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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C.
20549

FORM 10-K

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

For the fiscal year ended December 25, 2005

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

For the transition period from _________ to _________

Commission File No. 1-12134

ELEPHANT & CASTLE GROUP
INC.(Name of registrant as specified in its charter)

**Province of****British
      Columbia**
    **Not Applicable**(State or other jurisdiction
    (IRS Employerjurisdiction of incorporation)
    Identification Number)1190 Hornby StreetVancouver, B.C.CANADA
    V6Z 2K5(Address of principal executive offices)
    (Zip Code)


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

Securities registered pursuant to Section 12(b) of the Act:
**None**

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

**Common Shares, no par value**Title of
each class

Indicate by check mark if the registrant is a well-known seasoned
  issuer, as defined 
  in Rule 405 of the Securities Act. YES** ̈**
  NO **x******

Indicate by check mark if the registrant is not required to file
  reports pursuant to Section 
  13 or Section 15(d) of the Act. YES** ̈**
  NO **x******

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 
  12 months (or for such shorter period that the registrant was required to file
  such 
  reports), and (2) has been subject to such filing requirements for the past
  90 days. 
  YES **x** NO ** ̈**

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Indicate by check mark if disclosure of delinquent filers pursuant
  to Item 405 of 
  Regulation S-K is not contained herein, and will not be contained, to the best
  of 
  registrant's knowledge, in definitive proxy or information statements incorporated
  
  by reference in Part III of this Form 10-K or any amendment to this Form 10-K.** ̈**

Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated filer. See
definition of accelerated filer and large accelerated filer in Rule 12b-2
of the Exchange Act. (Check one):

Large accelerated filer Accelerated filer Non-accelerated filer
  **x******

Indicate by check mark whether the registrant is a shell company
  (as defined in Rule 
  12b-2 of the Act). YES** ̈**
  NO **x******

State the aggregate market value of the voting and non-voting
common equity held by non-affiliates computed by reference to the price at
which the common equity was last sold, or the average bid and asked price of
such common equity, as of the last business day of the registrants most
recently completed second quarter (June 26, 2005): US$2,592,000.

Number of Registrants common shares outstanding as of February
2, 2006, the latest practicable date for determination: 5,940,181.

Documents Incorporated by Reference

Portions of the Proxy Statement for the Companys Annual General
Meeting to be held on May 11, 2006, are incorporated by reference in Part
III of this report.

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TABLE OF CONTENTS

|                                                |                                                                                                                              | PAGE  
|----------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------- | ------
|                                                |                                                                                                                              | NUMBER
|                                                |                                                                                                                              |       
|NOTE REGARDING
      FORWARD-LOOKING STATEMENTS |                                                                                                                             
|                                                |                                                                                                                              |       
|**PART
      I**                                |                                                                                                                              |       
|ITEM 1.                                         | BUSINESS                                                                                                                     | 5     
|ITEM 1A.                                        | RISK FACTORS                                                                                                                 | 14    
|ITEM 1B.                                        | UNRESOLVED STAFF COMMENTS                                                                                                    | 21    
|ITEM 2.                                         | PROPERTIES                                                                                                                   | 21    
|ITEM 3.                                         | LEGAL PROCEEDINGS                                                                                                            | 22    
|ITEM 4.                                         | SUBMISSION OF MATTERS
      TO A VOTE OF SECURITY HOLDERS                                                                    | 23    
|                                                |                                                                                                                              |       
|**PART
      II**                               |                                                                                                                              | 23    
|ITEM 5.                                         | MARKET FOR REGISTRANTS
        COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
        SECURITIES | 23    
|ITEM 6.                                         | SELECTED FINANCIAL DATA
      MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL                                              | 27    
|ITEM 7.                                         | CONDITION AND RESULTS OF OPERATION QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT                                      | 32    
|ITEM 7A.                                        | MARKET RISK                                                                                                                  | 51    
|ITEM 8.                                         | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                                                  | 52    
|ITEM 9.                                         | CHANGES IN AND DISAGREEMENTS
      WITH ACCOUNTANTS ON  ACCOUNTING AND FINANCIAL DISCLOSURE                                  | 56    
|ITEM 9A.                                        | CONTROLS AND PROCEDURES                                                                                                      | 56    
|ITEM
        9B.                                | OTHER
        INFORMATION                                                                                                    | 56    
|                                                |                                                                                                                              |       
|PART
        **III**                            |                                                                                                                              | 57    
|ITEM 10.                                        | DIRECTORS AND EXECUTIVE
        OFFICERS OF THE REGISTRANT                                                                   | 57    
|ITEM
        11.                                | EXECUTIVE
        COMPENSATION                                                                                               | 57    
|ITEM 12.                                        | SECURITY OWNERSHIP
        OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS                       | 57    
|ITEM 13.                                        | CERTAIN RELATIONSHIPS
        AND RELATED TRANSACTIONS                                                                       | 57    
|ITEM 14.                                        | PRINCIPAL ACCOUNTANT
        FEES AND SERVICES                                                                               | 57    
|                                                |                                                                                                                              |       
|PART
        **IV**                             |                                                                                                                              | 58    
|ITEM 15.                                        | EXHIBITS AND FINANCIAL
        STATEMENT SCHEDULES                                                                           | 58    
|                                                |                                                                                                                             
|SIGNATURES                                      | 61                                                                                                                          

