Corporate locations open throughout both periods, sales for
the 2001 period were US $11,597,000 and were down 7.7% compared to the prior
year. The fifty-third week in 2000 accounted for approximately 2% of the
decrease. Weaker than expected sales at the Minneapolis and Philadelphia
locations and sales declines during the second half of the year offset solid
gains early in 2001.

The Company's share of sales for Rainforest Cafe restaurants was $3,571,000
compared with $7,861,000 for 2000.

FOOD AND BEVERAGE COSTS

Overall, food and beverage costs, as a percentage of sales, improved to
28.2% for the fifty two weeks ended December 30, 2001, compared to 29.0% for the
fifty three weeks ended December 31, 2000. Excluding the Rainforest and Franklin
Mills locations, the food and beverage percentage would have been 28.7% a year
ago compared to 28.2% in 2001.

LABOUR AND BENEFITS COSTS

Labour and benefits decreased from 33.1% of sales in 2000 to 32.3% in the
current period. Excluding Rainforest and Franklin Mills, the labour and benefits
rate in 2000 would have been 32.3% compared to 32.1% in 2001.

OCCUPANCY AND OTHER OPERATING COSTS

Occupancy and other operating expenses decreased as a percentage of sales
from 28.0% in 2000 to 25.6% in the current period. Excluding Rainforest and
Franklin Mills, the rate in 2000 would have been 23.4% compared to 24.6% in
2001. The increase in the current rate is largely attributable to increased
energy costs.

RESTAURANT CLOSING COSTS

Included in the 2000 results is a provision of CDN $9,726,000 to reflect
the costs associated with the closure of the 'twin'

-24-

restaurant in Franklin Mills, PA, and the restructuring of the Canadian
Rainforest Cafe restaurants joint venture.

There are no similar closure costs or provisions in 2001.

DEPRECIATION AND AMORTIZATION EXPENSE

Depreciation and amortization costs decreased to 3.9% of sales for the
current period from 5.7% last year. Without Rainforest and Franklin Mills, the
depreciation and amortization rate in 2000 was 4.3% of sales compared to 4.2% in
2001.

INCOME FROM RESTAURANT OPERATIONS

The Company generated income from restaurant operations of CDN $4,711,000
compared to a loss of CDN ($7,621,000) for 2000.

The impact of Rainforest and Franklin Mills in 2000 was disproportionate.
Excluding the results from these locations, and the one-time provision for
closing costs, income from restaurant operations for the fifty-three weeks ended
December 31, 2000 was CDN $4,567,000.

GENERAL AND ADMINISTRATIVE COSTS

General and administrative costs increased from 5.8% of sales in 2000 to
6.4% in the current period, primarily as a result of the drop in sales from
Rainforest and Franklin Mills. In dollar terms, general and administrative costs
increased from CDN $2,883,000 for 2000 to CDN $3,010,000 for 2001.

INTEREST ON LONG TERM DEBT

Interest on long term debt was CDN $1,404,000 for the fifty two weeks ended
December 30, 2001, compared to CDN $1,874,000 in 2000. The decrease is
attributable to the renegotiation of the debt held by GEIPPP II.

INCOME/(LOSS) BEFORE TAXES

The Company generated a loss before income taxes of CDN ($128,000) for 2001
compared to a loss of CDN ($12,974,000) for 2000. As discussed above, the
Company experienced a negative impact from its Franklin Mills location and the
Canadian Rainforest Restaurants joint venture in 2000. The losses at these
locations and the CDN $9,726,000 in one-time costs related to closure of the
Franklin Mills location and write-down of the investment in CRRI resulted in the
large loss for that year.

-25-

INCOME TAXES

The Company generated a pre-tax loss of CDN ($128,000) in the fifty two
week period ended December 30, 2001. The Company has loss carry-forwards that
eliminate any tax liability arising and which will reduce its effective tax rate
in future periods.

NET INCOME (LOSS)

For the fifty two weeks ended December 30, 2001, the Company's net loss was
CDN ($128,000) compared to a net loss of CDN ($12,412,000) for the fifty three
week period in 2000. Earnings per share for the current period was a loss of CDN
($0.03), compared to a loss of CDN ($4.74) in 2000. The average number of shares
outstanding increased from 2,619,000 in 2000 to 3,890,000 for the current year.

The 2000 net income, excluding the operating losses at the Rainforest and
Franklin Mills locations, the closing costs related to Rainforest and Franklin
Mills and the one-time items mentioned above was CDN $49,000 or CDN $0.02 per
share.

FINANCIAL CONDITION AND OTHER ITEMS

LIQUIDITY AND CAPITAL RESOURCES

As at December 29, 2002, the Company had cash balances of CDN $670,000.
Such amounts are sufficient to continue operations as they presently exist, but
restrict capital transactions to add additional restaurant locations unless such
transactions are self-funding. The Company's 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 from internally generated cash flow.

The Company re-negotiated its debt with its principal lender, GEIPPP II to
permit a repayment schedule which may allow for corporate store growth, and
other possible expansions of the Company's business activities.

DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (CDN AND U.S. GAAP)

The Company prepares its financial statements in accordance with CDN GAAP.
(The reader is referred to Note 15 of the Consolidated Financial Statements for
the year ended December 29, 2002 for additional explanation.) The Financial
statements, if prepared in accordance with U.S. GAAP would have differed as
follows:

Net loss for the year ended December 29, 2002 would have increased by
CDN ($751,000) comprised primarily of dividends

-26-

on convertible subordinated debentures that would have been treated as
interest expense under U.S. GAAP and the add-back of gains on foreign
exchange which are included in Comprehensive Income under U.S. GAAP. Net
loss for the year ended December 30, 2001 would be decreased by CDN
$ 68,000 comprised primarily of dividends on convertible subordinated
debentures that would have been treated as interest expense under U.S.
GAAP, pre-opening costs that would have been expensed in 1999 under U.S.
GAAP, offset by amortization expense resulting from exclusion of the first
option period in calculating the amortization of certain leasehold
improvements offset by the add-back of losses on foreign exchange which are
included in Comprehensive Income under U.S. GAAP. The impact of these
adjustments would be to increase the net loss per share in 2002 from CDN
($0.41) under CDN GAAP to a loss of CDN ($0.55) under U.S. GAAP. For 2001,
the loss per share would decrease from CDN ($0.03) per share to a loss of
CDN ($0.02) per share.

Shareholders' Equity at December 29, 2002 would be decreased from a surplus
of CDN $3,075,000 under CDN GAAP to a deficit of CDN ($4,832,000) under U.S.
GAAP due primarily to the exclusion of CDN $ 8,133,000 of convertible
subordinated debentures which would have been shown as long term debt under U.S.
GAAP. Shareholders' Equity (Deficit) at December 30, 2001 under U.S. GAAP would
have been decreased to a deficit of CDN ($1,356,000) compared to a surplus of
CDN $5,397,000 under CDN GAAP.

-27-

ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Intentionally omitted.

-28-

ITEM 8 FINANCIAL STATEMENTS

The Company's consolidated financial statements and the report of the
independent accountants thereon appear beginning at page F-2. See index to
consolidated Financial Statements on page F-1.

-29-

ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE

None. Not applicable.

-30-

PART III

ITEM 10 The information required by PART III will be
ITEM 11 incorporated by reference from Registrant's
ITEM 12 definitive proxy statement or definitive
ITEM 13 information statement, provided such
ITEM 14 definitive proxy statement or definitive information statement is
filed not later than 120 days after the end of the fiscal year covered
by the Form 10-K, or by an amendment to the Form 10-K, not later than
the end of such 120 day period.

-31-

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) See Index to Exhibits, attached.
(b) During the last quarter of the period covered by this report, the
Registrant filed no reports on Form 8-K.

-32-

ITEM 16. RESERVED. NOT CURRENTLY APPLICABLE

-33-

ELEPHANT & CASTLE GROUP INC.

CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 29, 2002 AND DECEMBER 30, 2001
(CANADIAN DOLLARS)

MANAGEMENT REPORT

Management is responsible for preparing the Company's consolidated financial
statements and the other information that appears in this annual report.
Management believes that the consolidated financial statements fairly reflect
the form and substance of transactions and reasonably present the Company's
consolidated financial condition and results of operations in conformity with
Canadian generally accepted accounting principles. Management has included in
the Company's consolidated financial statements amounts that are based on
estimates and judgments, which it believes are reasonable under the
circumstances.

The Company maintains a system of internal accounting policies, procedures and
controls intended to provide reasonable assurance, at appropriate cost, that
transactions are executed in accordance with Company authorization and are
properly recorded and reported in the financial statements and that assets are
adequately safeguarded.

Pannell Kerr Forster audits the Company's consolidated financial statements in
accordance with auditing standards generally accepted in Canada and in the
United States of America and provides an objective, independent review of the
Company's internal controls and the fairness of its reported financial
condition and results of operations.

Elephant & Castle Group Inc.'s Board of Directors has an Audit Committee
composed of non-management Directors. The Committee meets with financial
management and the independent auditors to review internal accounting controls
and accounting, auditing and financial reporting matters.

President and Chief Executive Officer

F-1

INDEPENDENT AUDITORS' REPORT

TO THE SHAREHOLDERS OF ELEPHANT & CASTLE GROUP INC.

We have audited the consolidated balance sheets of Elephant & Castle Group Inc.
as at December 29, 2002 and December 30, 2001 and the consolidated statements of
operations, shareholders' equity (deficit) and cash flows for the three years in
the period ended December 29, 2002. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in Canada and in the United States of America. Those standards require that we
plan and perform an audit to obtain reasonable assurance 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.

In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of Elephant & Castle Group Inc. as at
December 29, 2002 and December 30, 2001 and the results of its operations and
its cash flows for the three years in the period ended December 29, 2002 in
accordance with generally accepted accounting principles in Canada applied on a
consistent basis. Accounting principles generally accepted in Canada differ in
certain significant respects from accounting principles generally accepted in
the United States of America and are discussed in Note 15 to the consolidated
financial statements.

"Pannell Kerr Forster"

Chartered Accountants

Vancouver, Canada
February 28, 2003

F-2

ELEPHANT & CASTLE GROUP INC.
CONSOLIDATED BALANCE SHEETS
AT DECEMBER 29, 2002 AND DECEMBER 30, 2001
(CANADIAN DOLLARS)
(IN THOUSANDS OF DOLLARS)

Contingencies and Commitments (notes 9 and 10)
Approved on behalf of the Board:
/s/ R. Bryant Director /s/ T. Chambers Director
- ------------------------------ ------------------------------
R. Bryant T. Chambers

See notes to consolidated financial statements.

F-3

ELEPHANT & CASTLE GROUP INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 29, 2002, DECEMBER 30, 2001 AND DECEMBER 31, 2000
(CANADIAN DOLLARS)
(IN THOUSANDS OF DOLLARS, EXCEPT NET INCOME (LOSS) PER SHARE)

See notes to consolidated financial statements.

F-4

ELEPHANT & CASTLE GROUP INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 29, 2002, DECEMBER 30, 2001 AND DECEMBER 31, 2000
(CANADIAN DOLLARS) (IN THOUSANDS OF DOLLARS)

See notes to consolidated financial statements.

