SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                   Form 10-KSB/A

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

                   For the Fiscal Year Ended December 31, 1997
                           Commission File No. 1-12134
                              Cusip No. 286199-10-4

                          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>

Issuer's   revenues  during  the  fiscal  year  ended  December  31,  1997:  CDN
$34,230,000 (converts at applicable exchange rates to U.S. $24,986,000).

Aggregate market value of voting stock held by  non-affiliates of the Registrant
as at March 31, 1998: U.S. $8,574,000 (CDN $1,746,000).

Number of shares  outstanding of Issuer's  Common Stock as of December 31, 1997:
3,002,183.

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

         None.

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

                                    NASDAQ                   Number of
      Title of Each Class           Symbol               Shares Outstanding
      -------------------           ------               ------------------

Common Stock, $.01 par value        PUBSF                     3,072,316(a)

(a)Calculated  as of March 31, 1998, and includes  70,133 shares issued pursuant
to certain financing transactions in the first quarter of 1998.

Forward-Looking Statements

         This annual  report on Form 10-K  contains  forward-looking  statements
within the  meaning of the  Private  Securities  Litigation  Reform Act of 1995,
including  statements  made  with  respect  to the  results  of  operations  and
businesses  of  the  Company.   Words  such  as  "may,"   "should,"   "believe,"
"anticipate," "estimate," "expect," "intend," "plan" and similar expressions are
intended  to  identify   forward-looking   statements.   These   forward-looking
statements are based upon management's  current plans,  expectations,  estimates
and  assumptions  and are  subject to a number of risks and  uncertainties  that
could significantly affect current plans,  anticipated actions and the Company's
financial  condition  and results of  operations.  Factors that may cause actual
results  to differ  materially  from those  discussed  in  such-forward  looking
statements include, among other, the following  possibilities:  (i) fluctuations
in foreign currency  exchange rates; (ii) heightened  competition,  the entry of
new competitors;  (iii) the inability to carry out development plans or to do so
without  delays;  (iv) loss of key  executives;  and (v)  general  economic  and
business  conditions.  The Company  does not intend to update  these  cautionary
statements.
<PAGE>
ITEM 1            DESCRIPTION OF BUSINESS

a.       General

         The Company currently operates a chain of 20 full-service casual dining
restaurants  and pubs,  14 of which are  located  in Canada and six of which are
located in the United States.

         All but two of the  restaurants  are currently  operated under the name
"Elephant & Castle" an English pub  concept.  The Elephant & Castle units in the
United States include the two newest additions to the chain, located in Seattle,
Washington and Boston,  Massachusetts.  Both of such units were added during the
second half of 1997.

   
         The Company has been selected by Rainforest Cafe, Inc.  (NASDAQ:  RAIN)
as  joint  venture  partner  and  exclusive  licensee  for  the  development  of
Rainforest  restaurants  in Canada.  The  Company's  first  Canadian  Rainforest
restaurant  is  under  construction  and  scheduled  to  open in June of 1998 in
Vancouver,  B.C. The Company  expects to operate up to five Canadian  Rainforest
restaurants by the end of 1999. If that goal or a substantial  fraction  thereof
is  met,  the  Company's   continuing  revenues  from  the  Canadian  Rainforest
restaurants  will  constitute a  significant  part of the  Company's  continuing
revenues.  Martin O'Dowd,  formerly the President and Chief Executive Officer of
Rainforest  Cafe,  Inc.,  became the  President and Chief  Executive  Officer of
Elephant & Castle Group Inc. in March of 1998.
    

         In addition,  the Company  owns and operates an "Alamo  Grill" red meat
steakhouse  at the Mall of  America,  Bloomington,  Minnesota.  The  Company  is
committed  to the  expansion  of the Alamo Grill  steakhouse  restaurants,  as a
separate  concept,  with the first  new site to be  opened  in 1998 in  Franklin
Mills,   Pennsylvania  in  a  new  "twinning"   arrangement   (side-by-side   or
back-to-back)  with an Elephant & Castle pub  restaurant.  The Elephant & Castle
English  Pub  concepts  is being  franchised  for the first  time in the  United
States, and it is the Company's  intention in the future to similarly  franchise
Alamo Grill.

         Prior to the initial  public  offering of the  Company's  securities in
June of 1993,  the  Company  operated 12 pub  restaurants,  all located in major
shopping malls and office complexes from Victoria,  B.C. to Ottawa, Ontario, and
only one of which was located in the U.S., at Bellis Fair,  Washington  near the
Canadian border.

         The shift of focus to more U.S. based  locations is in accordance  with
the  Company's  previously  announced  intentions  with  respect  to  restaurant
locations.  In  addition,  the  Company  has  moved its pub  restaurants  from a
previous  concentration  in mall  locations  into  major  hotels  and other high
traffic  urban  locations.  The Company  proposes to continue to  diversify  its
portfolio  of  restaurant   offerings  in  the  casual  restaurant  segment,  to
stand-alone  urban,  hotel  based and at select mall  locations.  The Company is
seeking to move towards  being a multi-brand  business  operating a portfolio of
proven  restaurant  concepts.  The  diversity  of the  concepts  is  intended to
maximize the  Company's  appeal to the broadest  band of consumers in the casual
dining  segment.  The Company  hopes to manage  other U.S.  based  brands in the
Canadian market,  while positioning itself to expand Elephant & Castle and other
developed or acquired brands in U.S. market.
<PAGE>
         1997 Results of Operations

         During   1997,   the  Company   opened  three  new  Elephant  &  Castle
restaurants,  two of which are in the United  States,  Boston  (November  4) and
Seattle,  Washington (August 28). The third new location was opened in Edmonton,
Canada on November  20,  1997.  Two  restaurant  locations  were closed in 1997,
Vancouver  (February 28th) and Thunder Bay (August 31st). Both closings occurred
upon lease expirations.

         In 1997, the Company's sales  increased 16.9% to CDN $34,231,000  (U.S.
$24,986,000) from CDN $29,284,000  (U.S.  $21,375,000) for the comparable period
in 1996.  The sales  increase and other  factors have  permitted  the Company to
reduce costs per dollar of sales, including general and administrative  expenses
which were 7.2% in 1997, a reduction of 17%.

   
         During the fiscal year ended December 31, 1997, the Company  incurred a
net  loss  of  CDN  $1,416,000  (US$1,034,000)  compared  to a net  loss  of CDN
$1,174,000  (US$857,000) for the  corresponding  period in 1996. The 1997 figure
includes CDN $677,000 (US  $494,000) in  restaurant  closing  costs and a senior
executive retiring allowance.
    

         1997 results of operations  reflected  continued losses from operations
from  unsatisfactory   results  at  the  Company's  Canadian  mall  restaurants,
(revenues declined 4.5% at the twelve Canadian  operations  operated  throughout
1997);  less than budgeted  projected  operating margins at certain of the newer
restaurants;  significantly  higher  interest costs on capital  borrowed for the
Company's expansion efforts;  and higher than planned general and administrative
costs.

                  Occupancy  costs declined from 15.0% in 1996 to 14.2% in 1997.
Management  believes  that the  build-out  of the  additional  U.S.  hotel-based
restaurants will further lessen occupancy costs as a percentage of revenues, and
that  the  Canadian  rainforest  restaurant   opportunity,   together  with  the
contemplated  disposition of certain restaurant locations with  disproportionate
occupancy costs,  will enable the Company to reduce total costs, as a percentage
of sales significantly and to return to profitability.

         GEIPPP II Financing. In December of 1995, the Company completed a major
financing  with a prominent  U.S.  private  limited  partnership  money manager,
General Electric  Investment  Private Placement  Partners II ("GEIPPP II"). That
financing  initially  added U.S.  $1,000,000  (CDN  $1,370,000) in equity before
issue costs and U.S.  $3,000,000 (CDN  $4,110,000) in  subordinated  convertible
notes to the  Company's  long  term  debt  structure.  In  February  of 1997 and
November of 1997,  the Company  completed an  additional  U.S.  $4,000,000  (CDN
$5,480,000)  financing  with GEIPPP II. The proceeds of the 1997  financing were
used to pay for  construction  of new  restaurants  located at the Club Quarters
hotel in the Boston,  Massachusetts financial district, and the Cavanaugh Inn in
the Seattle, Washington downtown entertainment district.

   
         The closing of the GEIPPP II financings and the potential  availability
of up to U.S.$2,000,000 (CDN $2,740,000) of additional  financing by the sale of
similar notes in the future enhances the Company's ability to achieve its future
expansion  plans.  In 1997, the Company  separately  raised  $12,000,000  from a
French  bank  and  certain  affiliates  and  subsidiaries  thereof  through  the
placement  of a  $2,000,000  Convertible  Note.  In the  opinion of  management,
significant  additional capital will be required,  particularly for the Canadian
Rainforest restaurants venture.
    
<PAGE>
         Elephant  &  Castle  (Traditional  Format).  At the  Elephant  & Castle
restaurants,   the  Company  seeks  to  distinguish   itself  from   competitive
restaurants by its distinctive British style and Tudor decor, and by featuring a
wide variety of menu items including a large number of English-style dishes. The
Company's  restaurants  offer  a broad  menu  at  popular  prices.  The  menu is
regularly  updated to keep up with  current  trends in  customers'  tastes.  The
average check per customer, including beverage, was approximately CDN $14 during
1997, a number  which has more or less been stable  since 1992.  Although all of
the Company's  restaurants provide full liquor service,  alcoholic beverages are
primarily served to complement meals.

