ELEPHANT & CASTLE GROUP INC - 10-Q Quarterly Report

Back to GetFilings.com

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

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 29, 2003
-------------

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

For the transition period from ___________________ to _______________________

Commission file number 33-60612
--------

ELEPHANT & CASTLE GROUP INC.
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)

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

Suite 1200, 1190 Hornby Street, Vancouver, BC, Canada V6Z 2K5
- ----------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)

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

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

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

(X) Yes ( ) No

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

Check whether the registrant filed all documents and reports required to
be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court.

( ) Yes ( ) No

APPLICABLE ONLY TO CORPORATE ISSUERS

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

Common Shares at June 29, 2003: 5,159,604
---------

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

See notes to consolidated financial statements

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

See notes to consolidated financial statements

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

See notes to consolidated financial statements

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

See notes to consolidated financial statements

ELEPHANT & CASTLE GROUP INC.
NOTES TO FINANCIAL STATEMENTS
TWENTY-SIX WEEKS ENDED JUNE 29, 2003 AND JUNE 30, 2002
CANADIAN DOLLARS
(IN THOUSANDS OF DOLLARS, EXCEPT NET INCOME/(LOSS) PER SHARE)
(UNAUDITED)

1. BASIS OF PRESENTATION

These consolidated financial statements have been prepared in accordance
with generally accepted accounting principles in Canada for interim
financial information. These financial statements are condensed and do not
include all disclosures required for annual financial statements. The
organization and business of the Company, accounting policies followed by
the Company and other information are contained in the notes to the
Company's audited consolidated financial statements filed as part of the
Company's December 29, 2002 Form 10-K.

In the opinion of the Company's management, these interim financial
statements reflect all adjustments necessary to present fairly the
Company's consolidated financial position at June 29, 2003 and the
consolidated results of operations, the consolidated statement of
shareholders' equity and cash flow for the twenty-six weeks then ended. The
results of operations for the interim period are not necessarily indicative
of the results of any other interim periods or for the entire fiscal year.

2. CLOSED LOCATIONS

The comparative financial statements for 2002 include the results of
operations for two locations, which are excluded from the 2003 results. The
Elephant & Castle Bellingham, WA location closed on October 14, 2002, and
the Company's only owned Alamo Steakhouse & Grill restaurant at the Mall of
America, Minneapolis, closed January 5, 2003. No revenue or expenses were
recognized during this period for either location.

The comparative financial statements for 2002 also include the results of
operations for the Company's location at the British Columbia Institute of
Technology ("BCIT"), near Vancouver, which closed on June 15, 2003.
Revenues and expenses up to the date of closure are included in the 2003
statements.

3. JOINT VENTURE

In 2002 the Company signed a joint venture agreement to open an Elephant &
Castle restaurant in a new Club Quarters hotel in San Francisco. This
restaurant opened for business on 28 March, 2003.

Neither the Company, nor its joint venture partner, has unilateral control
over major strategic, investing and financing decisions. Accordingly, the
Company accounts for this operation as a joint venture and uses the
proportionate method of consolidation. Proportionate revenues and costs are
included in the 2003 financial statements.

4. COMPARATIVE FIGURES

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

5. FRANCHISES

Royalties receivable from franchised locations are included in sales.

6. LONG-TERM DEBT RENEGOTIATION

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

In June 2001, the Company and General Electric Investment Private Placement
Partners II ("GEIPPPII") agreed to renegotiate the terms on $10,000 US 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 to June 1, 2001 and for reduction of future interest rate
from the previously stated rate of 8% to 6% thereafter, and issued the
following notes.

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

o $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 GEIPPPII.

Both the senior notes and the junior notes shall be convertible into shares
of the Company's common shares at any time 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);

6. LONG-TERM DEBT RENEGOTIATION (CONTINUED)

Conversion was to be 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 were originally 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 have been able to convert both the first
and second tranche of junior notes into equity, if the Company had met 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 have allowed the Company to convert two thirds of the second
tranche of junior notes into equity, but the Company would have lost the
ability to convert any of the first tranche.

