SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                  Form 10-K SB/A-2

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

                   For the Fiscal Year Ended December 31, 1996
                          Commission File No. 33-60612

                          ELEPHANT & CASTLE GROUP INC.
                         (Name of Small Business Issuer)


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

   
856 Homer Street
Vancouver, B.C. CANADA                                         V6B 2W5
--------------------------------------------------------------------------------
(Address of principal executive officers)                     (Zip Code)
    

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 SB or any  amendment to
this Form 10-K SB.[ ]
<PAGE>
ITEM 6            MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                  CONDITION AND RESULTS OF OPERATIONS



Twelve Months ended December 31, 1996 vs. December 31, 1995

Net Income
   
For the year ended  December 31, 1996, the Company's net loss was CDN $1,173,918
compared to net loss of CDN $1,578,167 for the corresponding period in 1995. The
1995 figure included a reserve of CDN $900,000 for closing costs and anticipated
legal disputes  related to the closure of three locations  during the year. Loss
per share was CDN ($0.44),  compared to CDN ($0.63),  (CDN ($0.27) excluding the
reserve).  See reconciliation for differences between Canadian and United States
Generally Accepted Accounting Principles.
    
Sales

Sales  increased  13.7% during the twelve months ended  December 31, 1996 to CDN
$29,283,950 from CDN $25,764,339 for the comparable  period in 1995. The Company
opened three new  locations  during 1996, at the 600 room Holiday Inn on the Bay
in San  Diego,  California  (opened  July 2,  1996),  in the Mall of  America in
Minneapolis,  Minnesota  (acquired  October 8, 1996),  and in the  entertainment
district of downtown Toronto (opened October 21, 1996). During 1995, the Company
opened three new locations  (Philadelphia,  PA, Vancouver,  BC, and Burnaby, BC)
and also closed  three  pre-existing  locations,  two of which were  non-branded
operations located at Shilo Inns in Yuma, Arizona and Pomona, California.

For the twelve Canadian  operations open throughout both periods,  sales for the
twelve months ended December 31, 1996 totaled CDN $17,128,822 and were down 0.5%
compared to the corresponding period for 1995.

For the one U.S.  operation open throughout  both periods,  sales for the twelve
months ended December 31, 1996 totaled US $980,025 (CDN  $1,342,034) and were up
7.1% compared to the corresponding period for 1995.

For the Philadelphia Holiday Inn location, 1996 sales totaled US $2,897,937 (CDN
$3,970,174)  which  significantly  exceeded  expectations.   The  new  Vancouver
locations sales for 1996 were CDN $2,830,411,  which also significantly exceeded
expectations.  The new Burnaby location's sales were somewhat under expectations
as the hours of operation were scaled back from initial plans. The new San Diego
location's sales annualize at US $2,100,000 (CDN $2,817,000),  which is slightly
less than initial  expectations.  The acquired Minneapolis location continues to
experience sales increases over comparable months under the previous  ownership,
and is meeting  revenue  expectations.  The new  Toronto  location's  sales have
consistently exceeded expectations during the first three months of operation.

Costs and Expenses

         Food and Beverage Costs

Overall,  food and beverage costs, as a percentage of sales,  increased to 30.2%
for the  twelve  months  ended  December  31,  1996  compared  to 29.6%  for the
corresponding  period in 1995.  The  majority of the  increase was in food costs
percentages,  where continued reluctance in consumer spending placed pressure on
margins. The Company continues to review all purchasing procedures,  recipes and
menus in order to control overall food and beverage cost percentages.
<PAGE>
         Labour and Benefit Costs

Labour and benefit costs decreased slightly from 33.0% of sales in 1995 to 32.8%
for the  current  period.  The  Company  continues  to review  staff  scheduling
procedures  with the goal of controlling  future labour costs as a percentage of
sales.

         Occupancy and Other Operating Costs

Occupancy and other operating expenses  increased  marginally as a percentage of
sales from 26.1% in 1995 to 26.2% for the current period.  There are two largely
offsetting  components  to  this  change  in  percentage.   Firstly,  the  lease
arrangements  at the new  locations  have  resulted  in an overall  decrease  in
occupancy costs as a percentage of sales from 15.8% in 1995 to 15.0% in 1996.

Offsetting  this is an overall  increase in other net  operating  expenses.  The
Company's  newest  facilities  and hotel  restaurant  arrangements  are aimed at
driving down occupancy and other operating costs as a percentage of sales.

         Depreciation and Amortization

Depreciation and  amortization  costs increased to 5.3% of sales for the current
period from 4.8% last year. The increase is  attributable to depreciation on the
new locations plus the  amortization of pre-opening  costs at the new locations.
Amortization  of  pre-opening  costs was CDN  $401,423 in 1996,  compared to CDN
$344,289 in 1995.

         General and Administrative

General and administrative expenses decreased from 8.9% of sales in 1995 to 8.3%
in the current  period.  The 1995 figure  included a one-time  write-off  of CDN
$141,722.  Excluding  the  one-time  write-off,  the general and  administrative
expense  percentage  remained  constant.  The Company  believes  its general and
administrative  expense  percentage  can be brought down to under 7.0% through a
combinations  of expense  reductions  and adding  new stores  without  incurring
proportionate general and administrative  expenses.  With this in mind, all such
costs are under review and being reduced or eliminated wherever practical.

         Interest on Long Term Debt

In  December,  1995 the Company  completed a financing  with a major U.S.  based
pension money manager,  General Electric  Investment  Private Placement Partners
II, which added US $3,000,000 (CDN $4,110,000) in subordinated convertible notes
to the  Company's  long  term  debt.  As a  result,  interest  on long term debt
increased  from CDN  $84,691 to CDN  $334,356.  In  February,  1997 the  Company
completed an additional US $2,000,000 (CDN  $2,740,000)  financing with the same
pension  money  manager  and,  as a result,  interest  on long term debt will be
significantly higher in 1997.

(Loss) before Taxes

The Company  incurred a loss before income taxes,  of CDN  ($1,173,918)  for the
1996  period  compared  to a loss of CDN  ($681,955)  for the  1995  period.  As
discussed above,  increased food, beverage and depreciation costs, plus interest
on long term debt related to the US  $3,000,000  (CDN  $4,110,000)  subordinated
convertible notes incurred in December, 1995, had a negative impact on earnings.
<PAGE>
Management believes that the build out of additional hotel-based restaurants and
other  properties  with fixed  occupancy  costs together with the disposition of
older  mall based  properties,  if  successfully  consummated,  will  enable the
Company to reduce costs, as a percentage of sales, and return to profitability.

Income Taxes

The Company  incurred  losses in each of 1996 and 1995 and  therefore has no tax
liability.  The  Company  also has loss  carry-forwards  which  will  reduce its
effective tax rate in future years.

Liquidity and Capital Resources

The  Company's  cash  balances at the end of the 1996 period were CDN  $801,032.
This compares to a cash balance of CDN $5,031,078 at the end of the 1995 period.

Capital  expenditures  were CDN  $3,291,740  for the 1996 period,  primarily for
construction  of the new San Diego  and  Toronto  locations.  The  Company  also
acquired  Alamo  Grill,  Inc.,  a  profitable   steak-house  concept  restaurant
operating  in the  Mall of  America  in  Minneapolis,  Minnesota  in 1996 for US
$536,000 (CDN  $734,320) cash and US $1,000,000  (CDN  $1,370,000)  stock.  This
gives the Company a third "brand" to offer for potential expansion locations.

Changes in non-cash  working capital items resulted in a net use of funds of CDN
$181,783 on the twelve  months ended  December 31, 1996  compared to a source of
funds of CDN $808,769 in the comparable  period for 1995. The principal  usage s
in  1996  were  in  deposits  and  prepaid  expenses,   inventory  and  accounts
receivable, offset by an increase in accounts payable.