   
         Mall Restaurants.  The Company's mall restaurants average approximately
5,000 square feet, with a typical  seating  capacity of 220. The restaurants are
open 7 days a week for lunch,  dinner and late-night dining.  Average unit sales
are less than CDN $2  Million,  with a sales mix of  approximately  60% food and
approximately 40% alcoholic  beverages.  Due to their location at major downtown
and suburban malls and office complexes, the Elephant & Castle restaurants cater
to both shoppers and office workers.
    

         Hotel  Restaurants.  The Company has  agreements  for the  operation of
restaurants at Holiday Inn hotels in Winnipeg, Manitoba, (Canada), Philadelphia,
Pennsylvania and San Diego, California in the United States. The Winnipeg Crowne
Plaza Holiday Inn Elephant & Castle  restaurant  was opened on May 18, 1994. The
Philadelphia Holiday Inn unit was opened on February 28, 1995, and the San Diego
Holiday Inn was opened on July 1, 1996.  Both the Winnipeg and the  Philadelphia
Holiday Inn restaurants have produced revenues and profits and positive reaction
from  Holiday  Inn  management.  The San Diego  facility  has  incurred  certain
operational  difficulties  which decreased  revenues and increased costs both in
absolute amounts and as a percentage of revenues. However, results of operations
at the San Diego facility have been more favorably impacted since mid 1997.

         The Boston,  Massachusetts and Seattle,  Washington sites added in 1997
are in hotel  locations  other than  Holiday  Inn.  The  Company  plans to build
additional hotel  restaurant  units at first-class  hotels over the next several
years.

         In the opinion of management, the three key ingredients favoring select
hotel based units strategy are:

         (1)      the control of occupancy costs;

         (2)      the capacity to work  synergistically  with a hotel management
                  seeking to divorce itself from direct  involvement in food and
                  beverage operations; and

         (3)      the  Company's  ability  to  control  the  menu,  kitchen  and
                  restaurant amenities.

         The Canadian Rainforest Venture. As of May 1, 1997, the Company entered
into final  agreements  with  Rainforest  Cafe,  Inc.  ("RCI")  relating  to the
Canadian Rainforest Joint Venture.  The agreements provide for the establishment
of a jointly-owned Canadian corporation,  Canadian Rainforest Restaurants,  Inc.
("CRRI") in which the  Registrant and RCI each have a 50% interest in the Common
Stock,  but which  the  Registrant  will  effectively  control  as to day to day
operations  by the power to nominate  three of the five CRRI  directors and by a
management agreement.
<PAGE>
         The   Registrant   has   simultaneously   acquired  an  exclusive  Area
Development  Agreement for U.S.  $500,000  (CDN  $685,000),  U.S.  $250,000 (CDN
$343,000) paid in advance,  and U.S.  $50,000 (CDN $69,000) per annum thereafter
until the balance is paid. The Area  Development  Agreement has been assigned to
CRRI, the joint venture company.

         Each  restaurant  built within the  exclusive  territory of Canada will
also enter into a license  arrangement with RCI. The Rainforest  restaurants,  a
trademark and trade name protected  concept,  provide  patrons with a rainforest
environment,  which is both attractive and entertaining, and has been sought out
by mall  operators and others on favorable  terms as a destination  location.  A
section  of the  premises  of each  restaurant  is set  aside  for  the  sale of
rainforest  related  merchandise.  The Company has  slightly  modified the basic
physical structure of each Rainforest restaurant.

         In the United States,  Rainforest  Cafe, Inc. has quickly expanded from
its  first  unit at Mall of  America,  Bloomington,  Minnesota  to a total of 13
restaurants by the end of 1997. RCI has also signed Area Development  Agreements
for foreign expansion in Mexico, England, France, Hong Kong and other areas.

         The  Registrant  expects to invest from CDN $10-15 million in the joint
venture entity for the creation of least five Canadian Rainforest restaurants in
Canada  during the next  twelve to  eighteen  months.  Each such  restaurant  is
expected to  contribute  substantially  to the Company'  revenues and  operating
margins  starting in mid-1998.  The Company will receive a 1.5%  management  fee
from each  licensed  restaurant  in addition to  distributions  it receives as a
shareholder of CRRI. The Company requires substantial  operating capital for the
proposed build-out of the Rainforest restaurants.

         Each Rainforest Restaurant will present an equatorial rainforest motif,
a diverse  interesting menu and high quality food which is intended to appeal to
a broad customer base.

   
         The five restaurants  planned to date (one in greater Vancouver,  three
in Toronto and one in Montreal) will range from 17,000 to 20,000 square feet and
seat from 260 to 340 people.  Due to the size and scope of these facilities,  it
is necessary  that they be  positioned in very high traffic areas to attract the
necessary  clientele.  The  anticipated  sales mix from the Canadian  Rainforest
Restaurants is 25% retail items, and 75% food and beverage.
    

         The  principal  competition  will  be the  established  "eatertainment"
restaurants such as Hard Rock Cafe and Planet Hollywood.

         Alamo  Grill.  In  October of 1996,  the  Company  acquired  all of the
capital stock of Alamo Grill,  Inc.  ("Alamo"),  a one unit restaurant  business
located at the Mall of  America,  Bloomington,  Minnesota.  The  Company  issued
147,059  shares to the  shareholders  of  Alamo's  parent  company  and  assumed
U.S.$536,000  (CDN$734,000)  of  such  entity's  debt  in  connection  with  the
transaction.  The  acquisition  provides the Company  with a "red meat"  concept
restaurant  for the  expansion of its  hotel-based  properties.  The single unit
Alamo has been  successfully  and  profitably  operated by the Company since the
acquisition.  The new  "Alamo  Grill  Restaurants"  (which  may use such name or
variants  thereof)  will be casual  steakhouse  restaurants  with a  distinctive
southwestern  design and theme.  They are intended to be located in high traffic
suburban malls and large box retail  outlets.  The target market is blue to grey
collar family shoppers.  The menu will be positioned to deliver an average spend
of U.S.  $14-16  Dollars for food at dinner.  Each  restaurant  is planned to be
<PAGE>
6,500 square feet with a 240-seat capacity.  The Company is currently  proposing
to use the Alamo food format at other facilities.  In a concept which remains in
the development stage, the Company will dual-brand a twin restaurant opportunity
in Franklin Mills,  Pennsylvania.  The E & C/Alamo will be approximately  12,000
square  feet and share a common  kitchen.  The  efficiencies  of the  dual-brand
concept  intended  to  be  realized  include  facility  and  construction   cost
limitations,  while presenting two distinct brand images to the public. See also
Franchising/Licensing.

         Other  Formats.  In August of 1995, the Company opened a New York style
deli known as  Rosie's-on-Robson.  The Company  provides all of the hotel's room
service,  off-premise  catering,  and branded specialty products.  The Company's
restaurant at Rosedale is significantly  different from the traditional Elephant
& Castle format.  The Company's  experience  with "Rosie's" to date has not been
favorable.  The Company currently does not intend to further develop the Rosie's
brand or concept.

         Future Company Growth. In addition to the Canadian  Rainforest  venture
discussed elsewhere, the Company's strategy for future growth of its hotel-based
and urban  traffic  center  locations is as follows:  Select  locations  will be
identified in certain  high-density  markets.  The Company has in mind a limited
number of geo graphic pockets for potential growth for all corporate brands. The
intention  is to  cluster  restaurants  in prime  locations  within  the  chosen
geographic  regions.  Key  points  for  consideration  include  a high  level of
occupancy at a prospective  hotel; a hotel which is part of a chain large enough
to join in combined marketing  activities;  potential unique traffic generators;
and the need for revenues in all seasons.


Other Activities

         Franchising/Licensing.  Management  of the  company  believes  that the
Company's  "brand"  identification  is a valuable  asset.  The Elephant & Castle
brand  label  is  licensed  at  the  new  international  terminal  at  Vancouver
International  Airport.  Future  activities  may  include  an  expansion  of the
Company's  licensing/franchising  activities.  Elephant & Castle  International,
Inc. has been authorized to commence franchise  activities in the United States,
and has begun franchise activities for the Elephant & Castle units.

   
         Elephant on Campus.  In September  1995,  the Company  opened its first
on-campus  restaurant,  the  "Elephant  on  Campus",  at  the  British  Columbia
Institute of  Technology.  The campus  restaurant,  located in the student union
building,  required an  investment  of CDN  $500,000  and has an indoor  seating
capacity of  approximately  250, plus an outdoor  patio.  The restaurant has the
same  British-style/Tudor  decor,  and the menu features the same items as other
E&C restaurants.
    

         Airports.  Late in 1995, the Company licensed Cara Operations  ("Cara")
to operate an Elephant & Castle restaurant-pub at the new international terminal
at Vancouver  International  Airport.  Cara, which is highly successful and well
positioned  in airline and airport food  services in Canada,  elected to use the
E&C brand as part of the Vancouver  International  Airport  terminal "mix".  The
Company  intends  to  pursue  similar  business  with  Cara and  other  terminal
operators in the future.
<PAGE>
         Additional Information

         1. Form and Year of Organization.  The Company was  incorporated  under
the laws of the Province of British  Columbia,  Canada, on December 14, 1992, as
part  of a  reorganization  of  sister  subsidiaries.  The  Company's  principal
executive offices are located at Suite 500, 856 Homer Street, Vancouver, BC, V6B
2W5 (604)  684-6451,  fax (604)  684-8595.  As used  herein,  unless the context
specifies otherwise,  "Elephant & Castle" or the "Company" refers to the holding
company and its restaurant subsidiaries.