For the twelve month period ended June 29, 2003, the Company achieved less
than 67% of the original EBITDA target. Under the terms of the original
agreement, this would have required the Company to reclassify the first two
tranches as a debt instrument.

The Company has, however, reached an agreement with GEIPPPII to modify the
terms of the junior notes, such that the test for mandatory conversion of
all four tranches is dependent on achievement of EBITDA targets for the
twelve months ending June 30, 2005. Accordingly, no reclassification of the
junior notes is required at this time. The agreed amended EBITDA targets
for the four tranches are now respectively as follows:

7. STOCK BASED COMPENSATION

The Company applies the Intrinsic Method in accounting for its stock
options granted to employees. Accordingly, compensation expense of $Nil was
recognized as wage expense for the 400,000 stock options granted to
employees during the period ended June 29, 2003 (June 30, 2002 - $Nil). Had
compensation expense been determined as provided using the Fair Value
Method, the pro-forma effect on the Company's net income and per share
amounts would have been as follows:

Net Income, as reported $ 835
Net Income, pro-forma $ 788
Net Income per share, as reported $0.16
Net Income per share, pro-forma $0.15

The Fair Value Method applies the Black-Scholes option-pricing model, using
the following weighted average assumptions:

Expected life (years) 5
Interest rate 2.50%
Volatility 83.81%
Dividend yield 0.00%

8. GOODWILL AND INTANGIBLE ASSETS

Effective January 2002, the Company adopted the new recommendations of the
CICA in accounting for goodwill and other intangible assets. This
recommendation includes requirements to test goodwill and indefinite lived
intangible assets annually for impairment rather than amortization. The
impact of this recommendation on the Company's operations is $nil for the
twenty-six weeks ended June 29, 2003.

9. FOREIGN EXCHANGE

Effective January 2002, the Company adopted the new CICA Handbook
recommendation in accounting for foreign currency translation whereby
unrealized gains and losses are recorded as income or expense in the period
incurred.

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

Financial statement presentation differs in certain respects between Canada
and the United States. Reconciliation of Canadian earnings and US earnings
is as follows (the reader is referred to the Company's Form 10-K for the
Year Ended December 29, 2002, as filed with the Securities and Exchange
Commission):

ELEPHANT & CASTLE GROUP INC.

PART II - OTHER INFORMATION

Item 1 - 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 totaled
$1,118,000. The Company has contested the total amount owed, and made 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 was
not reflected in the assessment demand. Canadian Customs and Revenue Agency
have been unable to produce adequate paperwork in support of their full
claim. In June 2003, based on conversations with the CCRA, the Company made a
payment of $95,000 "in full and final settlement" of the Federal portion of
the amount demanded. The Company is awaiting written confirmation from the
CCRA that there is nothing further outstanding. The Company still owes
$84,000 to the Province of Ontario, and has agreed to pay this amount by
monthly installments.

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 has reached 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 US$157,500
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. This provision will fully cover the agreed
compensation.

ELEPHANT & CASTLE GROUP INC.

PART II - OTHER INFORMATION (Continued)

Item 2 - Changes in Securities

None

Item 3 - Defaults upon Senior Securities

None

Item 4 - Submission of matters to a vote of Security Holders

None

Item 5 - Other Information

None

Item 6 - Exhibits and Reports on Form 8-K

EXHIBITS

None

REPORTS ON FORM 8-K

None

ELEPHANT & CASTLE GROUP INC.
QUARTERLY REPORT
THIRTEEN AND TWENTY-SIX WEEKS ENDED JUNE 29, 2003
(IN THOUSANDS OF DOLLARS, EXCEPT NET INCOME/(LOSS) PER SHARE)

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

THIRTEEN WEEKS ENDED JUNE 29, 2003 (UNAUDITED) VS. THIRTEEN WEEKS ENDED JUNE
30, 2002 (UNAUDITED)

NET INCOME

For the thirteen weeks ended June 29, 2003, the Company's net income before
income taxes was CDN $477 compared to a net income before income taxes of CDN
$458 for the corresponding period in 2002. Earnings per share for the current
period were CDN $0.09 unchanged from CDN $0.09 in 2002. The average number of
shares outstanding fell from 5,169,604 in 2002 to 5,159,604 for the current
period.