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NOTE REGARDING FORWARDLOOKING STATEMENTS

Except for statements of historical fact, certain information
contained herein constitutes forward-looking statements, within Section 21E of
the Securities Exchange Act of 1934, as amended (the Exchange Act) and Section
27A of the Securities Act of 1933, as amended. In some cases, you can identify
the forward-looking statements by Elephant & Castle Group Inc.s (the
Company) use of the words such as may, will, should, could, expect,
plan, estimate, predict, potential, continue, believe, anticipate,
intend, expect, or the negative or other variations of these words, or other
comparable words or phrases.

Such forward-looking statements involve known and unknown
risks, uncertainties and other factors which may cause the actual results or
achievements of the Company to be materially different from any future results
or achievements of the Company expressed or implied by such forward-looking
statements. Such factors include, but are not limited to changes in economic
conditions, consumer tastes and lifestyle, government regulations, fluctuating
commodity prices, behaviour of existing and new competitor companies and other
risks and uncertainties discussed in this annual report on Form 10-K.

Although the Company believes that expectations reflected in
these forward-looking statements are reasonable, the Company cannot guarantee
future results, levels of activity, performance, achievements or other future
events. Moreover, neither the Company nor anyone else assumes responsibility for
the accuracy and completeness of these forward-looking statements. The Company
is under no duty to update any of these forward-looking statements after the
date of this report. You should not place undue reliance on these
forward-looking statements.

CURRENCY AND EXCHANGE RATES

The following table sets forth the high and low exchange rates
for one (1) Canadian dollar expressed in terms of one (1) United States dollar
for each of the last six (6) months.

December
      November
      October
      September
      August
      July2005
      2005
      2005
      2005
      2005
      2005High for the month
      0.8690
      0.8579
      0.8579
      0.8615
      0.8411
      0.8300Low for the month
      0.8521
      0.8361
      0.8413
      0.8417
      0.8206
      0.8041


Exchange rates are based upon the noon buying rate in New York
City for cable transfers in foreign currencies as certified for customs purposes
by the Federal Reserve Bank of New York. The noon rate of exchange on February
22, 2006 as reported by the United States Federal Reserve Bank of New York for
the conversion of Canadian dollars into United States dollars was Cdn$1.00 =
US$0.8709.

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PART I

ITEM
1           BUSINESS

General

Elephant & Castle Group Inc. (the Company) was formed in
1977 and owns and operates pub and casual dining restaurants in the United
States and Canada, and is actively engaged in restaurant franchising activities.
As of the date of this report, the Company currently owns and operates a chain
of fourteen full-service casual dining restaurants and pubs, seven of which are
located in Canada and seven of which are located in the United States.

Thirteen of the Company's fourteen owned restaurants are
operated under the name "Elephant & Castle," an English pub concept, seven
of which are in the United States. The fourteenth owned restaurant, located in
Canada, operates under the name Rosies on Robson but is regarded by
management as an Elephant & Castle location for internal financial reporting
purposes.

In addition to the owned and operated units, there are eight
Elephant & Castle franchise locations, of which three are in Canada and five
are in the United States, and there is one Elephant & Castle restaurant
operated under a joint venture agreement in the US.