         2. Reorganization. The Company was formed in 1992 as a holding company.
The Company  owns The Elephant and Castle  Canada Inc.,  an Ontario  corporation
("E&C Canada") (14  restaurants);  Elephant & Castle,  Inc., a Texas corporation
("E&C Texas") (two restaurants); and Elephant & Castle, Inc., a Washington State
corporation.  In  addition,  the  Company  owns Alamo  Grill,  Inc.,  an Indiana
Corporation and Elephant & Castle International, inc., a Texas corporation.

         E&C Canada was  previously  amalgamated  in May 1990 to act as the sole
operator of the business  conducted by the 12  restaurants  under the trade name
"Elephant & Castle". E&C Texas was incorporated in Texas in 1983 for the purpose
of  creating  an  Elephant & Castle  restaurant  at an upscale  mall in Houston,
Texas. The mall development was not successful, and the restaurant was closed in
1985. The Company had a tax loss carryforward of approximately  U.S.  $1,000,000
(CDN $1,370,000) from the failed Houston restaurant. A portion of the benefit of
such tax loss carryforward has been utilized. The remaining benefits, if any, to
be derived from the United States tax loss  carryforward  are not believed to be
material in relation to the business of the Company as a whole.


b.       Financial Information about Industry Segments.

         During each of the last three years, the Company has been substantially
engaged in a single line of business -- the  ownership and operation of Elephant
& Castle restaurants.


c.       Narrative Description of the Business.

                  i.  Principal  Products or  Services  and their  Markets.  See
Description of the Business - General.

                  ii.  Distribution  Methods.  The Company focuses on the casual
dining  segment.  The Company has not set out to establish  its  restaurants  as
"destination  locations".  Instead,  it relies  primarily  on its  high-traffic,
convenient downtown and suburban mall, and most recently,  high-occupancy hotel,
locations  consumer  satisfaction  and word of mouth to  attract  new and repeat
customers.   The  Company  has  engaged  in  indirect  marketing  through  heavy
involvement  of its  principals  in local and national  charities  and community
functions, particularly Variety Club International.

                  Management  believes that newer Elephant & Castle  restaurants
have benefitted from the name recognition and reputation for quality development
for which the family of  restaurants  has become  known in Canada.  The  Company
employs  some  print  and  direct-mail   advertising  and  conducts  many  local
promotions geared to the neighborhoods and markets the restaurant serves.  These
low-cost  activities can include  everything from ski-party  packages to mystery
theater activities,  entertainment,  sports nights,  comedy nights and functions
related to special holidays.  During fiscal 1997, the Company's expenditures for
advertising and promotional activities were approximately 3% of its revenues.
<PAGE>
                  iii. Status of New Developments.  The Company is constantly in
the process of examining and  undertaking  various new development and expansion
opportunities.

         Relationship with Hotel Operators

         The Registrant's relationship with hotel operators, such as Holiday Inn
is predicated on (i) shared investment in significant  physical  improvements to
the facility at the onset of the occupancy;  (ii) costs of occupancy measured by
a percentage of the unit's revenues;  (iii) adequate time to recruit and train a
restaurant staff of Registrant's selection;  and (iv) reliance upon Registrant's
control  of  the  physical  environment  and  menu  selections.  The  Registrant
currently  operates  hotel  restaurants  at the  Club  Quarters  Hotel  (Boston,
Massachusetts)  and  Cavanaughs   (Seattle,   Washington).   The  Registrant  is
discussing additional prospective restaurant sites at major hotel locations.

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

                  v. Suppliers.  Food products and related  restaurant  supplies
are purchased  both through home office  purchasing  programs and already at the
restaurant  level from  specified  food  producers,  independent  wholesale food
distributors  and  manufacturers.  This  process  enables  the Company to ensure
quality companies.  Management believes all essential food and beverage products
are available from multiple sources in all of the locations it serves,  and that
it is not  dependent  on any one of a limited  number of  suppliers.  Management
expects to be able to achieve a  declination  in the costs of food  products and
related suppliers based upon new purchasing  policies currently being adopted, a
change  in key  personnel  responsible  for  the  implementation  of  purchasing
process, and maximization of rebates and allowances, which were not consistently
received by the Company in earlier periods.

                  vi.  Dependence on Customers.  Elephant & Castle  appeals to a
diverse customer base,  including  business and  professional  people who occupy
offices in the vicinity of the  restaurants,  shoppers from the malls,  downtown
tourists,  and others.  The Company's  locations and broad menu attract  traffic
from lunch through mid-afternoon, dinner and into the evening hours. Most all of
the Company's restaurants are open seven days and evenings, each week. All items
on the menu are available for take-out,  although take-out customers account for
less than 2% of total restaurant sales.
<PAGE>
                  vii.  Trademarks;  Licenses.  The Company has registered  "The
Elephant & Castle Pub & Restaurant"  with the Canadian  Trade marks Office,  and
has  registered  "Elephant  Mug" with the United  States  Patent  and  Trademark
Office.  The  Company  regards  its  "Elephant  &  Castle"  and  "Elephant  Mug"
trademarks as having sub stantial value and as being an important  factor in the
marketing of its  restaurants.  The Company is not aware of any infringing  uses
that could  materially  affect its business or any prior claim to the trademarks
in its business.  The Company acquired "The Elephant & Castle"  trademark in the
United  States.  The  Company  agreed to pay  approximately  U.S.  $50,000  (CDN
$69,000),  plus a one-time fee of U.S.  $5,000 (CDN $7,000) per location for the
first ten locations for the mark.

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

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

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

                  ix. Effect of Existing and Probable Governmental Regu lations.
The Company is subject to "dram-shop"  statutes in California,  Pennsylvania and
Washington  and may become  subject to similar  proposed  legislation in Canada.
"Dram-shop" statutes generally provide a person injured by an intoxicated person
the right to recover  damages  from an  establishment  which  wrongfully  served
alcoholic  beverages  to such a person.  The Company  carries  liquor  liability
coverage which it believes to be consistent  with the coverage  carried by other
entities  in the  restaurant  industry.  Even  though the  Company is covered by
insurance,  a judgment against the Company under a "dram-shop" statute in excess
of the Company's  liability coverage could have a material adverse effect on the
Company. The Company has never been the subject of a "dram-shop" claim.
<PAGE>
   
                  x. Research and  Development.  The Company places  significant
emphasis on the design and interior decor of its restaurant.  In-house design is
supervised by Vice President George Pitman, one of the founding  shareholders of
the Company.  The Company's  design  requires higher capital costs and furniture
and  fixtures  investment  to  open a new  restaurant  than  is  typical  in the
industry. Landlord contributions defray a part or a substantial part of interior
design and decor at a typical  new  restaurant.  The Company  believes  that its
design  and decor  features  enhance  the  dining  experience.  Each  restaurant
typically features large, airy dining areas. Two of the restaurants offer atrium
seating,  and several offer patio seating,  which adds substantially to seasonal
capacity,   revenues  and  profits.  Table  layouts  are  flexible,   permitting
re-arrangement of seating to accommodate large groups and effective  utilization
of maximum seating capacity.

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

                  xi. Costs and Effects of Compliance with  Environmental  Laws.
The  Company  is not aware of, and does not  anticipate  any  significant  costs
related to compliance with environmental laws.

                  xii. Number of Total Employees and Full-Time Employees.  As of
December 31, 1997, the Company employed approximately 900 persons on a full-time
and part-time  basis.  21 of such persons serve in  administrative  or executive
capacities,  54 serve as restaurant  management  personnel and the remainder are
hourly workers in the Company's restaurant operations. The Company believes that
its working  conditions and  compensation  packages are  competitive  with those
offered by its competitors.  Management  considers the Company's  relations with
its employees to be good, and its rate of employee turnover,  particularly among
management employees,  to be low in relation to industry standards.  The Company
has an  agreement  with the union which  represented  the former  workers at the
predecessor  restaurant  located at the Holiday Inn unit in  Philadelphia  which
requires the Registrant to seek new hires first from among the pool of available
union hiring hall personnel.  The Company's  service  personnel at the San Diego
Elephant & Castle  unit and  Rosie's on Robson are  unionized.  The  Company has
never experienced an organized work stoppage, strike or labor dispute.

                  The Company has sought to attract  and retain  high-  quality,
knowledgeable  restaurant  management and staff.  In units which the Company has
had in operation five or more years,  the Company has regularly  retained a work
force  with  a  significant  number  and  percentage  of  its  employees  having
continuous  service with the Company.  Currently,  at such units the Company has
259 employees of which 25.5% are five year veterans.  In  supervisory  positions
within the Company's restaurant business, the percentage is even higher (67.7%).
Each  restaurant  is  managed  by one  general  manager,  and  from one to three
assistant  managers  depending on volume.  Each  restaurant also has one kitchen
manager  and one to  three  assistant  kitchen  managers.  On  average,  general
managers have about five years'  experience  with the Company.  The Company also
<PAGE>
employs  regional  managers  and may be required to add  additional  supervisory
people as the chain  expands.  As the Company adds new  restaurants,  its future
success  may depend in part on its  ability  to  continue  to attract  and train
capable  additional  managers.  The Company also anticipates that the opening of
additional  restaurants  including  at hotel  sites in the  United  States  will
require a  commensurate  increase in  employees.  The Company  does not expect a
proportionate increase in the number of corporate or administrative personnel.