F-5

ELEPHANT & CASTLE GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 29 2002, DECEMBER 30, 2001 AND DECEMBER 31, 2000
(CANADIAN DOLLARS)
(IN THOUSANDS OF DOLLARS)

See notes to consolidated financial statements.

F-6

ELEPHANT & CASTLE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 29, 2002, DECEMBER 30, 2001 AND DECEMBER 31, 2000
(CANADIAN DOLLARS)
(IN THOUSAND OF DOLLARS)

1. BASIS OF PRESENTATION

These financial statements include the accounts of Elephant & Castle Group
Inc. ("the Company") and its wholly-owned subsidiaries. All significant
inter-company balances and transactions are eliminated.

(a) The Elephant and Castle Canada Inc. ("the Canadian subsidiary") which
owns and operates English style restaurants across Canada under the
name "The Elephant & Castle Restaurant and Pub";

(b) Elephant & Castle Inc. ("the U.S. subsidiary" incorporated in Texas)
and its subsidiaries which own and operate English style restaurants
in Washington, Pennsylvania, Massachusetts, California and Illinois;

(c) Alamo Grill, Inc. ("Alamo" incorporated in Indiana) which owns and
operates a red meat steak house at the Mall of America, Bloomington,
Minnesota;

(d) Elephant & Castle International, Inc. incorporated in Texas, which
franchises the Elephant & Castle British-style pub and restaurant and
Alamo Steakhouse & Grill concept.

Prior to the year ending December 29, 2002, these financial statements also
included the Company's proportionate shares of revenues and expenses from
its interest in a joint venture established to develop and operate
Rainforest theme restaurants in Canada. The 2000 financial statements of
the Company included its proportionate share of assets, liabilities and
restaurant revenues and expenses. Effective December 31, 2000 the Company
had written off its entire investment in the joint venture (see note 11).

These consolidated financial statements are prepared in accordance with
Canadian generally accepted accounting principles and all figures are in
Canadian dollars unless otherwise stated. Canadian generally accepted
accounting principles differ in certain respects from accounting principles
generally accepted in the United States of America. The significant
differences and the approximate related effect on the consolidated
financial statements are set forth in Note 15.

Certain comparative figures have been restated to conform to current
presentation.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Franchise fees

The Company recognizes initial fees from the sale of franchises as
revenue once the Company has fully complied with its obligations to
the new franchisee regarding the opening of the restaurant. Continuing
franchise royalties are included in sales as they are earned.

(b) Inventory

Inventory consists of food, beverages and retail merchandise and is
recorded at the lower of cost or market. Cost is determined using the
first-in, first-out method.

F-7

ELEPHANT & CASTLE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 29, 2002, DECEMBER 30, 2001 AND DECEMBER 31, 2000
(CANADIAN DOLLARS) (IN THOUSAND OF DOLLARS)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

(c) Fixed assets

Fixed assets are recorded at cost and are depreciated annually as
follows:

Furniture and fixtures - 10% Straight-line method
Computer equipment - 20% Straight-line method

Improvements to leased premises and property under capital leases are
being amortized on a straight-line basis over the term of the lease
except for locations opened prior to January 1, 1993. Those
improvements are being amortized on the straight-line method over the
term of the lease plus the first two renewal options.

China, glassware and cutlery are not depreciated and replacements are
charged directly to operations.

(d) Goodwill

Goodwill is recorded at cost, less any reduction for impairment.
Goodwill is tested for impairment on an annual basis or when events
occur that may indicate impairment.

This policy was adopted for the year ending December 29, 2002 in line
with the recommendations of the Canadian Institute of Chartered
Accountants ("CICA"). Previously, Goodwill was recorded at cost and
amortized on a straight-line basis over periods from 10 to 40 years.

(e) Intangible assets

Intangible assets are amortized over their useful lives, unless the
life is determined to be indefinite, in which case no amortization is
taken. Intangible assets are tested for impairment on an annual basis
or when events occur that may indicate impairment.

Liquor licences are recorded at cost of original acquisition. They are
short lived assets, and additional costs are incurred on an on-going
basis to maintain and renew them. These additional costs are charged
directly to operations, so no depreciation is charged against the
original cost.

(f) Pre-opening costs

Pre-opening costs represent amounts for staff training costs, payroll
for trainees, rents paid prior to opening, travel and accommodation of
trainers and supplies consumed prior to opening which were all
incurred to open new locations. These costs are amortized on a
straight-line basis over 12 months.

(g) Other assets

The following other assets are recorded at cost which is amortized
annually as follows:

Deferred finance costs - Term of the related financial
instruments
Deferred franchise costs - 5 years
Trademark - 10 years

(h) Income taxes

Income taxes are calculated using the liability method of tax
accounting. Temporary differences arising from the difference between
the tax basis of an asset or liability and its carrying amount on the
balance sheet are used to calculate future income tax assets or
liabilities. Future income tax assets or liabilities are calculated
using tax rates anticipated to apply in the periods that the temporary
differences are expected to reverse. A valuation

F-8

allowance is provided to reduce the asset to the net amount management
estimates to be reasonable to carry as a future income tax asset (note
12).

F-9

ELEPHANT & CASTLE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 29, 2002, DECEMBER 30, 2001 AND DECEMBER 31, 2000
(CANADIAN DOLLARS)
(IN THOUSAND OF DOLLARS)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

(i) Foreign currency translation

Amounts recorded in foreign currency are translated into Canadian
dollars as follows:

(i) Monetary assets and liabilities at the rate of exchange in
effect at the balance sheet date;

(ii) Non-monetary assets and liabilities at the exchange rates
prevailing at the time of the acquisition of the assets or
assumption of the liabilities; and,

(iii) Revenues and expenses (excluding depreciation and amortization
which are translated at the same rate as the related asset), at
the average rate of exchange for the year.