In  February,  1997 the Company  completed a financing  with a major U.S.  based
pension  money  manager,  GEIPPP  II  for  US  $2,000,000  (CDN  $2,740,000)  in
convertible  subordinated  notes.  This  was the  second  tranche  of  financing
agreement  signed in 1995,  and there are up to US $4,000,000  (CDN  $5,480,000)
additional notes available, subject to certain conditions.

The  Company  plans  to use  the  US  $2,000,000  (CDN  $2,740,000)  to pay  for
construction of new locations in Boston, MA and Seattle, WA. The Boston location
will be in a new Club Quarters hotel currently  under  construction in the heart
of Boston's  financial  district.  The Seattle  location will be in the recently
opened Cavanaugh's Inn in Seattle's  downtown  entertainment  section.  Both are
expected to open in summer, 1997.

The Company has signed a Letter of Intent with  Rainforest  Cafe, Inc. to form a
joint venture to develop Rainforest restaurants in Canada. The Company estimates
its potential capital requirements for the project will be between CDN $10 to 15
million. The Company will need to arrange additional financing in order to meets
these capital  requirements and anticipates it will be successful in raising the
necessary funds.
   
Differences  between  Canadian and United States Generally  Accepted
Accounting Principles (Canadian GAAP and U.S. GAAP)

The Company prepares its financial  statements in accordance with Canadian GAAP.
(The reader is referred to Note 17 of the Consolidated  Financial Statements for
additional  explanation.)  The financial  statements,  if prepared in accordance
with U.S. GAAP would differ as follows:
    
<PAGE>
   
         1) Net loss for the year ended  December 31, 1996 would be increased by
CDN $116,000  (US $84,672)  comprised of  amortization  expense  resulting  from
exclusion of the first option period in calculating the  amortization of certain
leasehold  improvements.  The impact of this adjustment would be to increase the
net loss per common  share from (CDN  $0.44)(US  $0.32) under  Canadian  GAAP to
(CDN$0.48)(US$0.35) under US GAAP.

Net loss for the year ended  December  31, 1995 would have been increased by CDN
$2,557,760 (US $1,890,157) comprised of:

A one-time interest expense of CDN $2,435,760  (US$1,800,000) resulting from the
beneficial conversion feature of convertible subordinated debentures at the time
of issue.

Amortization expense of CDN $122,000 (US$90,157) resulting from exclusion of the
first  option  period in  calculating  the  amortization  of  certain  leasehold
improvement costs.

The impact of these  adjustments  would have been to  increase  the net loss per
common  share  from  (CDN  $0.63)   (US$0.47)   under   Canadian  GAAP  to  (CDN
$1.65)(US$1.22) under US GAAP.

         2)  Shareholders'  Equity at  December  31, 1996 under US GAAP would be
CDN $6,945,881  (US$5,069,986)  compared to CDN$7,697,098  (US$5,681,320)  under
Canadian GAAP, due to the cumulative effect of reconciliation adjustments.

         Shareholders' Equity at December 31, 1995 under US GAAP would have been
CDN $6,451,921 (US $4,779,201),  compared to CDN $7,087,138 (US$5,249,732) under
Canadian GAAP.
    

Twelve Months Ended December 31, 1995 vs. December 31, 1994

Net Income

For the year ended  December 31, 1995, the Company's net loss was CDN $1,581,955
compared to net income of CDN $213,166 for the corresponding period in 1994. The
1995  figure  includes  a reserve  of CDN  $900,000  for the  closing  costs and
anticipated  legal disputes related to the closure of three locations during the
year.  Loss per share was CDN ($0.63),  (CDN  ($0.27)  excluding  the  reserve),
compared to income per share of CDN $0.09 per share in 1994. See  reconciliation
for differences between Canadian and United States Generally Accepted Accounting
Principles.

Sales

Sales  increased  1.4% during the twelve  months ended  December 31, 1995 to CDN
$25,764,339 from CDN $25,414,275 for the comparable  period in 1994. The Company
opened three new  locations  during 1995,  at the 445 room Holiday Inn Select in
Philadelphia,  Pennsylvania (opened February 28, 1995), at the 275 room Rosedale
on Robson All Suite Hotel in Vancouver,  B.C. (opened August 8, 1995) and on the
campus of the  18,000  student  British  Columbia  Institute  of  Technology  in
Burnaby,  B.C.  (opened  September  23,  1995).  The Company  also closed  three
locations  during  1995,  the 240 seat  Elephant  & Castle in  Toronto,  Ontario
(closed July 1, 1995) and two  non-branded  operations  located at Shilo Inns in
<PAGE>
Yuma,  Arizona (closed March 29, 1995) and Pomona,  California  (closed June 20,
1995).  During 1994, the Company opened one new  pub/restaurant  in the 400 room
Crowne Plaza Downtown in Winnipeg, Manitoba (opened May 18, 1994). There were no
closings in 1994.

For the eleven Canadian  operations open throughout both periods,  sales for the
twelve months ended December 31, 1995 totaled CDN  $17,214,303  and were up 1.2%
compared to the corresponding period for 1994, reflecting continued cautiousness
on the part of the Canadian customers as related to the economy.

For the one U.S.  operation open throughout  both periods,  sales for the twelve
months ended  December 31, 1995 totaled US $914,693  (CDN  $1,253,619)  and were
down 6.1% compared to the  corresponding  period for 1994.  This location relies
heavily on cross-border shopping by Canadians and the sales decline reflects the
relative low value of the Canadian  dollar  versus the U.S.  dollar and also the
continued cautiousness on the part of Canadian consumers.

For the new Winnipeg  Holiday Inn Location,  1995 sales  totaled CDN  $2,423,542
which far exceeds the average sales of CDN $1,342,500 for mall-based  locations,
and continue to grow.  The new  Philadelphia  location's  sales  annualize at US
$2,400,000  (CDN  $3,288,000),  which  is in  line  with  expectations.  The new
Rosedale location's sales were CDN $961,728 for less than five month's activity,
and  continue to meet  expectations.  The Burnaby  location  operates on limited
hours to reflect student demands, and sales are in line with expectations.

Costs and Expenses

         Food and Beverage Costs

Overall, food and beverage costs, as a percentage of sales, increased marginally
to 29.6% for the twelve months ended December 31, 1995 compared to 29.4% for the
corresponding period in 1994. The reluctance in consumer spending added pressure
to  margins  during  1995.  The  Company  continues  to  review  all  purchasing
procedures,  recipes  and  menus in order to  bring  down the  overall  food and
beverage cost percentage.

         Labour and Benefit Expenses

Labour  costs  increased  from  31.6% of sales in 1994 to 33.0% for the  current
period.  The increase in the percentage was attributable to increases in minimum
wages (up to CDN $7.00 per hour) in most Canadian locations, plus the difficulty
in reducing labour relative to sales decreases at locations already operating at
minimal staff levels. The Company is reviewing staff scheduling  procedures with
the goal to bring 1996 labour percentages to below those of 1994.

         Occupancy and Other Operating Expenses

Occupancy  and other  expenses  decreased as a percentage of sales from 28.9% in
1994 to 26.1% for the current period. This decrease is primarily attributable to
two factors.  Firstly,  the lease  arrangements  and higher than  average  sales
volumes  (compared  to  other  operations)  at the  new  locations  allow  these
locations to operate at lower than average expense  percentages.  Secondly,  the
continued  expansion  of  video  lottery  terminals  at  several  locations  has
generated  income that is  recorded  for  presentation  purposes as an offset to
other  expenses.  1995 is the second  consecutive  year the  Occupancy and Other
Operating  Expenses  percentage has dropped,  reflecting the positive results of
the Company's switch in focus away from mall-based locations.
<PAGE>
         Depreciation and Amortization

Depreciation and  amortization  costs increased to 4.8% of sales for the current
period from 2.7% last year. The increase is  attributable to depreciation on the
new locations plus the  amortization of pre-opening  costs at the new locations.
Amortization  of  pre-opening  costs was CDN  $344,289 in 1995,  compared to CDN
$70,928 in 1994.