                  Restaurant  managers,  many of whom have moved up through  the
ranks,  are  required  to  complete a  training  program  during  which they are
instructed in areas including food quality and  preparations,  customer service,
alcohol service, liquor liability avoidance and employee relations.  The Company
believes its training  programs for managers and other  employees are comparable
to the  training  provided for  managers  and other  employees at  substantially
larger restaurant chains.  Restaurant managers are also provided with operations
manuals  relating  to food and  beverage  standards  and other  expectations  of
restaurant  operations.  Management  has made a conscious  commitment to provide
customer  service of the highest  standards.  In addition to evaluations made by
the customers,  the Company uses a "designated customer" quality control program
to  independently  monitor  service and operations.  "Designated  customers" are
independent  people who test the  standards  of food,  beverage  and  service as
customers of the restaurant  without the knowledge of management or staff.  Done
on a periodic  basis,  their  findings  are  reported to  corporate  management.
Efficient,  attentive and friendly service is integral to the Company's  overall
concept.  Any new employee at all functional levels is closely  supervised after
his  or  her  on-the-job   training.   Management  regularly  solicits  employee
suggestions  concerning  operations,  and endeavors to be responsive to employee
concerns.

                  The Company believes its commitment to employee morale is also
critical to its long-term success.  The Company has compiled an excellent record
of employee  retention  at all levels of  management.  The  average  tenure of a
restaurant  general  manager in the Elephant & Castle chain is seven years.  The
Company  considers the quality of its employee  interaction with customers to be
an important element of its business strategy.
<PAGE>
ITEM 2            PROPERTIES

PROPERTIES

         Other than the hotel and urban restaurants  discussed separately below,
the  Company  currently  operates  eleven  mall based  restaurants.  All of such
facilities are leased  properties.  The following  table provides  opening date,
square footage and indoor seating  capacity  information with respect to each of
the mall based restaurants currently in operation:
<TABLE>
<CAPTION>
                                                                                                 Indoor
City                       Mall                      Opening Date               Square Feet      Seating(a)
----                       ----                      ------------               -----------      ----------
<S>                        <C>                        <C>                          <C>             <C>     
Regina, Sask.              Cornwall Center            Aug. 1981                    5,375           220
Ottawa, Ont.               Rideau Center              Mar. 1983                    7,119           280
London, Ont.               Galleria                   Sep. 1983                    6,000           240
West Edm., Alb.            West Edmonton              Jul. 1988                    6,500           245
Edmonton, Alb.             Eaton Center               Sep. 1988                    5,939           225
Victoria, B.C.             Eaton Center               Jun. 1989                    5,640           225
Bellingham, WA             Bellis Fair                May  1990                    5,200           220
Saskatoon, Sask.           Midtown Plaza              Oct. 1990                    5,815           225
Calgary, Alb.              Eaton Center               Dec. 1990                    5,851           225
Surrey, B.C.               Guildford Town             May  1992                    4,835           200
Bloomington, MN            Mall of America            Oct. 1996                    6,750           280
</TABLE>


(a)Outdoor/patio seating is available at a number of the locations,  but only on
   a limited seasonal basis.


         All of the  restaurants  are located on leased sites.  The Company owns
the furnishings,  fixtures and equipment in each of its mall based  restaurants.
Existing  restaurant  leases have  expirations  ranging  from 1997  through 2017
(including  existing  renewal  options).  The Company  does not  anticipate  any
difficulties  renewing its existing leases as they expire. Mall leases typically
provide  for fixed  rent plus  payment  of  certain  escalations  and  operating
expenses, against a percentage at restaurant sales.

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

         The  Company's  facilities at Hotels and other  non-mall  locations are
occupied on the following basis:
<PAGE>

Hotel Locations              Opening Date     Square Ft.     Indoor Seating
---------------              ------------     ----------     --------------

Winnipeg                     May 1994           4,300              180
Philadelphia                 February 1995      7,900              310
San Diego                    July 1996          7,500              300
Seattle                      August, 1997       7,600              230
Boston                       November, 1997     9,500              200


Other Locations

"Rosie's"
 (Vancouver)                 August, 1995       5,500              200
BCIT
 (Burnaby,B.C.)              September, 1995    4,500              300
Toronto
 Entertainment
 District                    October, 1996      9,200              330
Edmonton                     November, 1997     5,600              180


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


                                            Earliest
Location                               Expiration Date       Minimum Annual Rent
--------                               ---------------       -------------------

Regina Cornwall Center                        1998          CDN    $ 50,000
London Galleria                               1998                   78,000
BCIT, Burnaby, B.C.                           2000                  140,000
Edmonton Eaton Center                         2001                  109,000
Minneapolis, Mall of America                  2002                  259,000
West Edmonton Mall                            2003                  130,000
Ottawa Rideau Center                          2003                  165,000
Victoria Eaton Center                         2004                  141,000
Winnipeg, Holiday Inn                         2004                   60,000
Saskatoon Midtown Plaza                       2005                  150,000
Bellingham Bellis Fair                        2005                  106,000
Rosie's, Rosedale                             2005                   60,000
Philadelphia, Holiday Inn                     2005                  137,000
Calgary Eaton Center                          2005                   94,000
San Diego, Holiday Inn                        2006                   82,000
Surrey, Guilford                              2007                  156,000
Boston, Club Quarters                         2007                   82,000
Toronto (King Street)                         2011                   92,000
Edmonton, White Ave                           2012                   77,000
Seattle, Cavanaughs                           2012                   77,000


         Total:                                             CDN  $2,245,000
                                                                 ==========

         The Company has been able to decrease  the  aggregate  per unit minimum
annual rental over the last several years in part due to selective locations and
appropriate lease provisions.
<PAGE>
ITEM 3            LEGAL PROCEEDINGS

         From  time to time  lawsuits  are  filed  against  the  Company  in the
ordinary  course of business.  Except as set forth  below,  the Company is not a
party to any  litigation  which  would  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
Reassessment from Revenue Canada and the Ministry of Revenue, Ontario, regarding
a  construction  allowance  received  in 1984 from the  landlord  for its former
Sarnia  location.  The reassessment has been under appeal since 1989. The amount
of tax  reassessed  was CDN $209,000.  Including  interest  accrued to date, the
total amount in dispute as of December 31, 1997 was approximately CDN $ 739,000.

Shilo Litigation

         In late 1992, the Company obtained the right to operate all of the food
and beverage services at the Shilo Hotel & Resort complex in Yuma,  Arizona.  In
addition, on July 1, 1993, the Company added the food and beverage operations at
a second  Shilo  Hotel in  Pomona,  California.  The style and menu at the Shilo
Hotels  was  significantly  different  from  that  followed  at the  traditional
Elephant & Castle restaurants,  or any others which have followed. The Company's
experience  at the Shilo Hotels and with the  management  thereof was  negative,
resulting in termination and closing of those restaurants during 1995.

         The Registrant was a party to two ten (10) year lease  agreements  with
Shilo  Hotels  ("Shilo")  relating to  facilities  located at Yuma,  Arizona and
Pomona, California respectively.  After a breakdown in the business relationship
between the parties, on August 22, 1995, Shilo asserted legal claims against the
Company, and commenced a litigation, still pending, in the Superior Court, State
of  Arizona,  County of Yuma,  in which the Company is  represented  by A. James
Clark,  Esq., Clark & Carter,  Yuma,  Arizona and other counsel.  In the action,
Shilo seeks unspecified  general and special damages for alleged breaches of the
lease  agreements  at  Yuma  and  Pomona.  In the  opinion  of  management,  the
Registrant has potential  valid defenses and mitigation of damage claims against
Shilo, as well as properly stated counterclaims. Motions for Summary Judgment by
Shilo on the two leases have been denied.

The Company expects to prevail on the Pomona lease,  and  anticipates  that if a
trial as to damages,  if any, is required on the Yuma lease,  it will be able to
successfully defend its interests and position.
 
ITEM 4            SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         No matter was  submitted  during the fourth  quarter of the fiscal year
covered by this report to a vote of security  holders,  through the solicitation
of proxies or otherwise.
<PAGE>
                                     PART II


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

         The Company's Common Stock is, and has been since June 29, 1993, traded
on NASDAQ - small cap market (PUBSF) and the Pacific Exchange (PUBS).

         The  range of high and low  sales  prices  for the  Common  Stock  from
January 1, 1996, to date has been:

                                   High            Low
                                   ----            ---

First Quarter of 1997:            $  9.00          $5.75
Second Quarter of 1997:           $ 10.25          7 7/8
Third Quarter of 1997:            $ 11.25          9 5/8
Fourth Quarter of 1997:           $ 10.50          $6.75

First Quarter of 1996:            $ 7.125          $4.03125
Second Quarter of 1996:           $ 7.625          $5.25
Third Quarter of 1996:            $ 8.00           $5.5625
Fourth Quarter of 1996:           $ 8.50           $5.875

         The approximate  number of record holders of the Company's common stock
is 625.
<PAGE>
ITEM 6            MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                  CONDITION AND RESULTS OF OPERATIONS

Twelve Months ended December 31, 1997 vs. December 31, 1996

Net Income

         For the year ended  December 31, 1997,  the  Company's net loss was CDN
$1,416,000  (US  $1,034,000)  compared  to a net  loss  of  CDN  $1,174,000  (US
$857,000) for the  corresponding  period in 1996.  The 1997 figure  includes CDN
$677,000  (US  $494,000)  in  restaurant  closing  costs and a senior  executive
retiring  allowance.  There were no such items in 1996.  Income from  restaurant
operations  increased  to CDN  $2,213,000  (US  $1,615,000)  in  1997  from  CDN
$1,587,000  (US  $1,158,000)  in 1996.  Overall,  loss per share in 1997 was CDN
($0.48)  compared to CDN ($0.44) in 1996.  See  reconciliation  for  differences
between Canadian and United States Generally Accepted Accounting Principles (CDN
GAAP and US GAAP).