Gains and losses arising from this translation of foreign currency are
included in net income. This policy was adopted for the year ending
December 29, 2002 in line with the recommendations of the CICA.
Previously, unrealised gains and losses on long-term monetary assets
and liabilities were deferred and amortized over the lives of those
assets. The new policy has been applied retroactively, and prior year
comparatives have been retroactively restated to reflect this change
of policy. This resulted in a decrease in net income of $425 for 2001
and increased the net loss for 2000 by $596.

(j) Net income (loss) per share

Net income (loss) per share computations are based on the weighted
average number of common shares outstanding during the year. The
conversion of restated and amended junior secured notes (note 7(a))
and the payment of interest thereon through common share issuances and
the assumed exercise of stock options or warrants have an
anti-dilutive effect, therefore diluted earnings per share have not
been calculated.

(k) Use of estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and
liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements, and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates and would impact future results of
operations and cash flows.

(l) Stock based compensation

During the year, the Company adopted the new recommendations of the
CICA on Stock-Based Compensation. This recommendation allows the
Company to apply the intrinsic value method in accounting for its
employee stock option plans. Compensation expense is recorded when
options are granted at discounts to market. Options granted to
non-employees are accounted for using the fair value method.

F-10

ELEPHANT & CASTLE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 29, 2002, DECEMBER 30, 2001 AND DECEMBER 31, 2000
(CANADIAN DOLLARS)
(IN THOUSAND OF DOLLARS)

3. FIXED ASSETS

4. OTHER ASSETS

5. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

F-11

ELEPHANT & CASTLE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 29, 2002, DECEMBER 30, 2001 AND DECEMBER 31, 2000
(CANADIAN DOLLARS)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE PRICES)

6. LONG-TERM DEBT

Long-term debt principal repayments due in each of the next five fiscal
years are as follows:

2003 $ 1,058
2004 2,269
2005 4,734
2006 9
2007 1
- --------------------------------------------------------------------------------------

$ 8,071
======================================================================================

F-12

ELEPHANT & CASTLE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 29, 2002, DECEMBER 30, 2001 AND DECEMBER 31, 2000
(CANADIAN DOLLARS)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE PRICES)

7. CAPITAL STOCK

(a) In December 2000 the Company reached an agreement with the holders of
its 8% notes whereby $1,583 U.S. ($2,374 CDN.) was converted into
791,250 shares. During 2001, $1,000 U.S. was renegotiated and included
in the $10,000 U.S. of convertible subordinated notes (see below). The
conversion rate on the remaining $683 remains unchanged at $4 U.S. per
share.

In June 2001, the Company and General Electric Investment Private
Placement Partners II ("GEIPPPII") agreed to renegotiate the terms on
$10,000 U.S. of convertible subordinated notes and debentures held by
GEIPPPII. As part of the renegotiation, the Company issued 2,600,000
shares in payment of accrued interest, reduction of future interest
rate and issued the following notes.

- $5,000 US of the restated and amended senior secured
convertible 6% notes (the "senior notes") (note 6); and

- $5,000 US of the restated and amended junior secured
convertible 6% notes (the "junior notes"), in exchange for the
securities to be surrendered by GEIPPII.

Both the senior notes and the junior notes shall be convertible into
shares of the Company's common shares at the holder's option. However
the junior notes are mandatorily convertible into common shares,
subject to certain targeted performance requirements to be measured by
the Company's earnings before interest, taxes, depreciation and
amortization ("EBITDA") as follows:

(i) On or after September 1, 2002, $1,250 US of the junior notes
would convert into common shares at a conversion price at one
dollar ($1.00 US) per share (1,250,000 shares);

(ii) On or after September 1, 2003, $1,250 US of the junior notes
would convert into common shares at a conversion price of one
dollar and twenty-five cents ($1.25 US) per share (1,000,000
shares);

(iii) On or after September 1, 2004, $1,250 US of the junior notes
would convert into common shares at a conversion price of one
dollar and fifty cents ($1.50 US) per share (833,333 shares);
and

(iv) On or after September 1, 2005, $1,250 US of the junior notes
would convert into common shares at a conversion price of one
dollar and seventy-five cents ($1.75 US) per share (714,286
shares);

F-13

ELEPHANT & CASTLE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 29, 2002, DECEMBER 30, 2001 AND DECEMBER 31, 2000
(CANADIAN DOLLARS)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE PRICES)

7. CAPITAL STOCK (Continued)

(v) Conversion is subject only to the Company's meeting certain
minimum tests of EBITDA during each twelve month period ended
each June 30, preceding each such conversion date. The EBITDA
targets for mandatory conversion are fixed as follows:

For the twelve month period ended June 30, 2002, the Company
did not achieve the above EBITDA target. It did, however,
achieve 67% of the target, and therefore would still be able to
convert both the first and second tranche of junior notes into
equity, if the Company were to meet 100% of its EBITDA target
for the twelve months ending June 30, 2003. Achievement of 80%
of EBITDA target for the twelve months ending June 30, 2003
would allow the Company to convert two thirds of the second
tranche of junior notes into equity, but the Company would lose
the ability to convert any of the first tranche.

Interest payments on the junior notes in the amount of 6% shall
be payable in arrears. The Company shall have the option to pay
up to one-half of the interest, in common shares upon each
conversion date. The interest payment shares will be valued at
U.S. $ 0.40.

The junior notes are considered a compound instrument and have
been included in the financial statements as part of other
paid-in capital. Interest payable with cash has been discounted
and included in the consolidated financial statements as other
liabilities of $223 as of December 29, 2002.