         General and Administrative

General and administrative expenses increased from 6.4% of sales in 1994 to 8.9%
in 1995.  The  increase  is  attributable  to  numerous  factors  including  the
write-off of CDN $141,722 in expenses  related to development of a restaurant in
San  Francisco  which was  terminated  in  February,  1996;  increases in legal,
travel,  meeting and promotional costs; plus a major increase in occupancy costs
for the Company's head office. All such costs are under review, with the goal to
bring  the  General  and  Administrative  expense  percentage  back to  industry
standards.  With this in mind, the Company anticipates  relocating its corporate
headquarters in 1996 to a location with lower occupancy costs.

         Interest on Long Term Debt

During the 1994 period, the Company had virtually no long term debt and had cash
reserves  invested  in  interest  bearing  accounts.  During  1995,  the Company
incurred  CDN  $1,100,000  in long  term  debt in  order  to  construct  its new
locations, and in December, 1995 completed a financing with a U.S. based limited
GEIPPP II. GEIPPP II acquired US $3,000,000  (CDN  $4,110,000)  in  subordinated
convertible  notes to the  Company's  long term debt in December  of 1995.  As a
result,  interest  on long term debt  increased  from CDN $66,516 in 1994 to CDN
84,691 in 1995 and will be  significantly  higher  in 1996.  Cash  balances  not
immediately required are invested in premium grade money market instruments.

(Loss) Income Before Taxes

The  Company  incurred  a loss from  operations,  before  income  taxes,  of CDN
($681,955)  for the 1995 period  compared to income of CDN $213,166 for the 1994
period.  As discussed  above,  increased food,  beverage and labour costs,  plus
amortization  of  pre-opening  costs for new  operations  (up CDN $273,361  over
1994),  combined  with  decreased  same store  sales,  had a negative  impact on
earnings.  Management  is reviewing  all areas of operations to reverse the cost
increases and the sales decreases.

Income Taxes

The Company  incurred a loss in 1995 and  therefore  has no tax  liability.  The
Company's  effective tax rate for 1994 was also zero,  due to the  deductibility
for tax  purposes  of a portion  of the costs  associated  with its 1993  public
offering.  The Company's  effective tax rate will continue to be reduced for the
next two years for this reason.  The impact of this reduction as a percentage of
sales is dependent upon earnings and cannot be predicted in advance.

Provision for Closing Costs

During 1995, the Company  closed three  locations.  A one-time  provision of CDN
$900,000  was  taken  during  1995 to  provide  for the costs of  closing  these
locations,  and to provide for possible disputes arising from these closings. To
date, the costs of the closings total approximately CDN $375,000.  The remaining
CDN $525,000 is a provision against future costs and disputes.
<PAGE>
   
Differences between Canadian and United States Generally Accepted
Accounting Principles (Canadian GAAP and U.S. GAAP)

The Company prepares its financial  statements in accordance with Canadian GAAP.
(The reader is referred to Note 15 of the Consolidated  Financial Statements for
the year ended  December 31, 1995 for  additional  explanation.)  The  financial
statements,  if prepared in  accordance  with U.S.  GAAP would have  differed as
follows:

         1) Net loss for the year  ended  December  31,  1995  would  have  been
increased by CDN $2,557,760 (US $1,890,157) comprised of:

A one-time interest expense of CDN $2,435,760  (US$1,800,000) resulting from the
beneficial conversion feature of convertible subordinated debentures at the time
of issue.

Amortization  expense of CDN $122,000 (US $90,157)  resulting  from exclusion of
the first option period in calculating  the  amortization  of certain  leasehold
improvements.

The impact of these  adjustments  would have been to  increase  the net loss per
common   share   from   (CDN   $0.63)(US   $0.47)   under   Canadian   GAAP   to
(CDN$1.65)(US$1.22) under US GAAP.

Net income for the year ended December 31, 1994 would have been decreased by CDN
$240,417  (US  $178,087)  due to the net  effect of  amortization  of  leasehold
improvement  costs and a reassessment  of prior years' income taxes.  Income per
share of CDN $0.09 (US 0.07)  under  Canadian  GAAP  would  have been a loss per
share of (CDN$0.01) (US$0.01) under US GAAP.

         2)  Shareholders'  Equity at December 31, 1995 under US GAAP would have
been CDN  $6,451,921  (US$4,779,201)  compared to  CDN$7,087,138  (US$5,249,732)
under Canadian GAAP, due to the cumulative effect of reconciliation adjustments.

         Shareholders' Equity at December 31, 1994 under US GAAP would have been
CDN $6,832,688 (US $5,061,250),  compared to CDN $7,345,905 (US$5,441,441) under
Canadian GAAP.
    
<PAGE>
ITEM 7            FINANCIAL STATEMENTS

ELEPHANT & CASTLE GROUP INC.


Consolidated Financial Statements
December 31, 1996
(Canadian Dollars)






         INDEX                                                 

         Auditors' Report to the Shareholders                  

         Consolidated Financial Statements

         Consolidated Balance Sheets                           

         Consolidated Statements of Income                     

         Consolidated Statements of Shareholders' Equity       

         Consolidated Statements of Cash Flows                 

         Notes to Consolidated Financial Statements            




<PAGE>
AUDITORS' REPORT TO THE SHAREHOLDERS

We have audited the consolidated  balance sheets of Elephant & Castle Group Inc.
as at December  31,  1996 and 1995 and the  consolidated  statements  of income,
shareholders'  equity and cash flows for the years ended December 31, 1996, 1995
and 1994.  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 generally accepted auditing standards
in Canada which do not differ in any material  respects from auditing  standards
generally  accepted in the United States.  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 the Company as at December 31, 1996
and 1995 and the  results  of its  operations  and its cash  flows for the years
ended December 31, 1996,  1995 and 1994 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 and are
discussed in Note 17 to the consolidated financial statements.

   
"Pannell Kerr Forster"

Chartered Accountants

Vancouver, Canada
April 10, 1997, except for notes 17(a)(i),  (b)(i),  (d) and (e) as to which the
  date is January 16, 1998
    

COMMENTS BY AUDITORS FOR U.S. READERS
ON CANADA-U.S. REPORTING CONFLICT

In the United States,  reporting  standards for auditors require the addition of
an explanatory  paragraph  following the opinion paragraph when the consolidated
financial  statements  are affected by  significant  uncertainties  such as that
referred to in the attached  balance sheets as at December 31, 1996 and 1995 and
as described in Note 10 of the consolidated financial statements.  Our report to
the  shareholders  dated April 10, 1997 is expressed in accordance with Canadian
reporting standards which do not permit a reference to such uncertainties in the
auditors'  report  when  the  uncertainties  are  adequately  disclosed  in  the
consolidated financial statements.

   
"Pannell Kerr Forster"

Chartered Accountants

Vancouver, Canada
April 10, 1997,  except for notes  17(a)(i),  (b)(i) (d) and (e) as to which the
  date is January 16, 1998
    
<PAGE>
<TABLE>
<CAPTION>
ELEPHANT & CASTLE GROUP INC.
Consolidated Balance Sheets
December 31
(Canadian Dollars)
                                                                                1996             1995
--------------------------------------------------------------------------------------------------------- 
Assets (note 8)
<S>                                                                        <C>              <C> 
Current
                                                                            
  Cash and term deposits                                                   $    801,032     $  5,031,758
  Accounts receivable                                                           662,569          540,749
  Inventory                                                                     649,933          501,699
  Deposits and prepaid expenses                                                 611,205          359,355
--------------------------------------------------------------------------------------------------------
                                                                              2,724,739        6,433,561
Fixed (notes 3 and 7)                                                        10,915,251        8,798,738
Goodwill (note 5)                                                             2,016,775                0
Other (note 4)                                                                1,110,305          655,801
--------------------------------------------------------------------------------------------------------

                                                                           $ 16,767,070     $ 15,888,100
========================================================================================================
Liabilities