Income from Restaurant Operations

         Income from  restaurant  operations,  at CDN $2,213,000 (US $1,615,000)
was up 39.4% over 1996 and, as a percentage of sales,  increased to 6.5% in 1997
from  5.4% in 1996.  There  are two  principal  reasons  for  this  improvement.
Firstly,  the opening of higher  volume  stores and closing of two lower  volume
locations enhances overall operating margins.  Secondly,  food and beverage cost
percentages  showed  improvement  throughout  the year.  The Company is actively
reviewing its purchasing procedures and believes additional  improvements can be
achieved in this area.

Sales

         Sales  increased  16.9%  during  the 1997 year to CDN  $34,231,000  (US
$24,986,000)  from CDN $29,284,000 (US  $21,375,000) in 1996. The Company opened
three new locations during 1997, in Seattle (August 28th), Boston (November 4th)
and Edmonton  (November  20th);  and closed two locations,  Vancouver  (February
28th) and Thunder Bay (August 31st), both of which were lease  expirations.  The
Company  also  opened  three  locations  in  1996,  in  San  Diego  (July  2nd),
Bloomington  (acquired on October 8th,  1996) and Toronto  (October  21st).  The
result of opening  higher volume  stores and closing lower volume  locations has
seen the average  weekly sales volume per unit in 1997 increase by 7.2% over the
1996 figure.

         For the twelve  Canadian  locations open  throughout  both years,  1997
sales totaled CDN  $17,597,000  (US  $12,844,000)  and were down 4.5% from 1996.
Four locations  suffered decreases ranging from 9.6% to 21.5% and were the cause
of the overall decrease.  Specific action plans for each of these four locations
are in place or in the planning stage.

         For the two U.S.  locations open throughout both years, sales decreased
3.1% from 1996.  Sales are expected to decrease at one of these locations for at
least  the  first  half of 1998  due to  decreased  traffic  counts  at its mall
location.

         Of the locations  opened in 1997,  sales at the Seattle location are in
line with expectations,  Boston is exceeding expectations, and although Edmonton
is not yet meeting expectations, sales are increasing each month compared to the
previous month.
<PAGE>
Costs and Expenses

         Food and Beverage Costs

         Overall,  food and beverage costs, as a percentage of sales,  decreased
to 29.1% for the twelve months ended December 31, 1997 compared to 30.2% for the
corresponding period in 1996. The Company has implemented a number of purchasing
programs  that are  expected  to  decrease  the food  and  beverage  percentage,
commencing with the second quarter of 1998.

         Labour and Benefits Costs

         Labour and benefits  costs  increased  slightly  from 32.8% of sales in
1996 to 33.0% for the 1997 period.  This rate has been stable for the last three
years.

         Occupancy and Other Costs

         Occupancy and other  operating costs decreased as a percentage of sales
from  26.2% in 1996 to  25.7%  in 1997.  This is  primarily  the  result  of the
Company's  strategy of focusing new developments in high traffic urban locations
and moving away from its traditional suburban mall locations.  This is resulting
in lower occupancy percentages at the newer locations and is driving the overall
rate down.

         Depreciation and Amortization

         Depreciation and amortization costs increased to 5.7% of sales for 1997
compared to 5.3% in 1996.  Higher  development  costs and  shorter  amortization
periods at new  locations,  compared to older  suburban  mall  locations are the
cause of the increase in the percentage.

         General and Administrative Costs

         General and  administrative  expenses  decreased  from 8.3% of sales in
1996 to 7.2% in 1997. The Company  originally  targeted a rate of 7.0% for 1997.
Three new executives  were hired in 1997,  causing the overall rate to increase.
Hiring  these  executives  was a  necessary  step  in  the  development  of  the
infrastructure   needed  to  allow  the   Company   to  expand   and  return  to
profitability.  Mr. Martin  O'Dowd,  former  President of Rainforest  Cafe Inc.,
joined  the  Company  in August as  President  of the U.S.  operations  with the
mandate to expand the Company's U.S.  presence and to oversee the development of
Rainforest Cafes in Canada. In March of 1998, Mr. O'Dowd was appointed President
and Chief Executive Officer of the Company.  Mr. Colin Stacey,  former President
of Keg  Restaurants,  also  joined the  Company in  August,  as Chief  Operating
Officer responsible for Canadian operations.  Mr. Richard Bryant, formerly Chief
Financial Officer of Keg Restaurants,  joined the Company in November,  as Chief
Financial Officer. While the costs of these executives,  plus other additions to
corporate  management will cause general and  administrative  costs to rise over
the near term, the Company believes its long term general and expense percentage
will be brought  down to under 7.0% as new  stores are added  without  incurring
proportionate additional costs.
<PAGE>
         Retiring Allowances and Other Costs

         In December, 1997 one of the founders of the Company, Mr. Peter Barnett
retired from his position as Executive  Vice  President.  Under the terms of his
employment contract Mr. Barnett was paid a retiring allowance on his retirement.
Other costs arose from  settlement of two labour matters with former  employees.
There were no such items in 1996.

         Restaurant Closing Costs

         During 1997 the Company  closed two mall locations on the expiration of
their  respective   leases.  The  costs  associated  with  these  closings  were
approximately CDN $200,000 (US $146,000). The Company also incurred costs of CDN
$130,000 (US $95,000)  related to a lease  guarantee on a former  property.  The
Company did not close any locations during 1996.

         Interest on Long Term Debt  

         During 1997 the Company  completed  two US $2,000,000  (CDN  $2,740,000
each,  for  a  total  of  CDN  $5,480,000)  convertible  subordinated  debenture
financings with General Electric  Investment Private Placement  Partners,  II, a
U.S. based limited  partnership with which it had previously  arranged a similar
US $3,000,000 (CDN  $4,110,000)  financing.  As a result,  interest on long term
debt in 1997 was  substantially  higher than 1996,  and will be higher  again in
1998.

         The Company also completed a US $2,000,000 (CDN $2,740,000) convertible
debenture  financing with  subsidiaries  and affiliates of a French bank.  Under
Canadian  GAAP this  financing  was an  equity  financing  without  a  liability
component.  Under  U.S.  GAAP,  this  financing  would be treated as a long term
liability [See Note 18 to the Financial Statements].

(Loss) before Taxes

         The Company incurred a loss before income taxes of CDN ($1,416,000) (US
$1,034,000)  in 1997  compared to a loss of CDN  ($1,174,000)  (US  $857,000) in
1996.  The  1997  figure  includes  a total of CDN  $677,000  (US  $494,000)  in
restaurant  closing costs,  retiring  allowances and other costs.  There were no
such  costs in 1996.  The 1997 loss  before  these  items was CDN  $739,000  (US
$540,000),  representing  an  improvement  of  approximately  CDN  $435,000  (US
$318,000) on a comparable  basis over 1996. This is attributable to the positive
impact of the new  locations  opened over the past two year,  plus some  general
improvements  in food and beverage  cost  percentages,  offset in part by higher
interest costs related to increased levels of long term debt.

         Management  believes the additions it has made to executive  management
during 1997 has  positioned the Company to  successfully  roll-out its expansion
plans,  including the  development of Rainforest  Cafe in Canada.  Management is
targeting a return to profitability by 1999.

Income Taxes

         The Company  incurred losses in each of 1997 and 1996 and therefore has
no tax liability. The Company also has loss carry-forwards which will reduce its
effective tax rate in future years.
<PAGE>
Differences  Between  Canadian and United States Generally  Accepted  Accounting
Principles (Canadian and U.S. GAAP)

         The Company  prepares  its  financial  statements  in  accordance  with
Canadian GAAP. (The reader is referred to Note 18 of the Consolidated  Financial
Statements for the year ended December 31, 1997 for additional explanation.) The
financial  statements,  if  prepared  in  accordance  with U.S.  GAAP would have
differed as follows:

         Net loss for the year ended December 31, 1997 would be increased by CDN
$186,000  (US  $136,000)  comprised  of  amortization  expense  or CDN  $110,000
(US$80,000)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 share from CDN  ($0.48)  (US
$(0.35)) under Canadian GAAP to CDN ($0.54) (US($0.39)) under US GAAP.

         Net loss for the year ended December 31, 1996 would have been increased
by CDN $116,000 (US $85,000)  comprised of amortization  expense  resulting from
the  exclusion of the first option period in  calculating  the  amortization  of
certain  leasehold  improvements.  On a per share  basis,  net loss  would  have
increased  from CDN ($0.44) (US $0.32)  under  Canadian  GAAP to CDN ($0.48) (US
$0.35) under US GAAP.

         Shareholders'  Equity at  December  31, 1997 under US GAAP would be CDN
$6,850,000 (US  $5,000,000)  compared to CDN  $10,209,000  (US $7,452,000  under
Canadian GAAP, due to the cumulative effect of reconciliation adjustments.

         Shareholders' Equity at December 31, 1997 under US GAAP would have been
CDN $7,177,000 (US $5,239,000)  compared to CDN $7,928,000 (US $5,787,000) under
Canadian GAAP.

Liquidity and Capital Resources

         The  Company's  cash  balances  at the end of the 1997  period were CDN
$4,097,000 ($US 2,990,000).  This compares to a cash balance of CDN $801,000 (US
$585,000) at the end of the 1996 period.

         Capital  expenditures  were CDN $5,306,000 (US $3,873,000) for the 1997
period,  primarily  for  construction  of the new  Seattle,  Boston and Edmonton
restaurants.

         Changes in non-cash  working  capital items resulted in a net source of
funds of CDN  $387,000  (US  $282,000)  for the year  ended  December  31,  1997
compared to a net use of funds of CDN $131,000 (US $96,000) in 1996.