2005 Results of Operations

In 2005, the Company's sales were US$33,045,000 compared to
US$28,202,000 for 2004 (2003: US$26,725,000), an increase of US$4,843,000 or
17.2 %.On a same store basis, revenues for five US owned and operated
locations open throughout both periods were US$14,127,000, an increase of 5.9%
over $US13,338,000 in 2004, while revenues for seven Canadian corporate
locations open throughout both periods were CDN$14,578,000, an increase of 5.2%
over CDN$13,863,000 in 2004. In May 2005, the Company opened two new
wholly-owned restaurants in the US; a first restaurant in Washington, DC and a
second restaurant in Chicago, IL. In addition, the Company closed three
wholly-owned restaurants in Canada at the end of their leases (Saskatoon in
October, Calgary and Victoria in December).

During the fiscal year ended December 25, 2005, the Company
generated a net loss of US$3,266,000 compared to a net loss of US$888,000 in
2004. (2003: Net income US$228,000).The net loss for the year ended December 25,
2005 included a loss on foreign exchange of US$679,000 compared to a loss of
US$28,000 in 2004. The net loss for the year ended December 25, 2005 also
includes US$2,605,000 of interest costs relating to the Companys new funding
structure as compared to US$558,000 in 2004.

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The geographic distribution of the Companys sales and assets
is as follows:

| | US$000                                |   | 2005   |  |   | 2004   |  |   | 2003   | 
| | ------------------------------------- | - | ------ |  | - | ------ |  | - | ------ | 
| |                                       |   |        |  |   |        |  |   |        | 
| | Sales to unaffiliated
      customers |   |        |  |   |        |  |   |        | 
| | Canada                                | $ | 15,149 |  | $ | 13,986 |  | $ | 13,830 | 
| | United States                         |   | 17,896 |  |   | 14,216 |  |   | 12,895 | 
| |                                       |   |        |  |   |        |  |   |        | 
| |                                       | $ | 33,045 |  | $ | 28,202 |  | $ | 26,725 | 
| |                                       |   |        |  |   |        |  |   |        | 
| |                                       |   |        |  |   |        |  |   |        | 
| | Capital assets and other assets       |   |        |  |   |        |  |   |        | 
| | Canada                                | $ | 3,357  |  | $ | 4,038  |  | $ | 2,820  | 
| | United States                         |   | 6,745  |  |   | 3,454  |  |   | 4,176  | 
| |                                       |   |        |  |   |        |  |   |        | 
| |                                       | $ | 10,102 |  | $ | 7,492  |  | $ | 6,996  | 

Financings

On December 17, 2004, the Company entered into a series of
financing agreements. The transactions resulted in the raising of CDN$5,000,000
(US$4,288,000) for the purposes of opening new Elephant & Castle restaurants
and refurbishing existing Elephant & Castle restaurants. In addition, the
structure of the Companys pre-existing debt and equity were substantially
altered, as described below.

(a) Transactions with GE Investment Private Placement Partners
II ("GEIPPPII")

On December 17, 2004, in consideration for the surrender of
US$3,900,000 of the existing senior notes (the Senior Notes), the surrender of
US$5,000,000 of the existing junior notes (the Junior Notes, together with the
Senior Notes, the Notes) and the exchange of US$1,209,000 of accrued interest
on the Notes, the Company issued US$4,204,000 of new secured 14% notes (the
Secured Notes), 3,653,972 of CDN$2 (US$1.72) series A, preferred shares (see
note 8(b) of the Notes to Consolidated Financial Statements) and a warrant to
purchase 1,750,000 common shares to GEIPPPII (collectively, the GEIPPPII
Security). The Secured Notes bear interest at 14%, which is deferred until
payments commence in March 2007, except in certain circumstances, and are fully
repayable on December 18, 2009. The preferred shares accrue a cumulative annual
dividend of 6%, payable only when the debt owing to Crown Capital Partners
(Crown) (see Transactions with Crown below) and the Secured Notes are paid
in full. The preferred shares are redeemable at the Company's option at 100% of
redemption principal plus a redemption premium of up to 50% of the principal
amount. The premium shall accrue at 10% per year or part thereof (see note 8(b)
of the Notes to Consolidated Financial Statements). Unless redeemed earlier, the
preferred shares are automatically convertible, subject to the Company achieving
an EBITDA target of US$3,500,000 at the rate of three common shares for every
preferred share. The warrants are exercisable for a period of ten years at a
price of CDN$0.667 (US$0.572) per share.