Current
  Accounts payable and accrued liabilities (note 6)                        $  3,480,888     $  3,090,167
  Current portion of obligation under capital leases (note 7)                    18,184           71,382
  Current portion of long-term debt (note 8)                                    541,763          451,173
--------------------------------------------------------------------------------------------------------
                                                                              4,040,835        3,612,722
Obligation Under Capital Leases (note 7)                                          3,227           23,899
Long-Term Debt (note 8)                                                       4,794,910        4,933,341
Deferred Income Tax                                                             231,000          231,000
--------------------------------------------------------------------------------------------------------
                                                                              9,069,972        8,800,962
--------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ELEPHANT & CASTLE GROUP INC.
Consolidated Balance Sheets
December 31
(Canadian Dollars)
                                                                                1996             1995
--------------------------------------------------------------------------------------------------------- 
<S>                                                                        <C>              <C> 
Shareholders' Equity

Capital Stock (note 9)
  Authorized
      10,000,000      Common shares without par value
  Issued
       2,822,225      (1995 - 2,604,611) Common shares                        9,875,943        8,092,065
Deficit                                                                      (2,178,845)      (1,004,927)
--------------------------------------------------------------------------------------------------------
                                                                              7,697,098        7,087,138
--------------------------------------------------------------------------------------------------------

                                                                           $ 16,767,070     $ 15,888,100
========================================================================================================
Contingencies and Commitments (notes 10 and 11)
</TABLE>
Approved on behalf of the Board

                                  
-------------------------- Director           ------------------------- Director
J.M. Barnett Director                         P.J. Barnett

See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
ELEPHANT & CASTLE GROUP INC.
Consolidated Statements of Income
Years Ended December 31
(Canadian Dollars)
   
                                                               1996              1995            1994
-------------------------------------------------------------------------------------------------------- 
<S>                                                       <C>              <C>               <C>
Sales                                                     $ 29,283,950     $  25,764,339     $25,414,275
--------------------------------------------------------------------------------------------------------
                                     
Restaurant Expenses
  Food and beverage                                          8,852,677         7,622,183       7,470,248
  Operating
         Labour                                              9,611,587         8,511,442       8,042,819
         Occupancy and other                                 7,679,699         6,716,129       7,334,993
  Restaurant closing costs (note 12)                                             900,000
  Depreciation and amortization                              1,553,054         1,223,934         673,756
--------------------------------------------------------------------------------------------------------

                                                            27,697,017        24,973,688      23,521,816
--------------------------------------------------------------------------------------------------------

Income from Restaurant
  Operations                                                 1,586,933           790,651       1,892,459
--------------------------------------------------------------------------------------------------------

General and Administrative Expenses                          2,426,495         2,284,127       1,621,836
Interest on Long-Term Debt                                     334,356            84,691          66,516
--------------------------------------------------------------------------------------------------------

                                                             2,760,851         2,368,818       1,688,352
--------------------------------------------------------------------------------------------------------

Income (Loss) Before Income Tax                             (1,173,918)       (1,578,167)        204,107
--------------------------------------------------------------------------------------------------------

Income Tax (note 13)
  Current                                                            0                 0          54,000
  Income tax reduction arising from utilization of
      loss carry forwards                                            0                 0         (54,000)
--------------------------------------------------------------------------------------------------------

                                                                     0                 0               0
--------------------------------------------------------------------------------------------------------

Net Income (Loss) For Year                                $ (1,173,918     $  (1,578,167     $   204,107
========================================================================================================

Earnings (Loss) Per Common Share                          $      (0.44)    $       (0.63)    $      0.09
========================================================================================================

Weighted Average Number of Shares Outstanding                2,682,533         2,502,759       2,440,583
========================================================================================================
    
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
ELEPHANT & CASTLE GROUP INC.
Consolidated Statements of Shareholders' Equity
Years Ended December 31
(Canadian Dollars)

                                                                                                                   Total
                                                                                               Retained        Shareholders'
                                                                   Common Shares               Earnings           Equity
                                                             Number            Amount          (Deficit)         (Deficit)
----------------------------------------------------------------------------------------------------------------------------
<S>                                                         <C>           <C>               <C>               <C>
Balance, December 31, 1993                                  2,430,000     $   6,770,686     $     369,133     $   7,139,819
      Issue of shares                                          63,500           412,979                 0           412,979
      Less:  Unpaid shares                                          0          (411,000)                0          (411,000)
      Net income                                                    0                 0           204,107           204,107
----------------------------------------------------------------------------------------------------------------------------

Balance, December 31, 1994                                  2,493,500         6,772,665           573,240         7,345,905
      Issue of shares, net                                    111,111         1,319,400                 0         1,319,400
      Net loss                                                      0                 0        (1,578,167)       (1,578,167)
----------------------------------------------------------------------------------------------------------------------------

Balance,
  December 31, 1995                                         2,604,611         8,092,065        (1,004,927)        7,087,138
      Issue of shares
        For interest (note 8)                                  70,555           413,878                 0           413,878
        For acquisition of subsidiary (note 5)                147,059         1,370,000                 0         1,370,000
      Net loss                                                      0                 0        (1,173,918)       (1,173,918)
----------------------------------------------------------------------------------------------------------------------------

Balance, December 31, 1996                                  2,822,225     $   9,875,943     $  (2,178,845     $   7,697,098
===========================================================================================================================

</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
ELEPHANT & CASTLE GROUP INC.
Consolidated Statements of Cash Flows
Years Ended December 31
(Canadian Dollars)
                                                                  1996             1995             1994
----------------------------------------------------------------------------------------------------------- 
<S>                                                          <C>              <C>              <C>
Cash Provided By Operating Activities
  Net income (loss)                                          $ (1,173,918     $ (1,578,167     $    204,107
  Items not involving cash
      Depreciation and amortization                             1,553,054        1,223,934          673,756
      Deferred finance charges amortization                       184,655                0                0
      Deferred income tax                                               0         (100,000)               0
      Loss on disposal of fixed assets                              1,531          282,391           10,352
-----------------------------------------------------------------------------------------------------------
                                                                  565,322         (171,842)         888,215
-----------------------------------------------------------------------------------------------------------

Changes in Non-Cash Working Capital
  Accounts receivable                                            (121,820)        (162,895)          23,545
  Inventory                                                      (148,234)           6,317          (37,565)
  Deposits and prepaid expenses                                  (251,850)         191,803         (118,524)
  Accounts payable and accrued liabilities                        390,721          773,544          216,692
-----------------------------------------------------------------------------------------------------------
                                                                 (131,183)         808,769           84,148
-----------------------------------------------------------------------------------------------------------
                                                                  434,139          636,927          972,363
-----------------------------------------------------------------------------------------------------------

Investing Activities
  Acquisition of fixed assets                                  (3,291,740)      (3,216,156)      (1,382,219)
  Goodwill, net of non-cash consideration                        (646,775)               0                0
  Acquisition of other assets                                    (608,543)        (385,769)        (423,324)
  Cash surrender value of life insurance                           45,000           45,000           45,000
  Acquisition of trademark                                         (6,850)          (6,850)               0
-----------------------------------------------------------------------------------------------------------
                                                               (4,508,908)      (3,563,775)      (1,760,543)
-----------------------------------------------------------------------------------------------------------

Financing Activities
  Deferred finance charges                                        (34,246)        (200,788)               0
  Obligation under capital leases                                 (73,870)         (39,553)         (46,447)
  Proceeds from long-term debt                                          0        5,233,992                0
  Repayment of long-term debt                                     (47,841)         (50,097)         (52,556)
  Issuance of shares for cash                                           0        1,319,400            1,979
-----------------------------------------------------------------------------------------------------------
                                                                 (155,957)       6,262,954          (97,024)
-----------------------------------------------------------------------------------------------------------

Increase (Decrease) in Cash                                    (4,230,726)       3,336,106         (885,204)
Cash and Term Deposits, Beginning of Year                       5,031,758        1,695,652        2,580,856
-----------------------------------------------------------------------------------------------------------
Cash and Term Deposits, End of Year                         $     801,032    $   5,031,758     $  1,695,652
===========================================================================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
ELEPHANT & CASTLE GROUP INC.
Notes to Consolidated Financial Statements
Years Ended December 31
(Canadian Dollars)

--------------------------------------------------------------------------------

1.       BASIS OF PRESENTATION

         These  financial  statements  include the accounts of Elephant & Castle
         Group Inc. and its wholly- owned subsidiaries

         (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",  an  upscale  coffee  bar  under  the  name  "E & C
                  Express", and a New York style deli under the name "Rosie's".