         The Company  completed two US $2,000,000  (CDN  $2,740,000  each, for a
total of CDN  $5,480,000)  convertible  subordinated  debenture  financings with
General Electric Investment Private Placement  Partners,  II, a US Based limited
partnership  with which it had previously  arranged a similar US $3,000,000 (CDN
$4,110,000)  financing in 1995. The Company also completed a US $2,000,000  (CDN
$2,740,000)  with  subsidiaries  and  affiliates  of a French bank. A portion of
these  funds was used to pay for  construction  of the new  Seattle,  Boston and
Edmonton locations, and for the Company's share of the construction of the first
Rainforest Cafe in Canada, as discussed below.
<PAGE>
         During 1997 the Company  entered into a joint  venture  agreement  with
Rainforest Cafe Inc. to develop at least five Rainforest  restaurants in Canada.
The first restaurant is under  construction and is expected to open in mid-1998.
The  Company  estimates  its  capital  requirements  for the entire  development
program  will be CDN $10 to 15 million (US $7 to 11  million).  The Company will
need to arrange additional financing in order to meet these capital requirements
and anticipates it will be successful in raising the necessary funds.

         The  Company is also  planning  to build two or more new  Elephant  and
Castle  locations  during  1998 and will  need to  arrange  financing  for these
projects.  The  Company  believes  it  will  be  successful  in  doing  so,  and
anticipates  US  $2,000,000  (CDN  $2,740,000)  will be  provided by an existing
lender through a previously arranged agreement.

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
$1,174,000  (US  $857,000)  compared  to  a  net  loss  of  CDN  $1,578,000  (US
$1,152,000)  for the  corresponding  period in 1995. The 1995 figure  included a
reserve of CDN $900,000 (US $657,000) for closing  costs and  anticipated  legal
disputes  related to the closure of three  locations  during the year.  Loss per
share was CDN ($0.44) (US ($0.32)),  compared to CDN ($0.63) (US $(0.46)) in the
prior  year.  Excluding  the  reserve,  the 1995  figures  were CDN  ($0.27) (US
($0.20)).  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 $29,284,000 (US  $21,375,000)  from CDN $25,764,000 (US  $18,806,000) 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  Bloomington,  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, AZ and Pomona, CA.

         For the twelve Canadian operations open throughout both periods,  sales
for the twelve  months  ended  December  31, 1996  totaled CDN  $17,129,000  (US
$12,503,000) 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 $980,000 (CDN  $1,342,000)  and
were up 7.1% compared to the corresponding period for 1995.

         For the  Philadelphia  Holiday  Inn  locations,  1996 sales  totaled US
$2,898,000 (CDN $3,970,000) which significantly exceeded  expectations.  The new
Vancouver  location's sales for 1996 were CDN $2,830,000 (US $2,066,000),  which
also significantly exceeded expectations.  The new Burnaby location's sales were
<PAGE>
somewhat  under  expectations  as the hours of  operation  were scaled back from
initial plans.  The new San Diego  location's  sales annualized at US $2,100,000
(CDN  $2,877,000),  which was  slightly  less  than  initial  expectations.  The
acquired  Bloomington  location  continued to experience  sales  increases  over
comparable months under the previous  ownership,  and met revenue  expectations.
The new Toronto location's sales also 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 cost
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.

         Labour and Benefit Costs

         Labour and benefit costs decreased slightly from 33.0% of sales in 1995
to 32.8% for the 1996 period.  The Company  continued to review staff scheduling
procedures with the goal of controlling future 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% in 1996.  There were two largely
offsetting  components  to  this  change  in  percentage.   Firstly,  the  lease
arrangements at the new locations  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  was  an  overall  increase  in  other  net  operating
expenses. The Company's newest facilities and hotel restaurant arrangements were
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
1996 period from 4.8% in 1995. The increase was  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 $401,000 (US $293,009) in
1996, compared to CDN $344,000 (US $251,000) in 1995.

         General and Administrative

         General and  administrative  expenses  decreased  from 8.9% of sales in
1995 to 8.3% in 1996.  The 1995  figure  included  a one-time  write-off  of CDN
$142,000  (US  $103,000).  Excluding  the  one-time  write-off,  the general and
administrative  expense percentage  remained constant.  The Company believed its
general and administrative  expense percentage can be brought down to under 7.0%
through a  combination  of expense  reductions  and  adding  new stores  without
incurring proportionate general and administrative  expenses. With this in mind,
all such costs were being reviewed and reduced or eliminated wherever practical.
<PAGE>
         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 $85,000 (US $62,000) to CDN $334,000 (US $244,000).
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 would be significantly higher in 1997.

(Loss) before Taxes

         The Company incurred a loss before income taxes of CDN ($1,174,000) (US
($857,000))  for the 1996  period  compared  to a loss of CDN  ($1,578,000)  (US
($1,152,000))  for the 1995 period. As described above, the 1995 figure included
a reserve  of CDN  $900,000  (US  $657,000)  for  restaurant  closing  costs and
anticipated  legal settlements  arising out of such closings.  There was no such
provision in 1996.  Excluding the reserve,  the 1995 loss was CDN ($678,000) (US
($495,000)).  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.  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
$801,000 (US  $585,000).  This compared to a cash balance of CDN  $5,031,000 (US
$3,672,000) at the end of the 1995 period.

         Capital  expenditures  were CDN $3,292,000 (US $2,403,000) 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  Bloomington,  Minnesota in 1996
for US $536,000 (CDN $734,000) cash and US $1,000,000  (CDN  $1,370,000)  stock.
This gave the Company an  additional  "brand" to offer for  potential  expansion
locations.

         Changes in  non-cash  working  capital  items  resulted in a net use of
funds of CDN $131,000 (US $96,000) for the twelve months ended December 31, 1996
compared to a source of funds of CDN  $809,000 (US  $598,000) in the  comparable
period for 1995.  The  principal  usages in 1996 were in  deposits  and  prepaid
expenses,  inventory and accounts receivable,  offset by an increase in accounts
payable.
<PAGE>
         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 a  financing
agreement  signed in 1995, and there were up to US $4,000,000  (CDN  $5,480,000)
additional notes available, subject to certain conditions.

         The Company  planned 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  is in a new Club  Quarters  hotel in the heart of  Boston's  financial
district.  The Seattle location is in the Cavanaugh's Inn in Seattle's  downtown
entertainment section. Both subsequently opened in 1997.

         The Company had signed a Letter of Intent with Rainforest Cafe, Inc. to
form a joint venture to develop Rainforest restaurants in Canada.  Subsequently,
joint venture and area development agreements were signed. The Company estimates
its potential capital requirements for the project will be between CDN $10 to 15
million  (US $7 to 11  million).  The  Company  will need to arrange  additional
financing in order to meet 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:

         Net loss for the year ended December 31, 1996 would have been increased
by CDN $116,000 (US $85,000)  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  have  been 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 $2,558,000 (US $1,890,000) comprised of:

         A one-time interest expense of CDN $2,436,000 (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  $90,000)  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 U.S.
         GAAP.

         Shareholders'  Equity at December 31, 19966 under U.S.  GAAP would have
been CDN $7,177,000 (US  $5,239,000)  compared to CDN $7,929,000 (US $5,787,000)
under Canadian GAAP, due to the cumulative effect of reconciliation adjustments.

         Shareholders'  Equity at December  31, 1995 under U.S.  GAAP would have
been CDN $6,683,000 (US $4,878,000),  compared to CDN $7,318,000 (US $5,342,000)
under Canadian GAAP.
<PAGE>
ITEM 7            FINANCIAL STATEMENTS

   
         The Company's  consolidated  financial statements and the report of the
independent  accountants  thereon appear beginning at page F- 2 of the Company's
10-KSB filed on April 15, 1998 and not amended hereby. See index to consolidated
Financial Statements on page F-1.
    



 



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

         None.  Not applicable.



<PAGE>
   
                                    PART III

ITEM 9            DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The following  persons are all of the directors and executive  officers
of the Registrant and the persons nominated to serve as such:
<TABLE>
<CAPTION>
          Name                           Age            Principal Occupation
          ----                           ---            --------------------
<S>                                      <C>            <C>
Jeffrey M. Barnett(a)(b)                 59             Chairman of the Board and Founder

Martin O'Dowd(a)(b)                      50             President and Chief Executive
                                                        Officer of the Company/Director

Colin Stacey                             58             Vice President and Chief Operating
                                                        Officer of the Company/Director(c)

George W. Pitman                         56             Vice President of Design and
                                                        Development/Director

William L. McEwen(a)(b)                  73             Independent Entrepreneur, Real
                                                        Estate and Telecommunications/
                                                        Director

David Wiederecht(b)                      42             Vice President, Alternative Invest-
                                                        ments, GE Investment Corporation/
                                                        Director

Anthony Mariani(a)                       33             Vice President, Private Equities,
                                                        GE Investment Corporation/Director

Rick Bryant                              44             Vice President and Chief Financial
                                                        Officer of the Company/Interim
                                                        Director(c)

Daniel DeBou                             47             Chief Accounting Officer of the
                                                        Company

Paul Tilbury                             35             Director of Operations, Vancouver
                                                        based unit of Canadian Rainforest
                                                        Restaurants, Inc.
</TABLE>
-------------------
(a)  Audit Committee
(b)  Compensation Committee
(c)  For certain technical reasons, Mr. Stacey has taken a leave of absence from
     service upon the Board and Mr.  Bryant is serving as a director  during Mr.
     Stacey's leave. See Board Compensation below.
<PAGE>
Board Composition

         The Company is  incorporated  under the laws of the Province of British
Columbia,  Canada. Such laws require that a majority of the members of the Board
be Canadian.  Currently, after the resignation of Mr. Peter Barnett, the elected
Board consists of three Canadians  (Messrs.  Barnett,  Pitman & McEwen) and four
others (Messrs. O'Dowd, Wiederecht,  Mariani and Stacey). To address this issue,
Mr.  Stacey has taken a temporary  leave of absence  from service upon the Board
and Mr.  Bryant,  who holds Canadian  citizenship,  has been elected to fill the
interim  vacancy.  The intention of the Board,  as a whole, is to add one or two
additional  outside  directors  and to  specifically  seek  Canadians  for  such
positions, or to otherwise comply with all applicable laws.