SALES

Overall, sales decreased 9.9% during the thirteen weeks ended June 29, 2003
to CDN $9,471 from CDN $10,517 for the comparable period in 2002. The 2002
figure included sales for one Elephant & Castle location that was closed in
October 2002 and sales for the Alamo Steakhouse and Grill location that was
closed on January 5, 2003. 2002 figures also include sales for the British
Columbia Institute of Technology ("BCIT") location, near Vancouver, which
closed on June 15, 2003. Sales to June 15, 2003 are included in the 2003
figures.

For comparable Canadian locations open during both periods, sales for the
thirteen weeks ended June 29, 2003 totaled CDN $4,746 compared with CDN
$4,916 for the thirteen weeks ended June 30, 2002, a decrease of 3.4% on a
same store basis. The two restaurants located in Toronto were adversely
affected by the SARS outbreak, and accounted for CDN $121 of the total CDN
$170 same store decline.

For comparable US locations open during both periods, sales for the 2003
period were US $2,959 compared with US $2,965 for the 2002 period, a marginal
decrease of US $6 or 0.2% on a same store basis.

FOOD AND BEVERAGE COSTS

Overall, food and beverage costs, as a percentage of sales, decreased to
26.9% compared to 28.1% for the thirteen weeks ended June 30, 2002. This
reflects improvements in procurement and wastage management for both Canada
and the US, the strengthened Canadian dollar which reduced the cost of US
imports to Canada, and the benefit of closing two underperforming stores in
the US.

LABOUR AND BENEFITS COSTS

Labour and benefits increased to 32.0% of sales, compared to 31.9% for the
thirteen weeks ended June 30, 2002. This increase reflects the rising payroll
benefit costs in the US and higher than average payroll costs at the new San
Francisco restaurant, offset by the closure of two under performing stores.

OCCUPANCY AND OTHER OPERATING COSTS

Occupancy and other operating expenses increased as a percentage of sales to
25.1%, compared to 24.2% for the thirteen weeks ended June 30, 2002. Upwards
pressure on insurance costs was partially offset by the benefit of closing
two underperforming stores.

DEPRECIATION AND AMORTIZATION EXPENSE

Depreciation and amortization costs increased to 5.2% of sales for the
current period from 4.7% last year.

STORE CLOSURE COSTS

On June 15, 2003 the Company closed its "Elephant on Campus" restaurant
located at the BCIT, near Vancouver on expiry of the lease. The CDN $87 costs
associated with closure were fully absorbed by a surplus on previous closure
provisions.

As a result, a net CDN $nil has been recorded for store closure costs in the
thirteen weeks ended June 29, 2003.

INCOME FROM RESTAURANT OPERATIONS

Income from restaurant operations was CDN $1,031 for the current period, a
decrease of CDN $131 versus the prior year. As a percentage of sales, income
from restaurant operations decreased to 10.9% versus 11.0% in the prior year.

GENERAL AND ADMINISTRATIVE COSTS

General and administrative costs increased by CDN $17 from 8.6% of sales in
2002 to 9.7% in the current period. The Company has strengthened its
operations, food development, human resources and finance/systems functions
to provide better support for its existing restaurant operations and to
support planned growth.

GAIN ON FOREIGN EXCHANGE

There was a gain of CDN $607 on foreign exchange resulting from a
strengthening of the Canadian dollar relative to the US dollar during this
quarter which impacts primarily the US dollar denominated debt. The
equivalent figure for the thirteen weeks ended June 30, 2002, was a gain of
CDN $430.

INTEREST ON LONG-TERM DEBT

Interest on long-term debt rose to CDN $242 in 2003 compared to CDN $232 in
2002.