         (b)      Elephant & Castle Inc. ("the U.S. subsidiary"  incorporated in
                  Texas) which owns and operates  English style  restaurants  in
                  Washington, Pennsylvania and California.

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

         All significant inter-company balances and transactions are eliminated.

         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.  The
         significant  differences  and the  approximate  related  effect  on the
         consolidated financial statements are set forth in Note 17.

         Certain of the comparative  figures have been  reclassified in order to
         conform with the current year's presentation.

2.       SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES

         (a)      Inventory

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

         (b)      Fixed assets

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

                  Furniture and fixtures    -        10% straight-line method
                  Point of sale hardware    -        10% straight-line method
                  Computer software         -        20% straight-line method
                  Automobile                -        20% straight-line method
<PAGE>
ELEPHANT & CASTLE GROUP INC.
Notes to Consolidated Financial Statements
Years Ended December 31
(Canadian Dollars)

--------------------------------------------------------------------------------

                  Improvements  to leased  premises and property  under  capital
                  leases are being  amortized on the  straight-line  method over
                  the term of the  lease  plus the  first  renewal  option.  For
                  locations   opened   subsequent  to  January  1,  1993,   such
                  improvements are being amortized on a straight-line basis over
                  the term of the lease.

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


2.       SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (Continued)

         (c)      Goodwill

                  Goodwill is recorded at cost and amortization is calculated on
                  a  straight-line  basis over 40 years  commencing  in the year
                  following the year of acquisition.

         (d)      Pre-opening costs
   
                  Pre-opening  costs represent amounts for staff training costs,
                  payroll for  trainees,  rents paid  pre-opening,  advertising,
                  travel and  accommodation  of trainers and  supplies  consumed
                  pre-opening  which costs are  incurred to open new  locations.
                  These costs are  amortized  on a  straight-line  basis over 12
                  months.
    
         (e)      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  translation of foreign currency
                  were included as part of equity. Opening retained earnings has
                  been adjusted to include these gains and losses.
<PAGE>
ELEPHANT & CASTLE GROUP INC.
Notes to Consolidated Financial Statements
Years Ended December 31
(Canadian Dollars)

--------------------------------------------------------------------------------

         (f)      Earnings per share

                  Earnings  per share  computations  are  based on the  weighted
                  average number of common shares  outstanding  during the year.
                  There is no  dilative  effect  on  earnings  per share in 1996
                  after the assumed exercise of stock options.

         (g)      Deferred Income Taxes

                  Deferred  income  taxes  arose in prior  years  from  claiming
                  depreciation for income tax purposes in excess of depreciation
                  recorded for accounting purposes.

3.       FIXED ASSETS
<TABLE>
<CAPTION>
                                                                 1996
------------------------------------------------------------------------------------------ 
                                                             Accumulated
                                                            Depreciation
                                                                 and
                                               Cost          Amortization        Net
------------------------------------------------------------------------------------------ 
<S>                                        <C>              <C>              <C>
Leasehold improvements                     $ 10,503,374     $  3,299,657     $  7,203,717
Furniture and fixtures                        6,583,933        3,289,211        3,294,722
China, glassware and cutlery                    413,215                0          413,215
Computer software                                71,774           68,177            3,597
Automobile                                       28,298           28,298                0
-----------------------------------------------------------------------------------------

                                           $ 17,600,594     $  6,685,343     $ 10,915,251
=========================================================================================
<CAPTION>
                                                                 1995
----------------------------------------------------------------------------------------- 
                                                             Accumulated
                                                            Depreciation
                                                                and
                                                Cost        Amortization           Net
----------------------------------------------------------------------------------------- 
<S>                                        <C>              <C>              <C>
Leasehold improvements                     $  8,069,310     $  2,652,604     $  5,416,706
Furniture and fixtures                        5,818,990        2,805,708        3,013,282
China, glassware and cutlery                    355,362                0          355,362
Computer software                                70,652           60,719            9,933
Automobile                                       28,298           24,843            3,455
-----------------------------------------------------------------------------------------

                                           $ 14,342,612     $  5,543,874     $  8,798,738
=========================================================================================
</TABLE>
<PAGE>
ELEPHANT & CASTLE GROUP INC.
Notes to Consolidated Financial Statements
Years Ended December 31
(Canadian Dollars)

--------------------------------------------------------------------------------

4.       OTHER ASSETS

<TABLE>
<CAPTION>

                                                                        1996            1995
---------------------------------------------------------------------------------------------- 
<S>                                                                <C>             <C>
Accumulated fund value of life insurance                           $    18,139     $    63,139
Less:  Amount required to fund subsequent year's
        premium                                                         18,139          45,000
----------------------------------------------------------------------------------------------
                                                                             0          18,139
Deferred finance costs                                                 413,657         150,188
Pre-opening costs                                                      342,832         171,584
Other                                                                  246,465         216,298
Trademark                                                              107,351          99,592
----------------------------------------------------------------------------------------------

                                                                   $ 1,110,305     $   655,801
==============================================================================================
</TABLE>

5.      ACQUISITION OF ALAMO GRILL, INC.

         Effective  October 9, 1996,  the  Company  acquired  all the issued and
         outstanding shares of Alamo Grill, Inc. ("Alamo").  The acquisition was
         accounted for by the purchase method.  Assets and liabilities  acquired
         were as follows


<TABLE>
<CAPTION>
<S>                                                            <C>
Current assets                                                 $    119,911
Fixed and other assets                                              280,770
---------------------------------------------------------------------------

                                                                    400,681
Liabilities                                                        (309,328)
---------------------------------------------------------------------------

Net assets                                                           91,353
Consideration ($734,320 cash and 147,059 shares)                  2,108,128
---------------------------------------------------------------------------
Excess of consideration over net assets
  allocated to goodwill                                        $  2,016,775
=========================================================================== 
</TABLE>
<PAGE>
ELEPHANT & CASTLE GROUP INC.
Notes to Consolidated Financial Statements
Years Ended December 31
(Canadian Dollars)

--------------------------------------------------------------------------------
   
        The following pro-forma condensed  consolidated income statement for the
        year ended December 31, 1996 with  comparative  figures for 1995,  which
        are both  unaudited,  has been prepared giving effect to the acquisition
        of Alamo as if the transaction had taken place at January 1, 1996.

<TABLE>
<CAPTION>

                                                                      1996                1995
------------------------------------------------------------------------------------------------- 
<S>                                                            <C>                <C>
Sales                                                          $   31,851,208     $    29,376,146
=================================================================================================

Restaurant expenses (including depreciation and                                      
amortization of $1,641,473 in 1996 and
$1,328,611 in 1995)                                            $   29,825,626     $    27,908,824
=================================================================================================

General and administrative expenses (including                                         
interest on long-term debt of $462,346 in 1996 and
$215,303 in 1995)                                              $    3,261,582     $     2,997,715
=================================================================================================

Net loss                                                       $    1,236,000     $     1,530,393
=================================================================================================

Net loss per share                                             $         0.44     $          0.58
=================================================================================================
</TABLE>
    
6.      ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
<TABLE>
<CAPTION>

                                                                       1996               1995
------------------------------------------------------------------------------------------------- 
<S>                                                              <C>               <C>
Trade payables                                                   $   1,610,656     $    1,088,615
Occupancy costs                                                        176,710            311,702
Accrued salaries, wages and related tax                                504,168            371,731
Sales tax                                                              274,227            198,545
Other                                                                  915,127          1,119,574
-------------------------------------------------------------------------------------------------