(vi) On initial recognition, the Company presented the above
mentioned junior notes as an equity instrument as management
believed the Company would meet the EBITDA requirements. In
accordance with Canadian generally accepted accounting
principles, once initial recognition is made, such
determination should not be changed until the triggering event
has or has not occurred. Therefore, if the Company does not
reach the required EBITDA, the notes will be reclassified as a
debt instrument at such time when the conversion feature is no
longer available to the Company.

F-14

ELEPHANT & CASTLE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 29, 2002, DECEMBER 30, 2001 AND DECEMBER 31, 2000
(CANADIAN DOLLARS)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE PRICES)

7. CAPITAL STOCK (Continued)

(a) (vi) Cont'd

Given the effects of September 11, 2001, the company's budget
for the 12 months ending June 30, 2003 are at or slightly below
the 67% of EBITDA requirements at that date. Should the Company
reach the 67% mark of the June 30, 2003 EBITDA requirements,
only the first tranche of US$1,250 would be reclassified as
debt. Should the Company not reach the 67% mark of the June 30,
2003 EBITDA requirements, the Company will reclassify the first
two tranches totalling US$2,500 as debt. For accounting
purposes, this will represent a change in estimate and as such,
interest from the reclassified notes will be recorded as
interest on a prospective basis.

(b) Stock option plans have been adopted as follows:

(i) The 1993 Founders' option plan set aside 50,000 common shares.
Options on the entire 50,000 shares have been granted at $13.20
U.S. ($21.05 CDN.). These options become exercisable on the 5th
through 9th anniversary date of granting. All of these options
have expired through December 29, 2002.

(ii) The 1993 employee option plan set aside 50,000 common shares.
Options have been granted for approximately 45,000 shares. All
options expire on the 5th anniversary date of the grant. 8,916
of the options have been exercised through December 29, 2002
and the remaining 36,084 of the options were cancelled through
December 29, 2002.

(iii) The 1997 employee option plan set aside 200,000 common shares.
Options have been granted for 139,000 shares. All options
expire on the 5th anniversary date of the grant. None have been
exercised through December 29, 2002 and 65,000 of the options
were cancelled through December 29, 2002.

(iv) The 1993 directors' option plan set aside 10,000 common shares.
All have been granted, and all have been cancelled. None have
been exercised through December 29, 2002.

(v) The 2001 stock options and bonus plan set aside 950,000 common
shares of which none have been granted.

There are 236,500 options (including the 162,500 options in (c) below)
outstanding at December 29, 2002 exercisable at various prices
detailed below.

During the fiscal years 2000, 2001 and 2002, no options were granted.
As a result, the Company did not incur compensation expense for these
periods.

F-15

ELEPHANT & CASTLE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 29, 2002, DECEMBER 30, 2001 AND DECEMBER 31, 2000
(CANADIAN DOLLARS)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE PRICES)

7. CAPITAL STOCK (Continued)

Stock option activity is summarized as follows:

* Weighted average exercise price.

(c) During 1999, options for 472,500 common shares were granted to five
key executives, four of whom commenced employment with the Company in
1997. None have been exercised and 310,000 of these options were
cancelled through December 29, 2002.

(d) At December 29, 2002, warrants to purchase common shares were
outstanding as follows:

These warrants are subject to an anti-dilution provision, which
provides for an adjustment to the exercise price to take into
consideration the issue of other shares, or securities convertible
into shares, at prices below the existing exercise price. In addition
the number of shares issued on exercise may increase such that the
total dollar amount paid on exercise of these warrants will be the
same at all times regardless of the exercise price.

(e) The shareholders approved at the Annual General Meeting on June 29,
2001 the issue of five year warrants with a U.S. $1.00 price on a one
for one basis for the then outstanding shares, with the exception of
the 2,600,000 shares issued to GEIPPII in respect of debenture
interest. Shares currently trade with these rights attached.

F-16

ELEPHANT & CASTLE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 29, 2002, DECEMBER 30, 2001 AND DECEMBER 31, 2000
(CANADIAN DOLLARS)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE PRICES)

7. CAPITAL STOCK (Continued)

(f) Shareholders approved a special resolution on March 23, 2000 to
consolidate the Company's authorized and issued capital stock on a one
for two basis. All numbers of shares, options and warrants reported in
these financial statements are on a post-consolidated basis.

8. FINANCIAL INSTRUMENTS

(a) Fair value

The carrying value of cash and term deposits, accounts receivable,
accounts payable and accrued liabilities approximate their fair value
because of the short maturity of these financial instruments.

The carrying values of convertible subordinated debentures held by
General Electric Investment Private Placement Partners II and
convertible subordinated notes issued in February 2000 approximate
their fair value because the interest payments over the term of the
debentures approximated market rates when the agreements were
finalized.

The carrying value of 6% convertible subordinated debentures recorded
as "other paid-in capital" has been adjusted to reflect market rates
at the date the transaction was completed.

(b) Credit risk

The Company's financial assets that are exposed to credit risk consist
primarily of cash and term deposits and accounts receivable. Cash and
term deposits are placed with major financial institutions rated in
the two highest grades by nationally recognized rating agencies.
Credit risk from customer exposure is nominal due to the nature of the
business.

(c) Interest rate risk

The Company is not exposed to significant interest rate risk due to
the short-term maturity of its monetary current assets and current
liabilities and the relatively small amount of long-term debt subject
to interest rate changes. Since the Company's debt is primarily at
fixed rates, the Company would not benefit from any reductions in
general interest rates.