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(b) Transactions with Crown

On December 17, 2004, the Company entered into a credit
agreement with Crown, pursuant to which it borrowed CDN$5,000,000
(US$4,288,000). The loan bears interest at the rate of 12% per annum. Interest
is payable monthly and monthly principal payments of CDN$40,000 (US$34,000)
commencing in December, 2006, rising to CDN$60,000 (US$51,000) in December 2007
and CDN$100,000 (US$86,000) in December 2008, with the balance of CDN$2,600
(US$2,230,000) repayable by December 17, 2009. In connection with the making of
the loan, Crown received a first secured position over all of the Company's
assets and properties, including the capital stock of the subsidiary companies,
in respect of the loan indebtedness. Additionally, the Company granted Crown a
warrant to purchase 1,049,301 common shares and 730,794 preferred shares for one
hundred Canadian dollars (collectively, the Crown Security), representing 15%
of the outstanding shares of both classes of shares of the Company and a further
warrant to purchase 350,000 common shares. These further warrants are
exercisable for a period of ten years at a price of CDN$0.667 (US$0.572) per
share.

(c) Transactions with Management

On December 17, 2004, the Company entered into an agreement
with the three senior managers of the Company ("Management"), whereby Management
has committed to purchase for CDN$265,000 (US$227,000), over a period of 18
months commencing December 2004, 699,534 Common Shares and 487,196 preferred
shares, representing 10% of the outstanding shares of both classes of shares of
the Company. Management made an initial payment of CDN$115,000 (US$99,000) on
December 17, 2004 and subsequent payments of CDN$86,000 (US$71,000) during the
year ended December 25, 2005. The remaining balance of CDN$64,000 (US$55,000) is
payable by June 30, 2006 (see note 17 of the Notes to Consolidated Financial
Statements). In connection with this purchase, Management has also been issued a
warrant for the purchase of an additional 5% of both classes of shares for
CDN$133,000 (US$114,000).

(d) Agreements between investors

GEIPPPII and Crown have entered into an inter-creditor
agreement, which establishes the seniority of the Crown Security and the
subordination of the GEIPPPII Security over the assets of the Company.

GEIPPPII, Crown and Management have entered into an
inter-shareholder agreement. Under this agreement, all parties agree to appoint
two GEIPPPII nominees, one Crown nominee and one Management nominee to the board
of directors of the Company. Additionally, the parties have agreed conditions
and entitlements associated with the sale or transfer of their shares.

The terms of the 8% convertible, subordinated notes of the
Company issued in 2000 ("Delphi Financing") have been amended such that the
coupon has been increased to 9.25% and repayment has been scheduled to
re-commence in March 2007.

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Restaurants in Operation

Elephant & Castle. At the Elephant & Castle
restaurants, the Company seeks to distinguish itself from competitive
restaurants by a distinctive British style and 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 affordable prices. The menu is
regularly updated to keep up with current trends in customers' tastes. Although
all of the Company's restaurants provide full liquor service, alcoholic
beverages are primarily served in conjunction with food.

Hotel Restaurants. Starting in 1994, the Company shifted
  its previous emphasis from mall locations to hotel locations. The Winnipeg Delta
  Elephant & Castle restaurant was opened on May 18, 1994. The Philadelphia
  Crowne Plaza unit was opened on February 28, 1995, Rosies on Robson in
  the Rosedale Hotel also opened in 1995, and the San Diego Holiday Inn was opened
  on July 1, 1996. The Boston Club Quarters and Seattle West Coast Grand restaurants
  were added in 1997. The Company opened its Chicago Club Quarters, West Adams
  Street, restaurant in April of 2001, and a second Chicago Restaurant adjacent
  to the Radisson hotel, East Huron Street, in May 2005.

During 2002, the Company signed its first joint venture
agreement to open an Elephant & Castle managed restaurant in a newly built
hotel in San Francisco, CA. Under this agreement, capital costs and profits are
shared between the Company and its joint venture partner. The San Francisco
restaurant opened on March 28, 2003. The Company believes that joint venture
managed unit opportunities offer significant potential for future growth.

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

Franchising.Management of the Company believes that the
Company's "brand" identification is a valuable asset. Eight franchised locations
of the Elephant & Castle brand are now open, including Wexford, PA, which
opened during 2005.

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

Future activities are intended to include a continuation of the
Company's franchising activities for the Elephant & Castle brand.