                                                                 $   3,480,888     $    3,090,167
=================================================================================================
</TABLE>
<PAGE>
ELEPHANT & CASTLE GROUP INC.
Notes to Consolidated Financial Statements
Years Ended December 31
(Canadian Dollars)

--------------------------------------------------------------------------------

7.      OBLIGATION UNDER CAPITAL LEASES

         The  following is a schedule of future  minimum  lease  payments  under
         capital leases
<TABLE>
<CAPTION>


                                                                    1996          1995
---------------------------------------------------------------------------------------- 
<S>                                                              <C>           <C>
1996                                                             $       0     $  80,109
1997                                                                19,456        20,100
1998                                                                 3,366         3,601
----------------------------------------------------------------------------------------

Total minimum lease payments                                        22,822       103,810
Less:  Amount representing interest and
        executory costs                                              1,411         8,529
----------------------------------------------------------------------------------------

                                                                    21,411        95,281
Less:  Current portion                                              18,184        71,382
----------------------------------------------------------------------------------------

Obligation under capital leases                                  $   3,227     $  23,899
========================================================================================
</TABLE>

        Assets under capital leases consist of certain equipment,  point of sale
        hardware and computer software.
<PAGE>
ELEPHANT & CASTLE GROUP INC.
Notes to Consolidated Financial Statements
Years Ended December 31
(Canadian Dollars)

--------------------------------------------------------------------------------

8.      LONG-TERM DEBT

<TABLE>
<CAPTION>
                                                                  1996              1995
----------------------------------------------------------------------------------------
<S>
                                                             <C>            <C>
General Electric  Investment Private Placement Partners
II,  a  limited   partnership,   $3,000,000  U.S.  (CDN
$4,110,000)   convertible    subordinated   debentures,
interest only at 4% per annum to November  1996, 5% per
annum to November  1997, 6% per annum to November 1998,
7%  per  annum  to  November  1999  and  8%  per  annum
thereafter,  repayable in equal semi-annual instalments
of one  eighth  of  the  principal  amount  outstanding
commencing  November  2001.  In  consideration  for the
below market interest rates, the agreement provides for
the issuance to the lender of 70,555  common  shares in
1996 and 15,000 common shares in each of 1997, 1998 and
1999. The lender may exercise its conversion  privilege
at any time on the  basis of one share for each $8 U.S.
of principal                                                 $ 4,110,000    $ 4,110,000
    
Toronto-Dominion  Bank term loans  repayable over terms
up  to  3  years  in  monthly  instalments  of  $33,638
principal, plus interest at prime plus 0.75%, due March
1999 and 2000,  secured by a general security agreement
with a first  fixed and  floating  charge  over all the
Canadian  subsidiary's  assets,  an  assignment  of the
Canadian  subsidiary's  accounts receivable,  inventory
and certain leasehold improvements                             1,123,992      1,123,992

Camdev   Properties   Inc.  -   repayable   in  monthly
instalments  of $3,002  including  interest at 13%, due
August  1,  1999,   secured  by  a  charge  on  certain
leasehold improvements                                            80,681        104,389

Viking Rideau Corporation - without interest, repayable
in monthly  instalments of $1,000,  due October,  1998,
secured by a charge on certain  leasehold  improvements           22,000         34,000

Oxford  Development  Group Inc. - repayable  in monthly
instalments  of $1,943  including  interest  at 8%, due
April, 1996                                                            0         12,133
--------------------------------------------------------------------------------------- 
                                                               5,336,673      5,384,514
Less:  Current portion                                           541,763        451,173
--------------------------------------------------------------------------------------- 
                                                            $  4,794,910    $ 4,933,341
======================================================================================= 
</TABLE>
<PAGE>
ELEPHANT & CASTLE GROUP INC.
Notes to Consolidated Financial Statements
Years Ended December 31
(Canadian Dollars)

--------------------------------------------------------------------------------

8.      LONG-TERM DEBT (Continued)

        Long-term debt principal repayments due in each of the next three years
        are approximately as follows
        

                            1997               $  541,000
                            1998                  403,000
                            1999                  283,000
                      Thereafter                4,110,000
                                               ==========

9.      CAPITAL STOCK
   
        (a)       During 1996,  70,555  shares were issued as  consideration  of
                  $413,878 for the below market  interest rate on the $3,000,000
                  U.S.  ($4,110,000  Cdn.)  convertible  subordinated  debenture
                  (note 8).

        (b)       During   1996,   147,059   shares   were   issued   as  agreed
                  consideration of $1,000,000 U.S.  ($1,370,000 Cdn.) to acquire
                  Alamo Grill, Inc.

        (c)       During 1995,  111,111  shares were issued at $9 U.S. per share
                  in conjunction  with the  convertible  subordinated  debenture
                  financing (note 8).

        (d)       During 1994,  63,500 shares were issued to a director at $4.75
                  U.S. per share. At December 31, 1996,  $300,000 U.S. ($411,000
                  Cdn.)  of  these  proceeds  were  unpaid.  The  Company  holds
                  security in excess of the unpaid amount.
    
        (e)       During 1993, stock option plans were adopted as follows

                  (i)      Founders  were  granted  options  to  acquire  up  to
                           100,000  common shares at $6.60 U.S. per share on the
                           5th through 9th  anniversary  date of granting of the
                           options.  These  options will become  exercisable  in
                           1998.

                  (ii)     100,000   common  shares  have  been  set  aside  for
                           granting  of options to key  personnel.  All  options
                           expire on the fifth  anniversary  date of the  grant.
                           Options  have been granted for  approximately  85,000
                           common  shares.  4,168 of the options were  exercised
                           subsequent to December 31, 1996.

                  (iii)    20,000 common shares have been set aside for granting
                           of options to  independent  directors of the Company.
                           During 1993,  options to purchase an aggregate 10,000
                           shares at $6.00 U.S.  per share  were  granted to two
                           directors.
<PAGE>
ELEPHANT & CASTLE GROUP INC.
Notes to Consolidated Financial Statements
Years Ended December 31
(Canadian Dollars)

--------------------------------------------------------------------------------

        (f)       During 1995, the Company  issued  warrants  entitling  holders
                  thereof to purchase a total of 295,000 common shares at prices
                  ranging from $4.75 U.S. to $6.00 U.S. per share.  The warrants
                  expire from June 30,  1998 to November 1, 2000.  31,000 of the
                  warrants have been exercised subsequent to December 31, 1996.


10.     CONTINGENCIES

         (a)      The Company was a party to two ten year lease  agreements with
                  Shilo Hotels ("Shilo") relating to facilities located at Yuma,
                  Arizona  and  Pomona,  California  respectively.  The  Company
                  asserted  certain  claims against Shilo by reason of the lease
                  agreements.  Shilo,  in  turn,  asserted  claims  against  the
                  Company  and  commenced  litigation,  still  pending,  in  the
                  Superior  Court,  State of  Arizona,  County  of Yuma.  In the
                  action,  Shilo seeks general and special damages  amounting to
                  approximately  $2,560,000 U.S.  ($3,486,000  Cdn.) for alleged
                  breach  of  the  lease  agreements  at  Yuma  and  Pomona.  In
                  management's opinion, the Company has potential valid defenses
                  and  mitigation of damage  claims  against  Shilo,  as well as
                  potential counterclaims. A provision of $646,979 Cdn. has been
                  made for  potential  damages from this action along with legal
                  and closing  costs (note 12).  Should any  recovery or further
                  loss result from the  resolution  of this claim,  such loss or
                  recovery will be recognized in that period in which it becomes
                  both probable and estimable.

        (b)       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.  The amount of
                  tax  reassessed  was  $209,000.   Including  interest  accrued
                  retroactively   since  1984,  the  total  amount  disputed  at
                  December 31, 1996 approximates $697,000.

                  Legal counsel is of the opinion Revenue Canada's position will
                  not likely be upheld by the courts.

                  When the outcome of the appeal is resolved, the tax liability,
                  if any,  will be  recorded  as an  element  of the  income tax
                  expense for the year it is settled.