Executive Officers and Directors

         Jeffrey M. Barnett  co-founded  the  predecessor of the Company in 1977
with  his  twin  brother,  Peter J.  Barnett,  and  their  long-  time  business
colleague, Mr. George W. Pitman. Mr. Jeffrey M. Barnett has been Chairman of the
Board of the Company since its inception,  and was Chief Executive Officer until
March of 1998.

         Martin  O'Dowd  was  first  elected  to the Board of  Directors  of the
Company in June of 1995,  initially  serving solely as an outside  director.  In
August of 1997,  Mr.  O'Dowd was  elected to serve as  President  of  Elephant &
Castle International,  Inc., a wholly-owned Minneapolis,  MN based subsidiary of
the  Company  engaged in managing  the  Company's  U.S.  based  restaurants  and
exploring franchising  opportunities.  On March 19, 1998, Mr. O'Dowd was elected
President and Chief  Executive  Officer of the Company.  Mr.  O'Dowd was,  until
April 28, 1997,  President and Chief Operating Officer of Rainforest Cafe, Inc.,
Minneapolis,  MN. The Company has a substantial  joint  venture with  Rainforest
Cafe Inc. ("RCI") relating to the operation of Canadian Rainforest  Restaurants,
Inc. Mr. O'Dowd has no adverse interest therein, although he is a shareholder of
RCI dating back to his prior  service  with such  entity.  From July 1987 to May
1995,  Mr.  O'Dowd was  Corporate  Director of Food and  Beverage  Services  for
Holiday  Inn  Worldwide.  Previously,  he served as Vice  President  and General
Operations Manager for the Hard Rock Cafe Organization.
<PAGE>
         Colin Stacey is the Chief  Operating  Officer of the Company since June
of 1997.  Prior to joining  the  Company,  Mr.  Stacey was  President  and Chief
Executive Officer of Keg Restaurants,  a North American  subsidiary of Whitbread
PLC, from 1992 to June of 1997.  Prior to this  assignment  Mr. Stacey  occupied
senior  management   positions  within   Whitbread's   restaurants  and  leisure
businesses in the United Kingdom and Australia.

         George W. Pitman,  Vice President - Design and  Development,  is one of
the founders of the Company and serves as a key  executive and a director of the
Company.

         William L.  McEwen,  an  independent  director  of the  Company,  is an
entrepreneur who is the  owner/manager of residential and commercial  properties
in Ottawa, Ontario, and Vancouver,  B.C. Mr. McEwen is Chairman of the Board and
Chief Executive  Officer of Tasco  Communications,  Inc., a paging and telephone
answering  company.  He is Vice  President of the Liberal  Party of Canada and a
Knight of the Order of Saint Jean of  Jerusalem.  Mr. McEwen was first elected a
director in 1993.

         David  Wiederecht is Vice President of Alternative  Investments  for GE
Investment  Corporation since January 1994. Prior to his current assignment,  he
served GE  Investments  in various senior  financial  management  assignments in
GEIC's real estate and finance  organization  since 1988. Prior to joining GEIC,
Mr.  Wiederecht worked at various  assignments  within General Electric Company,
including corporate  headquarters and GE's audit staff. Mr. Wiederecht was first
elected to the Board of Directors of the Company in January, 1996.

         Anthony Mariani is Vice President of Private Equities for GE Investment
Corporation  since 1997. Prior to his current  assignment,  he worked at various
assignments in GE Investments' private equities and finance  organizations since
1988.  Mr. Mariani was first elected to the Board of Directors of the Company in
January, 1996.

         Richard Hugh Bryant,  Vice President and Chief Financial Officer of the
Company since June of 1997.  Prior to joining the Company,  Mr. Bryant was Chief
Financial Officer of the KEG Restaurants  Limited, a subsidiary of Whitbread PLC
from  August of 1993 to June of 1997.  Prior  thereto,  he  served as  financial
controller of the Whitbread Beer Company, a division of Whitbread PLC, from June
of 1990 until August of 1993.
<PAGE>
         Daniel  DeBou,  Chartered  Accountant,  has been the  Chief  Accounting
Officer of the Company since January 1, 1993. Prior to joining the Company,  Mr.
DeBou  was  employed  from 1978 to 1992 in  various  financial  capacities  with
Woodward Stores Limited,  a  publicly-owned  company traded on the Toronto Stock
Exchange and engaged in the operation of department and specialty stores.

         Paul  Tilbury,  formerly  Vice  President of  Operations,  is currently
serving as Manager of  Operations  of the Vancouver  based  Canadian  Rainforest
Restaurant,  a unit of Canadian  Rainforest  Restaurants,  Inc., a jointly owned
subsidiary of the Company and Rainforest Cafe, Inc. Mr. Tilbury is the nephew of
Mr. Jeffrey M. Barnett.

         Peter J. Barnett was until  December of 1997,  Executive Vice President
and Secretary of the Company.  He resigned as a member of the Board of Directors
in March of 1998.


Meetings, Attendance, Committees

         The Board of Directors of the Company held 7 regular  meetings in 1997.
The Board maintains two standing committees:  the Compensation Committee and the
Audit Committee.  Each incumbent director attended at least 75% of the aggregate
of:  (1) the total  number of Board  meetings  held  during  the period he was a
director;  and (2) the total number of meetings  held by all  Committees  of the
Board on which he served during such period.

         It is  the  function  of  the  Compensation  Committee  to  review  the
Company's  remuneration  policies  and  practices,  administer  certain  of  the
Company's  incentive  compensation  and stock option  plans,  and  establish the
salaries of the executive officers of the Company.  Messrs.  Jeffrey M. Barnett,
William McEwen, Martin O'Dowd and David Wiederecht have heretofore served as the
Compensation  Committee. It is the function of the Audit Committee to review the
external audit programs of the Company and to make  recommendations to the Board
of Directors of the Company concerning its appointment of independent  auditors,
the conduct of the audit and related matters.  Messrs. Jeffrey Barnett,  William
McEwen  and  Anthony  Mariani  currently  serve  as  the  Audit  Committee.  The
Committees meet separately  from, but on the same days as,  regularly  scheduled
Board  meetings.   During  1997,  there  was  one  independent  meeting  of  the
Compensation Committee.  The Company does not maintain a nominating committee or
one performing a similar function.
    
<PAGE>
         Compliance  with Section 16(a) of the Exchange Act. Based solely upon a
review of Forms 3 & 4 and  amendments  thereto  filed by each person who, at any
time during the fiscal year,  was a director,  officer,  or beneficial  owner of
more than ten percent of any class of equity  securities of the Registrant,  all
such persons have timely filed all reports  required by Section 16(a) during the
most recent fiscal year or prior years, except as follows:

         Colin  Stacey  who owned no shares or vested  options  failed to file a
Form 3 when initially elected as an officer and director in August of 1997. That
filing is being currently made.
<PAGE>
   
ITEM 10           EXECUTIVE COMPENSATION

Summary Compensation Table

         The  following  table sets forth a summary of the  compensation  of the
Chief Executive Officer of the Company and the two other founders of the Company
for their services rendered during fiscal years 1997, 1996 and 1995. All figures
are in Canadian  dollars.  The relative value of the Canadian dollar compared to
the U.S. dollar fluctuates from time to time. During 1997, the average value was
each CDN $1.00 equals U.S. $0.73.
<TABLE>
<CAPTION>
                                                Base                                    All Other
                                                Salary                 Bonuses          Compensation(1)
                                                ------                 -------          ---------------
<S>                                       <C>                          <C>              <C>
Jeffrey M. Barnett,
Chief Executive Officer

         12/31/1997                       CDN $164,373                   -0-             $47,200
         12/31/1996                            152,361                   -0-              25,026
         12/31/1995                            135,000                   -0-              25,026

Peter J. Barnett,
Executive Vice President

         12/31/1997                       CDN $406,607 (2)               -0-             $38,437
         12/31/1996                            141,075                   -0-              18,997
         12/31/1995                            125,000                   -0-              18,997

George W. Pitman
Vice President,
Design and Development

         12/31/1997                       CDN $ 99,750                   -0-              ------
         12/31/1996                             99,750                   -0-              ------
         12/31/1995                             95,000                   -0-              ------
</TABLE>

(1) The  principal  items  of  other  compensation  consists  of life  insurance
premiums  paid on life  insurance  policies on which the families of the insured
are the sole beneficiaries.  Also includes,  in 1997, certain perquisites deemed
to be of a compensatory nature. In addition, Mr. Jeffrey M. Barnett is the owner
of an  apartment  in Toronto,  Canada  used by the Company for various  business
purposes. The Company currently pays CDN $2,500 per month for the use thereof no
part of which has been accounted for as other  compensation.  The arrangement is
scheduled to terminate at the end of 1998.

(2) Upon the  termination  of the employment of Mr. Peter J. Barnett in December
of 1997,  Peter  Barnett  received  termination  pay  equal to CDN  $267,702  in
accordance with his employment agreement with the Company. See Below.