(d) Translation risk

The Company translates the results of US operations into Canadian
currency using rates approximating the average exchange rate for the
year. The exchange rate may vary from time to time. 54% of the
Company's sales revenues are in US dollars, but nearly all U.S.
operating costs are also incurred in US dollars. The US operation
generates revenues in excess of associated costs, so some translation
risk remains on the surplus.

98% of the Company's long-term debt is in US dollars, as are the
interest and principal payments associated with it. The Company does
not have forward currency contracts to cover these scheduled US dollar
payments, and the exchange rate may vary from time to time, but the
operating profits of the US operations provide some reduction to the
resulting translation risk.

9. CONTINGENCY

In 1989 and 1990, the Canadian subsidiary received Notices of Reassessment
from Revenue Canada and the Ontario Ministry of Revenue regarding a
construction allowance received in 1984 from the landlord for its former
Sarnia, Ontario location. The reassessment has been under appeal since
1989. A portion of the dispute was settled in the Company's favour and a
tax provision of $125 was made in 2001for the estimated remainder of the
dispute. Including interest accrued retroactively since 1984, the total
amount disputed at December 29, 2002 approximates $1,118. The Company
believes that this total does not reflect the partial settlement in its
favour, but has still increased its provision to $585 as at
December 29, 2002.

F-17

ELEPHANT & CASTLE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 29, 2002, DECEMBER 30, 2001 AND DECEMBER 31, 2000
(CANADIAN DOLLARS)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE PRICES)

10. COMMITMENT

The subsidiaries are committed to leases on their restaurant locations
extending into the 2014 fiscal year. Minimum annual rentals for the
restaurants excluding realty taxes, common area maintenance and other
charges are as follows:

2003 $ 1,930
2004 1,746
2005 1,330
2006 1,074
2007 to 2014 inclusive 3,635
----------------------------------------------------------------------
$ 9,715
======================================================================

Each of the aforementioned restaurant leases provide for the payment of
additional rent based on percentages of gross annual revenue in excess of
minimum rents, or other graduated formulae derived from gross revenue as
defined in the particular lease agreements. The percentages range from 3%
to 12%.

11. RESTAURANT CLOSING COSTS, IMPAIRMENT OF GOODWILL AND OTHER INTANGIBLE
ASSETS

(a) RESTAURANT CLOSING COSTS FOR 2002 WERE COMPRISED OF THE FOLLOWING:

(i) Write-back of surplus provision in relation to Franklin Mills
Restaurant

The Company closed its unsuccessful Franklin Mills location in
January 2001, having made full provision for the costs of
closure in 2000. Actual costs incurred were $347 less than
anticipated, and this surplus has been released to earnings in
2002.

(ii) Closure of Elephant & Castle restaurant at Bellis Fair,
Bellingham, WA

On October 14, 2002 the Company closed its unsuccessful
Elephant & Castle restaurant located in Bellingham, WA. The
lease of this location was due to expire in 2005. The Company
is in the process of reaching an agreement with the landlord to
terminate the lease early in exchange for the surrender of
substantially all of the assets at that location, and the
payment of a to be agreed level of compensation for loss of
rent. Provision for the disposal of assets, payment for loss of
rent and other closing costs was made, resulting in a charge to
earnings of $425 in 2002.

(iii) Closure of Alamo Steakhouse & Grill restaurant at Mall of
America, Bloomington, MN

The Company's lease for its only owned Alamo Steakhouse & Grill
restaurant at Mall of America, MN expired in January 2003.
Since this location was loss making, the Company did not seek
to renew the lease, and the restaurant was closed on January 5,
2003. Full provision for the disposal on assets, payment of one
month's rent, the closure of the Alamo office and other closing
costs was made, resulting in a charge to earnings of $288 in
2002.

(b) RESTAURANT CLOSING COSTS FOR 2000 WERE COMPRISED OF THE FOLLOWING:

(i) Write-off of investment in Rainforest Restaurants Joint Venture

In 1997 the Company entered into a joint venture agreement with
Rainforest Cafe Canada Holdings Inc. for the development of
rainforest themed restaurants in Canada through a joint venture
entity, Canadian Rainforest Restaurants Inc. ("CRRI"). As of
December 31, 2000 the Company made full provision against its
investment in CRRI and its receivable from the joint venture
company, resulting in a charge to earnings of $4,939 in 2000.
The two locations in which the Company held an ownership
interest have been closed.

F-18

ELEPHANT & CASTLE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 29, 2002, DECEMBER 30, 2001 AND DECEMBER 31, 2000
(CANADIAN DOLLARS)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE PRICES)

(ii) Closure of Franklin Mills Restaurant

The Company reached an agreement with the landlord of its
unsuccessful Franklin Mills location to terminate the lease in
exchange for the surrender of substantially all of the assets
at that location, and the payment of up to fifteen months'
rent. The restaurant was closed on January 7, 2001 and full
provision for the disposal of assets, payment of rent and other
closing costs was made, resulting in a charge to earnings of
$4,787 in 2000.

(c) IMPAIRMENT OF GOODWILL AND OTHER INTANGIBLE ASSETS IN 2002 COMPRISE:

(i) Write off of goodwill relating to the Alamo Steakhouse & Grill

At the end of 2001, the Company was carrying a book value
$1,729 relating to the acquisition of the Alamo Steakhouse &
Grill in 1996. Prior to 2002, this cost was being amortized in
line with the Company's policy at the time. From 2002, the
Company has adopted the new recommendations of the CICA, which
require that goodwill be tested for impairment annually or when
events occur which may indicate impairment. In 2002, the
Company decided to close its only owned Alamo Steakhouse &
Grill restaurant and to not develop the Alamo Steakhouse and
Grill brand in the future. The goodwill relating to the Alamo
Steakhouse and Grill has been fully written off, resulting in a
charge to earnings of $1,729 in 2002.