        (c)       The Canadian  subsidiary  is  guarantor  on a lease  agreement
                  covering  the  former  Sarnia,  Ontario  restaurant  location.
                  Monthly  rentals  approximate  $9,000  each  to the end of the
                  lease in 1998.
<PAGE>
ELEPHANT & CASTLE GROUP INC.
Notes to Consolidated Financial Statements
Years Ended December 31
(Canadian Dollars)

--------------------------------------------------------------------------------

11.     COMMITMENTS

        The  subsidiaries  are committed to leases on their nineteen  restaurant
        locations  extending  into the 2007 fiscal year.  Minimum annual rentals
        for the restaurants  excluding realty taxes, common area maintenance and
        other charges are as follows



                     1997                               $ 2,147,414
                     1998                                 1,806,722
                     1999                                 1,768,906
                     2000                                 1,804,934
                     2001                                 1,766,719
                     2002 to 2011 inclusive               5,562,376
--------------------------------------------------------------------------------

                                                        $14,857,071
================================================================================

        Each of the aforementioned  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 6% to
        11%.

12.     OTHER ITEMS
<TABLE>
<CAPTION>
                                                          1996            1995           1994
----------------------------------------------------------------------------------------------- 
<S>                                                     <C>          <C>               <C>
Abandonment of assets and demolition costs                                        
relating to restaurant lease not renewed                $      0     $    353,021      $      0
Less:  Deferred income tax effect                              0         (100,000)            0
-----------------------------------------------------------------------------------------------

                                                               0          253,021             0
Provision for potential damages, abandonment
of assets, legal and other costs relating to
restaurant leases in dispute (note 10)                         0          646,979             0
-----------------------------------------------------------------------------------------------

                                                        $      0     $    900,000     $       0
===============================================================================================
</TABLE>
<PAGE>
ELEPHANT & CASTLE GROUP INC.
Notes to Consolidated Financial Statements
Years Ended December 31
(Canadian Dollars)

--------------------------------------------------------------------------------

13.     INCOME TAX
<TABLE>
<CAPTION>

                                                       1996              1995         1994
--------------------------------------------------------------------------------------------- 
<S>                                                     <C>               <C>     <C>
Statutory rates                                         43%               43%             43%
Income tax at statutory rates                            0                 0      $  216,000
Income tax effect related to the following               0                 0
  Amortization of share issue costs                      0                 0        (164,000)
  Amortization of construction
     allowances                                          0                 0         (30,000)
  Non-deductible items                                   0                 0          32,000
  Benefit of loss carry-forward application              0                 0         (54,000)
---------------------------------------------------------------------------------------------

Effective Rate of Income Tax                             0                 0               0%
============================================================================================= 
</TABLE>
        The Company has the  following  available  tax losses,  the  benefits of
        which have not been recorded in these financial statements

          (i)     Non-capital  losses of  approximately  $1,600,000 which can be
                  applied  against future income for Canadian tax purposes up to
                  and including 2003.

         (ii)     Net  capital  losses of  approximately  $270,000  which can be
                  applied  against  future capital gains income for Canadian tax
                  purposes indefinitely.
   
        (iii)     Operating losses of approximately  $1,300,000 U.S. ($1,770,000
                  Cdn.)  which may be carried  forward to apply  against  future
                  years' income for United  States income tax purposes  expiring
                  in 1998, 1999, 2003, 2004 and 2005.

14.     SUBSEQUENT EVENTS

        (a)       The  Company  has  signed a Letter of Intent  with  Rainforest
                  Cafe, Inc. to form a joint venture to develop  Rainforest Cafe
                  Restaurants in Canada.  The anticipated  capital  requirements
                  over the next three years is $10 to $15 million cash.

        (b)       In  February  1997  the  Company  completed  a  financing  for
                  $2,000,000 U.S.  ($2,740,000  Cdn.)  convertible  subordinated
                  notes  with  General  Electric  Investment  Private  Placement
                  Partners  II.  This is the  second  tranche  of the  financing
                  agreement  entered  into in 1995 with the same  company as set
                  out in note 8 above except additional  consideration is 55,555
                  shares. The proceeds are to be used to finance new restaurants
                  in Boston and Seattle.
    
<PAGE>
ELEPHANT & CASTLE GROUP INC.
Notes to Consolidated Financial Statements
Years Ended December 31
(Canadian Dollars)

--------------------------------------------------------------------------------

        (c)       Subsequent to December 31, 1996

                  (i)      4,168  share  purchase  options  were  exercised  for
                           $28,665;
                  (ii)     31,000 share warrants were exercised for $244,203;
                  (iii)    55,555  shares  were  issued  as   consideration   of
                           $380,552  for below market  interest  rates (note 8);
                           and,
                  (iv)     2,000 shares were issued in lieu of  directors'  fees
                           for $21,235.


15.     RELATED PARTY TRANSACTIONS

        (a)       Three  officers  of  the  Company  utilize   personal  service
                  corporations to receive the income from their  employment with
                  the Company.  Payments to these corporations as well as direct
                  payments  to  these   officers   totalled   $381,000  (1995  -
                  $343,000).

        (b)       A  director  of the  Company  provides  legal  and  consulting
                  services  to the  Company.  Fees for these  services  totalled
                  $90,000 (1995 - $61,000).

        (c)       Accounts  receivable include $56,000 (1995 - $50,000) due from
                  directors  of the  Company.  An  additional  $48,000  (1995  -
                  $60,000) of accounts  receivable is due from a Company that is
                  related to a director and which shares  office  premises  with
                  the Company.

        (d)       Other assets  include  $115,000  (1995 - $115,000)  receivable
                  from  an  entity  in  which  a  director  of the  Company  has
                  significant influence.

16.     GEOGRAPHIC SEGMENTED DATA
<TABLE>
<CAPTION>


                                                        1996              1995          1994
-------------------------------------------------------------------------------------------------
<S>                                               <C>               <C>            <C>
Sales to unaffiliated customers
  Canada                                          $  21,774,563     $  19,776,365  $   19,612,304
  United States                                       7,509,387         5,987,974       5,801,971
-------------------------------------------------------------------------------------------------

                                                  $  29,283,950     $  25,764,339  $   25,414,275
=================================================================================================

Income (loss) before income tax and other items
  Canada                                          $    (883,013)    $    (149,458) $      503,427
  United States                                        (290,905)         (528,709)       (299,320)
-------------------------------------------------------------------------------------------------

                                                  $  (1,173,918)    $    (678,167) $      204,107
=================================================================================================

Identifiable assets
  Canada                                          $   8,979,418     $  12,948,148  $    8,229,799
  United States                                       5,820,227         2,939,952       2,099,182
-------------------------------------------------------------------------------------------------

                                                  $  14,799,645     $  15,888,100  $   10,328,981
=================================================================================================
</TABLE>
<PAGE>
ELEPHANT & CASTLE GROUP INC.
Notes to Consolidated Financial Statements
Years Ended December 31
(Canadian Dollars)

--------------------------------------------------------------------------------

17.      DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
         ACCOUNTING PRINCIPLES (CANADIAN GAAP AND U.S. GAAP)
   
         (a)      Recent accounting pronouncements

                  (i)      Earnings per share

                           In February 1997, the Financial  Accounting Standards
                           Board   ("FASB")   issued   Statement   of  Financial
                           Accounting  Standard ("SFAS") No. 128,  "Earnings per
                           Share".  The  statement  is effective  for  financial
                           statements  for periods  ending  after  December  15,
                           1997,  and changes the method in which  earnings  per
                           share will be determined.  Adoption of this statement
                           by the Company  will not have an impact on U.S.  GAAP
                           earnings per share.

                  (ii)     Income tax

                           FASB also issued a revised  statement on  "Accounting
                           for  Income  Tax",   SFAS  No.  109,  which  requires
                           companies to recognize  current  changes in tax rates
                           in recording  their deferred  income tax  liabilities
                           effective for fiscal years  beginning  after December
                           15, 1992.  The effect of applying  this  statement is
                           not significant.