INCOME BEFORE TAXES

The Company recorded a profit before income taxes of CDN $477 for the 2003
period compared to a profit of CDN $458 for the corresponding 2002 period.
The improvement of CDN $19 includes CDN $177 attributed to a gain on foreign
exchange.

INCOME TAXES

The current quarter tax charge of CDN $24 represents estimated State taxes
paid by US operations. The Company has sufficient capital and non-capital
loss carry forwards in both the US and Canada, and has therefore made no
provision for Federal income taxes in either country.

TWENTY-SIX WEEKS ENDED JUNE 29, 2003 (UNAUDITED) VS. TWENTY-SIX WEEKS ENDED
JUNE 30, 2002 (UNAUDITED)

NET INCOME

For the twenty-six weeks ended June 29, 2003, the Company's net income before
income taxes was CDN $917 compared to a net income before income taxes of CDN
$318 for the corresponding period in 2002. Earnings per share for the current
period were CDN $0.16 compared to CDN $0.06 in 2002. The average number of
shares outstanding fell from 5,169,604 in 2002 to 5,152,104 for the current
period.

SALES

Overall, sales decreased 9.9% during the twenty-six weeks ended June 29, 2003
to CDN $18,835 from CDN $20,893 for the comparable period in 2002. The 2002
figure included sales for one Elephant & Castle location that was closed in
October 2002 and sales for the Alamo Steakhouse and Grill location that was
closed on January 5, 2003. 2002 figures also include sales for the British
Columbia Institute of Technology ("BCIT") location, near Vancouver, which
closed on June 15, 2003. Sales to June 15, 2003 are included in the 2003
figures.

For comparable Canadian locations open during both periods, sales for the
twenty-six weeks ended June 29, 2003 totaled CDN $9,168 compared with CDN
$9,142 for the twenty-six weeks ended June 30, 2002, an increase of 0.3% on a
same store basis.

For comparable US locations open during both periods, sales for the 2003
period were US $5,796 compared with US $5,799 for the 2002 period, a marginal
decrease of US $3 or 0.0% on a same store basis.

FOOD AND BEVERAGE COSTS

Overall, food and beverage costs, as a percentage of sales, decreased to
26.9% compared to 28.1% for the twenty-six weeks ended June 30, 2002. This
reflects improvements in procurement and wastage management for both Canada
and the US, the strengthened Canadian dollar which reduced the cost of US
imports to Canada, and the benefit of closing two underperforming stores in
the US.

LABOUR AND BENEFITS COSTS

Labour and benefits decreased to 31.8% of sales, compared to 32.5% for the
twenty-six weeks ended June 30, 2002. This reduction reflects the closure of
two under performing stores, offset by rising payroll benefit costs in the
US, and higher than average payroll costs in the new San Francisco restaurant.

OCCUPANCY AND OTHER OPERATING COSTS

Occupancy and other operating expenses increased as a percentage of sales to
25.2%, compared to 25.0% for the twenty-six weeks ended March 31, 2002.
Upwards pressure on insurance costs was partially offset by the benefit of
closing two underperforming stores.

DEPRECIATION AND AMORTIZATION EXPENSE

Depreciation and amortization costs increased to 5.2% of sales for the
current period from 5.1% last year.

STORE CLOSURE COSTS

On June 15, 2003 the Company closed its "Elephant on Campus" restaurant
located at the BCIT, near Vancouver on expiry of the lease. The CDN $87 costs
associated with closure were fully absorbed by a surplus on previous closure
provisions.

As a result, a net CDN $nil has been recorded for store closure costs in the
twenty-six weeks ended June 29, 2003.

INCOME FROM RESTAURANT OPERATIONS

Income from restaurant operations was CDN $2,035 for the current period, an
increase of CDN $87 versus the prior year. As a percentage of sales, income
from restaurant operations grew to 10.8% versus 9.3% in the prior year. This
improvement reflects the closure of two loss making stores.

GENERAL AND ADMINISTRATIVE COSTS

General and administrative costs increased by CDN $151 from 7.8% of sales in
2002 to 9.5% in the current period. The Company has strengthened its
operations, food development, human resources and finance/systems functions
to provide better support for its existing restaurant operations and to
support planned growth.