         No other  officer  of the  Company  earned in  excess of U.S.  $100,000
during the fiscal year ended December 31, 1997.
<PAGE>
         The Company  currently  does not  maintain,  and none of its  executive
officers are eligible  for,  deferred  compensation,  long-term  incentive  plan
payouts,  restricted stock awards, or other similar  compensatory  arrangements.
The principal  executives who are the principal  shareholders of the Company are
intended to be incentivized by their ownership of a substantial  fraction of the
Company's Shares, and by certain pre-existing  long-term rights to acquire up to
an aggregate of an additional  100,000 Shares  pursuant to a Founders  Retention
Plan, described below.

Employment Agreements

         During 1993, the Company entered into five-year  employment  agreements
with the personal service corporations of Messrs.  Jeffrey M. Barnett,  Peter J.
Barnett and George W. Pitman.  The agreements  initially provided Mr. Jeffrey M.
Barnett  and Mr.  George P.  Pitman  with base  salaries  of CDN  $135,000,  CDN
$125,000 and CDN  $95,000,  respectively,  with  certain  defined cost of living
increases. Under their agreements, which expire in June of 1998, Messrs. Jeffrey
M.  Barnett  and Pitman are  entitled  to other  specified  benefits  such as an
automobile allowance,  reimbursement of business expenses,  and health, life and
disability insurance.

Founders Retention Plan

         In 1993,  the Board of Directors  and the  shareholders  of the Company
adopted a plan pursuant to which Jeffrey M. Barnett, Peter J. Barnett and George
W. Pitman were granted options to purchase an aggregate of 100,000 Common Shares
of the  Company  (43,750  to each Mr.  Barnett  and 12,500 to Mr.  Pitman).  The
options are exercisable at U.S. $6.60 per share as to 20% of the shares pursuant
to each Option Grant as of the 5th, 6th,  7th, 8th and 9th annual  anniversaries
of the grant date, subject to the Optionee's continued employment by the Company
on such  dates.  None of the  founders  retention  plan  options  are  currently
exercisable.

Employee Stock Option, and Stock Compensation Plans.

         The Board of Directors of the Company has adopted two Stock Plans,  and
the shareholders  have ratified such plans:  They are the 1993 Stock Option Plan
and the 1997 Stock Compensation Plan.

         Under  the 1993  Stock  Option  Plan,  options  may be  granted  to key
salaried management and administration  employees.  Messrs.  Jeffrey M. Barnett,
Peter J.  Barnett and George W. Pitman are not  eligible  for grants  under this
Plan.  100,000 shares were  initially set aside for grants  pursuant to the 1993
Plan.  400,000  shares were set aside  pursuant  to the 1997 Stock  Compensation
Plan. Options granted pursuant to both Plans vest 1/3 after 18 months; 2/3 after
30 months;  and as to the balance,  after 42 months.  All options  expire on the
fifth annual  anniversary  of the date of grant.  29,000 options were granted to
employees  during  1997  pursuant  to the 1997 Plan and  17,833  employee  stock
options were exercised under the 1993 Plan during such year.

         The 1993 Stock  Option  Plan and the 1997 Stock  Compensation  Plan are
intended to permit the Company to retain and attract  qualified  individuals who
contribute  to the  overall  success  of the  Company  and  the  achievement  of
performance measures.  Both Plans are administered by the Compensation Committee
of the Board of  Directors,  whose  members  determine  to whom  options will be
granted and the terms of the options.  The  Committee is entitled to  accelerate
the vesting  options upon such  circumstances  as it deems  appropriate.  Actual
vesting can be accelerated or delayed based on performance  measures established
by the Compensation Committee.

         No persons who are officers or directors  either received any grants or
exercised any options under either Plan during fiscal 1997.

Compensation of Directors

         Directors who are not employees or officers of the Company  (herein the
"Outside  Directors") are separately  compensated for their services as follows:
CDN  $500.00  cash for each three  months as a  director,  plus 1,000  shares of
Company  Stock for each two years of  service as an  outside  director.  Certain
outside Directors have elected not to accept such compensation. In addition, Mr.
McEwen was granted, upon election to the Board, immediately prior to its initial
public offering, non-qualified options to purchase 5,000 Common Shares each at a
price equal to 100% of the fair market value of the Common Shares as at the date
of the grant of such stock options.  The options vest in two equal installments,
on each of the first two successive  anniversaries of the date of grant, subject
to continued service, and are exercisable for a period of five years.


Compensation Committee Interlocks and Insider Participation

         David Wiederecht, an outside director, is currently serving as Chairman
of the  Compensation  Committee.  Messrs.  McEwen,  Mariani and  Wiederecht  are
outside  directors.  The Company intends to pursue a policy of having  directors
unaffiliated  with management to constitute a majority of the full Board, and at
least  one half of the  members  of the  Compensation  Committee  and the  Audit
Committee.  Filling  vacancies on the Board requires finding  Canadian  citizens
willing to so serve, since the Board of any corporation organized under the laws
of British Columbia must consist of a majority of Canadian  citizens.  There are
no interlocks among the members of the Compensation Committee.
    
<PAGE>
   
ITEM 11           SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                  MANAGEMENT

         The  Registrant  is a  corporation  organized  under  the  laws  of the
Province  of  British  Columbia,  Canada.  It has one  class  of  Common  Shares
outstanding.

         As of the close of business on March 31, 1998,  3,072,316 Common Shares
were issued and  outstanding.  The following  table sets forth, as of such date,
information  relating to the beneficial ownership of the Company's Common Shares
by each person  known to the Company to be  beneficial  owner of more than 5% of
the Common Shares, by each director, by each of the named executive officers and
by all directors and executive officers as a group:
<TABLE>
<CAPTION>
                                                                                 Approximate
                                                                                 Percentage of
    Name and Address                              Number of Shares           Outstanding Shares(3)(4)
    ----------------                              ----------------           ---------------------
<S>                                               <C>                        <C>
Jeffrey M. Barnett(1)(2)                              550,375                            17.8%

Peter J. Barnett(1)(2)(3)                             550,375                            17.8%

George W. Pitman(1)(2)                                127,250                             4.1%

William C. McEwen(1)                                    6,100                              *

Martin O'Dowd(1)                                        2,960                              *

David Wiederecht(1)(5)                                   ---

Anthony Mariani(1)(5)                                    ---

Colin Stacey                                             ---                               *

Richard Bryant                                           ---

Daniel DeBou(4)                                        13,200                              *

Paul Tilbury(4)                                        22,000                              *

General Electric
  Investment Private
  Placement Partners II(6)                            237,221                            7.7%
                                                    ---------                           ----
                                                    1,509,481                           48.7%
All Directors and Executive
Officers as a Group
</TABLE>
<PAGE>
---------------
*        = less than one percent.
(1)      Each person is a director.
(2)      Excludes an aggregate of 100,000 shares subject to conditional  options
         issued to the  founders  of the  Company  prior to the public  offering
         pursuant to a Founders Retention Plan, no part of which are exercisable
         prior to 1998.
(3)      Includes 50,000 shares transferred by Mr. Barnett to his
         children.
(4)      Includes  options granted to such persons pursuant to the 1993 Employee
         Stock Option Plan and/or the 1997 Stock Compensation Plan.
(5)      Messrs.  Wiederecht and Mariani are employed by a fund, the holdings of
         which are separately stated herein.
(6)      Excludes up to  1,466,666  additional  Shares  subject to Warrants  and
         conversion of Subordinated Convertible Debentures held by the Fund.
    
<PAGE>
   
ITEM 12           CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         During the first quarter of 1998,  the Audit  Committee of the Board of
Directors  determined  that there was  reasonable  cause to believe that certain
vendor  rebates earned by the Company and certain income due to the Company from
the lease of table games were paid to, or used by, one or more officers or other
employees of the Company without proper authorization or appropriate  accounting
for such rebates. The Audit Committee thereupon authorized an inquiry to be made
under the aegis of the Registrant's counsel.

         To date, after preliminary work by an outside forensic accountant,  the
Committee has confirmed  that certain of such rebates  aggregating  at least CDN
$50,000 were paid to persons or entities  other than the Company.  In the course
of its inquiry,  the Audit Committee also determined that the Company's lease of
table  games used at certain of the  Company's  restaurants  was not  adequately
documented  and that a  portion  of such  revenue  may have been  diverted.  The
Committee  has not yet  quantified  the amount of income from the lease of table
games not paid to the Company.  The Company is  reviewing  all of its table game
lease documentation which were the subject of questionable  operating procedures
and is in the process of revising such documentation.

         The Audit Committee's inquiry is continuing,  and unless satisfied, may
require  or suggest  further  steps to  recover  rebates  paid by vendors of the
Registrant,  or income from the lease of table games, not heretofore received by
the Registrant.
    

<PAGE>
                                     PART IV

ITEM 13.          EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
                  FORM 8-K

         (a)  See Index to Exhibits, attached.

         (b) The  Registrant  has not filed any  reports  on Form 8-K during the
last quarter of the period covered by this period.
<PAGE>

                                   SIGNATURES


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


(Registrant)  Elephant & Castle Group Inc.


By    
      ------------------
      Jeffrey Barnett, Chairman of the Board of Directors

Date  



By    /s/Martin O'Dowd
      -----------------
      Martin O'Dowd, President and Chief Executive Officer

Date  April 29, 1998



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


By    /s/Rick Bryant
      --------------
      Rick Bryant, Chief Financial Officer

Date  April 29, 1998



By    /s/Daniel DeBou
      ---------------
      Daniel DeBou, Chief Accounting Officer

Date  April 29, 1998


By    /s/George W. Pitman
      -------------------
      George W. Pitman, Director


Date  April 29, 1998

<PAGE>

By
      William McEwen, Director


Date


By    /s/David Wiederecht
      -------------------
      David Wiederecht, Director


Date   April 29, 1998


By    /s/Anthony Mariani
      ------------------
      Anthony Mariani, Director


Date  April 29, 1998