(ii) Write off of other intangible assets

In 2002, the Company reviewed the carrying value of its
intangible assets in line with the current recommendations of
the CICA. This review resulted in a write-down of other
intangible assets, resulting in a charge to earnings of $653 in
2002:

Franchise development costs $ 272
Trademarks $ 107
Other $ 274

F-19

ELEPHANT & CASTLE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 29, 2002, DECEMBER 30, 2001 AND DECEMBER 31, 2000
(CANADIAN DOLLARS)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE PRICES)

12. INCOME TAXES

Effective January 1, 2000 the Company adopted the new recommendations of
the CICA with respect to accounting for income taxes. Under the new
recommendations, the liability method of tax allocation is used, based on
differences between financial reporting and tax bases of assets and
liabilities. Previously, the deferral method was used, based on differences
in the timing of reporting income and expenses in financial statements and
tax returns. The new method was applied retroactively without restatement
of the 1999 financial statements.

The effect of the new recommendations on the opening 2000 financial
statements was to increase (decrease) the following:

The adjustment to deficit was a result of recognition of the future tax
value of loss carry forward amounts that are more likely than not to be
realized.

The components of the future income tax benefits at December 29, 2002 and
December 30, 2001, are as follows:

The Company has the following available tax losses, the partial benefits of
which have been recorded in these financial statements:

(i) Non-capital losses of approximately $5,000 which can be applied
against future income for Canadian tax purposes up to and
including 2008.

(ii) Operating losses of approximately U.S. $9,300 (CDN $14,600)
which may be carried forward to apply against future years'
income for United States income tax purposes expiring up to

F-20

2021.

(iii) Net capital losses of approximately $9,750 which can be applied
against future capital gains income for Canadian tax purposes
indefinitely.

F-21

ELEPHANT & CASTLE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 29, 2002, DECEMBER 30, 2001 AND DECEMBER 31, 2000
(CANADIAN DOLLARS)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE PRICES)

13. RELATED PARTY TRANSACTIONS

(a) Included in general and administrative expenses are consulting fees
paid to a director and shareholder for a total of $ 62, (2001 - $49)
(2000 - $82).

(b) GEIPPPII (note 6) is related to the Company by way of its share
ownership in the Company and the election of two directors to the
Board. Interest payments totalled $738 in 2002, $852 in 2001 and
$937 in 2000; consisting of cash of $432 in 2002, $215 in 2001 and
$937 in 2000; the balance was deferred or paid by share issuances.

14. GEOGRAPHIC SEGMENTED DATA

F-22

ELEPHANT & CASTLE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 29, 2002, DECEMBER 30, 2001 AND DECEMBER 31, 2000
(CANADIAN DOLLARS)
(IN THOUSANDS OF DOLLARS)

15. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CANADIAN GAAP AND U.S. GAAP)

(a) U.S. accounting pronouncements

(i) In July 2001, FASB issued Financial Accounting Standard No.
142, Goodwill and Other Intangible Assets. This statement
includes requirements to test good will and indefinite lived
intangible assets for impairment rather than amortization. This
statement is effective for years beginning December 15, 2001.
For the year ended December 29, 2002, the Company has adopted
the current recommendations of the Canadian Institute of
Chartered Accountants, which are now consistent with the above
treatment.

(ii) In October 2001, the FASB issued Statement of Financial
Accounting Standards ("SFAS") No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". SFAS No. 144
addresses significant issues relating to the implementation of
SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and Long-Lived Assets to be Disposed Of", and develops a
single accounting model, based on the framework established in
SFAS No. 121 for long-lived assets to be disposed of by sales,
whether such assets are or are not deemed to be a business.
SFAS No. 144 also modifies the accounting and disclosure rules
for discontinued operations. The standard was adopted on
January 1, 2002, and does not have a material effect on the
financial statements.

(iii) In November 2001, the FASB issued EITF Issue No. 01-14, "Income
Statement Characterization of Reimbursements Received for `Out
of Pocket' Expenses Incurred". This guidance requires companies
to recognize the recovery of reimbursable expenses such as
travel costs on service contracts as revenue. These costs are
not to be netted as a reduction of cost. This guidance was
implemented on January 1, 2002, and does not have a material
effect on the financial statements.

F-23

ELEPHANT & CASTLE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 29, 2002, DECEMBER 30, 2001 AND DECEMBER 31, 2000
(CANADIAN DOLLARS)
(IN THOUSANDS OF DOLLARS)

15. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CANADIAN GAAP AND U.S. GAAP) (Continued)

(b) Reconciliation of total assets, liabilities and shareholders' equity
(deficit)

For Canadian GAAP purposes convertible debt (junior notes) and related
costs are recorded in the books as equity if the debt is convertible
into common shares of the Company at the option of the issuer. For
U.S. GAAP purposes these amounts have been reclassified as a
liability.

F-24

ELEPHANT & CASTLE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 29, 2002, DECEMBER 30, 2001 AND DECEMBER 31, 2000
(CANADIAN DOLLARS)
(IN THOUSANDS OF DOLLARS, EXCEPT NET INCOME (LOSS) PER SHARE)

15. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CANADIAN GAAP AND U.S. GAAP) (Continued)

(c) Reconciliation of earnings (loss) reported in accordance with Canadian
GAAP and U.S. GAAP:

* Under U.S. GAAP, amortization of leasehold improvement costs
would be restricted to the term of the lease.

F-25

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) Elephant & Castle Group Inc.