GAIN ON FOREIGN EXCHANGE

There was a gain of CDN $1,163 on foreign exchange resulting from a
strengthening of the Canadian dollar relative to the US dollar during this
quarter which impacts primarily the US dollar denominated debt. The
equivalent figure for the twenty-six weeks ended June 30, 2002, was a gain of
CDN $496.

INTEREST ON LONG-TERM DEBT

Interest on long-term debt rose to CDN $497 in 2003 compared to CDN $493 in
2002.

INCOME BEFORE TAXES

The Company recorded a profit before income taxes of CDN $917 for the 2003
period compared to a profit of CDN $318 for the corresponding 2002 period.
The improvement of CDN $599 includes CDN $667 attributed to a gain on foreign
exchange.

INCOME TAXES

The year to date tax charge of CDN $82 represents estimated State taxes paid
by US operations. The Company has sufficient capital and non-capital loss
carry forwards in both the US and Canada, and has therefore made no provision
for Federal income taxes in either country.

LIQUIDITY AND CAPITAL RESOURCES

Operating cash flow for the twenty-six week period ended June 29, 2003 was
CDN $953 compared to CDN $962 for the twenty-six week period ended June 30,
2002. Changes in non-cash working capital items, resulted in a cash outflow
of CDN $280 compared to an outflow of CDN $208 in the same period last year.
Capital expenditures and pre-opening costs, mainly associated with the
opening of the new store in San Francisco, required CDN $642 compared to CDN
$936, mainly associated with the refurbishment of the Ottawa store, in the
comparable period of 2002. Repayment of capital leases was CDN $58 in 2003.
Debt repayments on the Senior Notes were CDN $436 compared to $398 in the
prior period. Resulting net use of funds of CDN ($463) in the current period,
compared to a net use of funds of CDN ($526) a year ago.

The Company's cash balance as of June 29, 2003 was CDN $207 compared to CDN
$525 on June 30, 2002. The Company is currently in discussions with the
holders of its subordinated notes in an attempt to vary the timing of
scheduled debt repayments due at the end of 2003. If these discussions are
unsuccessful, and given the Company's current cash flow projections, the
Company would be unable to meet its scheduled debt repayments when due. The
Company's current business strategy is to focus on strengthening the
profitability of existing operations and leveraging the brand's strength
through franchising and through managed joint venture store growth to the
extent deliverable through internally generated cash flow. Internally
generated cash flows will be fully utilized to meet debt repayments and
limited essential capital renovations over the next 12 months, so growth
plans are accordingly restricted.

On initial recognition, the Company presented the Junior Notes issued to
GEIPPPII in June 2001 (see Financial Statements note 6), as an equity
instrument as management believed the Company would meet the EBITDA
requirements for mandatory conversion to common

shares. 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
did not reach the required EBITDA, and if the instruments were not otherwise
amended, the notes would be reclassified as a debt instrument at such time
when the conversion feature were no longer available to the Company.

The Company has reached an agreement with GEIPPPII to modify the terms of the
junior notes, such that the test for mandatory conversion of all four
tranches is dependent on achievement of EBITDA targets for the twelve months
ending June 30, 2005. Accordingly, no reclassification of the junior notes is
required at this time.

Interest payments on the junior notes in the amount of 6% per annum shall be
payable in arrears on the earlier of conversion or maturity. 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
US $0.40 each.

The junior notes are considered a compound instrument and have been included
in the consolidated 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 $115 as of June 29,
2003.

SIGNATURES

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

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

CERTIFICATION

In accordance with Section 906 of the Sarbanes-Oxley Act, the undersigned
Chief Executive Officer and Chief Financial Officer, or persons fulfilling
similar functions, each certify:

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

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

Date August 12, 2003 /s/ Richard Bryant
--------------- ----------------------------------
Richard Bryant, President & C.E.O.

Date August 12, 2003 /s/ Roger Sexton
--------------- --------------------------------------
Roger Sexton, Chief Accounting Officer