         (b)      Reconciliation   of  earnings   reported  in  accordance  with
                  Canadian GAAP and U.S. GAAP
    
<PAGE>
<TABLE>
<CAPTION>
   
                                             1996                 1995               1994
------------------------------------------------------------------------------------------ 
<S>                                      <C>               <C>                 <C>
Net income (loss) - Canadian
  GAAP                                   $  (1,173,918     $  (1,578,167       $   204,107
Adjustments increasing net
  income (loss)
  Cost of beneficial conversion
  feature of convertible
  subordinated debenture
  (notes 8 and 17(b)(i))                            0         (2,435,760)               0
  Prior years' income tax
      reassessment                                  0                  0         (167,417)
  Amortization of leasehold
      improvement costs                      (116,000)          (122,000)        (128,000)
  Income tax effect of
      adjustments                                   0                  0           55,000
------------------------------------------------------------------------------------------

Net loss U.S. GAAP                      $  (1,289,918      $  (4,135,927)     $   (36,310)
==========================================================================================
Net income (loss) per common share                          
  Canadian GAAP                         $       (0.44)     $       (0.63)     $      0.09
==========================================================================================
  U.S. GAAP                             $       (0.48)     $       (1.65)     $     (0.01)
==========================================================================================
Average number of shares
  outstanding                               2,682,533          2,502,759        2,440,583
==========================================================================================
</TABLE>
 

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

         (i)      The beneficial conversion feature of convertible  subordinated
                  debentures is accounted for as an interest expense at the date
                  of  issue  of  the  security.  This  policy  conforms  to  the
                  accounting for these  transactions  announced by the SEC staff
                  in March, 1997.

                  The fiscal 1995  differences  between  earnings under Canadian
                  and U.S.  GAAP  have  been  adjusted  to  comply  with the SEC
                  staff's position of retroactive application of this accounting
                  practice.  As a result,  fiscal  1995  U.S.  GAAP net loss per
                  common shares has been increased from ($0.68) to ($1.65).

                  The   reconciliation  of  stockholders'   equity  reported  in
                  accordance  with Canadian GAAP and U.S. GAAP has been adjusted
                  by CDN  $2,435,760  to  reflect  this  charge  to  income  and
                  increase in capital in 1995.

         (ii)     Under U.S. GAAP,  amortization of leasehold  improvement costs
                  would be restricted to the term of the lease.
    
<PAGE>
ELEPHANT & CASTLE GROUP INC.
Notes to Consolidated Financial Statements
Years Ended December 31
(Canadian Dollars)

--------------------------------------------------------------------------------
   
         (iii)    Under  U.S.  GAAP,  interest  expense  would be  imputed  with
                  respect  to  a  non-interest  bearing  loan  $22,000  (1995  -
                  $34,000)  received  in  1983  from a  landlord  to  assist  in
                  financing leasehold improvements.  The effect on net income of
                  not  recording  imputed  interest  and  related  income tax is
                  negligible. If the imputed interest had been recorded when the
                  loan  originated,  the effect on the balance sheet at December
                  31,  1996  would  have  been  to  decrease  fixed  assets  and
                  long-term debt by approximately $2,500 (1995 - $4,000).
    
         (c)      Statements of Cash Flows

                  The  Statements of Cash Flows have been prepared in accordance
                  with Canadian GAAP.

                  Under Canadian GAAP,  Cash and  Equivalents is defined as cash
                  net of  short-term  borrowings.  Under U.S.  GAAP,  short-term
                  borrowings are considered a financing activity.

                  Under U.S. GAAP,  financing and investing  activities  that do
                  not result in cash flow would be excluded  from the  statement
                  and disclosed separately.  The following items included in the
                  Statements of Cash Flows would be disclosed  separately  under
                  U.S. GAAP
                  
<TABLE>
<CAPTION>


                                       1996          1995          1994
-------------------------------------------------------------------------
<S>                                  <C>          <C>            <C>
Cash surrender value of life
  insurance                          $ 45,000     $  45,000      $ 45,000
Acquisition of fixed assets                 0       (20,000)            0
Obligation under capital
  leases                                    0        18,000             0
=========================================================================
</TABLE>
<PAGE>
ELEPHANT & CASTLE GROUP INC.
Notes to Consolidated Financial Statements
Years Ended December 31
(Canadian Dollars)

--------------------------------------------------------------------------------


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

         Under U.S.  GAAP,  the following  supplemental  disclosure of cash flow
         information would be made

<TABLE>
<CAPTION>

                                        1996           1995           1994
---------------------------------------------------------------------------- 
<S>                                 <C>             <C>           <C>
Interest                            $   151,580     $  78,570     $   45,237
Income tax                                    0        75,000         92,417
============================================================================
</TABLE>
   
         (d)      Reconciliation of stockholders'  equity reported in accordance
                  with Canadian GAAP and U.S. GAAP

<TABLE>
<CAPTION>

                                               1996              1995             1994
----------------------------------------------------------------------------------------- 
<S>                                     <C>                <C>               <C>
Stockholders' equity, December 31,
  under Canadian GAAP                   $    7,697,098     $   7,087,138     $  7,345,905
Cumulative adjustments reducing
  net income reported under
  Canadian GAAP to net income
  under U.S. GAAP                          (3,186,977)        (3,070,977)        (513,217)
Beneficial conversion feature of
  convertible subordinated
  debentures (notes 8 and 17(b)(i)           2,435,760         2,435,760                0
-----------------------------------------------------------------------------------------

Stockholders' equity U.S. GAAP          $    6,945,881     $   6,451,921     $  6,832,688
=========================================================================================
</TABLE>
    
<PAGE>
ELEPHANT & CASTLE GROUP INC.
Notes to Consolidated Financial Statements
Years Ended December 31
(Canadian Dollars)

--------------------------------------------------------------------------------

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

         (e)      Stock option plans

                  The Company adopted an employee,  a founder's and a director's
                  stock option plan in 1993.  Stock option  activity under these
                  plans is summarized as follows:

<TABLE>
<CAPTION>

                                             Number            Exercise Price
                                           of Shares         (U.S.$)   (Cdn.$)
-------------------------------------------------------------------------------
<S>                                          <C>           <C>           <C>
Granted 1993 (inception)                     160,000       $ 6.19*       $ 8.48
1995
-  Granted                                    18,000          4.75         6.51
-  Cancelled                                 (4,200)          5.40         7.40
-------------------------------------------------------------------------------

December 31/95                               173,800         6.06*         8.30
1996 - Granted                                22,000          7.20         9.86
-------------------------------------------------------------------------------

Outstanding, December 31/96                  151,800       $ 6.19*       $ 8.47
===============================================================================
</TABLE>

                  * Weighted average exercise price.

                  In  1995  the  FASB  issued  SFAS  No.  123   "Accounting  for
                  Stock-Based  Compensation",  which contains a fair value-based
                  method for valuing stock-based  compensation that entities may
                  use. This measures  compensation  cost at the grant date based
                  on  the  fair  value  of  the  award.   Compensation  is  then
                  recognized  over the  service  period,  which is  usually  the
                  vesting period. For U.S. GAAP purposes management accounts for
                  options  under APB Opinion No. 25. As option  exercise  prices
                  approximated   market   price  on  the   dates  of  grants  no
                  compensation  expense has been recognized.  If the alternative
                  accounting-related provisions of SFAS No. 123 had been adopted
                  as of the beginning of 1995,  the effect on 1996 and 1995 U.S.
                  GAAP net loss per share would have been immaterial.
    
<PAGE>
 


                                   SIGNATURES


         In  accordance  with  Section  13 or 15(d)  of the  Exchange  Act,  the
Registrant caused this 10-KSB/A-1 for the fiscal year ended December 31, 1996 to
be signed on its behalf by the undersigned, thereunto duly authorized.


(Registrant)  Elephant & Castle Group, Inc.


                                     By: /s/Daniel DeBou,
                                         ---------------
                                         Daniel DeBou,
                                         Vice President/Chief Accounting Officer

Date    January 28, 1998