I, Richard Bryant, certify that:

(1) I have reviewed this annual report on Form 10-K of Elephant & Castle
Group Inc.;
(2) Based on my knowledge, this annual report does not contain any untrue
statement of 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 position, 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-16) 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 the registrant's board of directors (or persons performing
the equivalent function):

(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 and material weaknesses in internal controls; and
(b) Any fraud, whether or not material, that involves the 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 there were any 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.

By /s/ Richard Bryant
------------------
RICHARD BRYANT, PRESIDENT, CHIEF EXECUTIVE OFFICER/DIRECTOR

Date March 21, 2003
--------------

I, Roger Sexton, certify that:

(7) I have reviewed this annual report on Form 10-K of Elephant & Castle
Group Inc.;

(8) Based on my knowledge, this annual report does not contain any untrue
statement of 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;

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

(10) 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-16) 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.

(11) 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 the registrant's board of directors (or persons performing
the equivalent function):

(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 and material
weaknesses in internal controls; and

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

(12) The registrant's other certifying officers and I have indicated in this
annual report whether there were any 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.

By /s/ Roger Sexton
----------------
ROGER SEXTON, VP FINANCE/CFO

Date March 21, 2003
--------------

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

By /s/ Jeffrey Barnett
-------------------
JEFFREY BARNETT, DIRECTOR

Date March 21, 2003
--------------

By /s/ Colin Stacey
----------------
COLIN J. STACEY, DIRECTOR

Date March 22, 2003
--------------

By /s/ George Pitman
-----------------
GEORGE W. PITMAN, DIRECTOR

Date March 23, 2003
--------------

By /s/ David Wiederecht
--------------------
DAVID WIEDERECHT, DIRECTOR

Date March 21, 2003
--------------

By /s/ Richard Kelleher
--------------------
RICHARD KELLEHER, DIRECTOR

Date March 20, 2003
--------------

By /s/ THOMAS CHAMBERS
-------------------
THOMAS CHAMBERS, DIRECTOR

Date March 24, 2003
--------------

By /s/ Richard Bryant
------------------
RICHARD BRYANT, PRESIDENT & CEO

Date March 21, 2003
--------------

By /s/ Roger Sexton
----------------
ROGER SEXTON, VP FINANCE/CFO

Date March 21, 2003
--------------

INDEX TO EXHIBITS

10.4 License Agreement dated July 9, 1992, with
Servomation Inc. relating to B.C. Place
Stadium *

10.5 Restaurant lease dated November 10, 1992,
with Shilo Management Corporation, relating
to the Shilo Inn, Yuma, Arizona *

10.6 Letter Agreement, with Shilo Management
Corporation relating to Shilo Hotel, Pomona,
California *

10.7 Restaurant Lease Agreement with Holiday Inns
of Canada, Ltd., relating to Holiday Inn Crowne
Plaza at Winnipeg, Manitoba **

10.8 Restaurant Lease Agreement relating to Holiday
Inn, Philadelphia, Pennsylvania ***

10.9 Abstract of Restaurant Lease relating to Holiday
Inn, San Diego Lease ****

10.10 Revised Lease Abstract of Restaurant Lease
relating to Canadian Rainforest Restaurants,
Inc. (Yorkdale) *****

10.11 Revised Lease Abstract of Restaurant Lease
relating to Canadian Rainforest Restaurants,
Inc.(Montreal) *****

10.12 Revised Lease Abstract of Canadian Rainforest
Restaurants, Inc.(Burnaby, B.C.) *****

10.13 Lease Abstract of Elephant & Castle Group, Inc.
(Edmonton) *****

10.14 Lease Abstract of Canadian Rainforest
Restaurants, Inc., (Scarborough, Ont.) *******

10.15 Lease Abstract of Elephant & Castle Group, Inc.
(Franklin Mills, Pennsylvania) *******

10.16 Abstract of Canadian Niagara Hotels sub-franchise *******

10.17 Abstract of Holiday Inns Hotels Exclusivity
Agreement re: franchise facilities *******

10.18 Form of Franchise Agreement for Alamo Grill *******

10.19 Form of Franchise Agreement for Elephant & Castle *******

10.20 Lease Abstract of Elephant & Castle Group, Inc.
(Chicago, Illinois) ********

10.21 Operating Agreement of BC Restaurants, LLC X

10.22 Member Control Agreement of BC Restaurants, LLC X

10.23 Management Agreement with E & C San Francisco, LLC X

10.24 License Agreement with Elephant & Castle International, Inc. X

10.25 Agreement with Elephant & Castle International, Inc. X

10.26 Lease Abstract of Elephant & Castle Group, Inc.
(San Francisco, California) X

21 List of Subsidiaries ****

24.1 Irrevocable Consents and Power of Attorney on
Form F-X *

99.1 Canadian Declaration as of May 11, 1990,
claiming the trade name "The Elephant and
Castle" *

99.2 Filing receipt dated February 5, 1993, for
U.S. service mark application "E&C" *

99.3 Filing receipt dated February 5, 1993, for
U.S. service mark "Elephant Mug" *

- ----------
X Filed herewith.

* Incorporated by reference from the Exhibits filed with the Company's
Registration Statement on Form SB-2 (Registration No. 33-60612)
Modification of the numbering of the exhibits is in accordance with
Item 601 of Registration S-B

** Filed with Registrant's 10-K SB for the Fiscal Year ended December
31, 1993

*** Filed with Registrant's 10-K SB for the Fiscal Year Ended December
31, 1994

**** Filed with Registrant's 10-KSB A-1 for Fiscal Year Ended December
31, 1996

***** Filed with Registrant's 10-K for Fiscal Year Ended December 27, 1998

****** Filed with Registrant's 8-K dated December 8, 1999

******* Filed with Registrant's 10-K dated December 27, 1999

******** Filed with Registrant's 10-K dated December 31, 2000