-8-

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Future Company Growth.On December 17, 2004, the Company
entered into a series of financing agreements (see Financings above). The
transactions resulted in the raising of CDN$5,000,000 (US$4,288,000) for the
purposes of opening new Elephant & Castle restaurants and refurbishing
existing Elephant & Castle restaurants. Management is focused on growth of
revenues at existing units and on adding new wholly-owned Elephant & Castle
restaurants, primarily in the US. Any added units will be predominantly
hotel-based or located in high traffic, urban centre locations. The Company
opened 2 new wholly-owned restaurants in the US during 2005, a second restaurant
in Chicago, IL and the Companys first restaurant in Washington DC. The Company
expects to open one further restaurant in 2006 at a location that has yet to be
determined.

Additional Information

a.Financial
Information about Industry Segments.

The Company considers that it has been substantially engaged in
a single line of business, the ownership and operation of casual dining
restaurants, and does not separately segment its financial results.

b.Narrative
Description of the Business.

i.Principal Products
or Services and their Markets. For information on our products and services,
see Business  General above.

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

The Company conducts many local promotions and loyalty programs
geared to the neighborhoods and market each restaurant serves, and supports
these with print and direct mail advertising. During fiscal 2005, the Companys
expenditures for advertising and promotional activities were approximately 3% of
its revenues.

iii.Status of New
Developments. The Company is constantly in the process of examining,
evaluating and undertaking various new restaurant opportunities. The Company
opened two new wholly-owned locations in 2005 and plans to identify and open one
new wholly-owned restaurant in 2006. The Company is continually evaluating other
opportunities to add further owned or franchised stores, primarily in the
US.

iv.Relationship with
Hotel Operators. The Company's relationship with hotel operators is
predicated on (i) shared investment in significant physical improvements to the
facility at the onset of the occupancy; (ii) costs of occupancy measured by a
percentage of the units revenues; (iii) adequate time to recruit and train a
restaurant staff of the Company's selection; and (iv) reliance upon the
restaurant operators control of the physical environment and menu selections.
Management considers its relationship with its hotel operators currently to be

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satisfactory.

v.Competitors and
Competitive Business Conditions. The restaurant and food service industry is
highly competitive and fragmented. There are countless restaurants and other
food and beverage service operations that compete directly and indirectly with
the Company. In addition, many restaurant chains have significantly greater
financial resources and higher sales volumes than the Company. Restaurant
revenues are affected by changing consumer tastes and discretionary spending
priorities, local economic conditions, demographic trends, traffic patterns, the
ability of business customers to deduct restaurant expenses, the increasing
trend towards prohibition of smoking in restaurants and the type, number and
location of competing restaurants. In addition, factors such as inflation and
increased food, liquor, labour and other employee compensation costs can
adversely affect profitability. The Company believes that its ability to compete
effectively and successfully will depend on, among other things, management's
ability to offer quality food for moderate prices, managements ability to
control labour costs, and ultimately on the executive determinations as to
extensions of the brand (i.e., selection of sites for new locations and
related strategies). The Elephant & Castle brand has successfully existed in
Canada for 27 years and the United States for 14 years and, in the opinion of
management, has proven that its brand concept is durable and is capable of
significant growth.

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

vii.Dependence on Consumer/Brand
Loyalty. Elephant & Castle appeals to a diverse customer base, including
business and professional people who occupy offices in the vicinity of the
restaurants. The Companys hotel restaurants benefit from serving tourists and
others using the hotel properties. The Company's locations and broad menu
attract traffic from lunch through mid-afternoon, dinner and into the evening
hours. Most of the Company's restaurants are open seven days and evenings each
week. All items on the menu are available for take-out. Take-out revenues have
traditionally accounted for less than 2% of total restaurant sales, but a
renewed effort to expand take-out revenues is currently underway, especially at
the Companys downtown/urban locations.

viii.Trademarks; Licenses. The
Company has registered the name "The Elephant & Castle Pub & Restaurant"
with the Canadian Trademarks Office, and with the United States Patent and
Trademark Office. In 1994, the Company acquired "The Elephant & Castle"
trademark in the United States from Elephant & Castle Inc., of Portland OR.
The Company agreed to pay US$50,000 (CDN$66,500), plus a one-time fee of
US$5,000 (CDN$6,650) per

-10-

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location for the first ten locations for the mark. The Company
believes its "Elephant & Castle" trademark has substantial value and is 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.

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

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

Alcoholic beverage control regulations require each of the
Company's restaurants to apply to a state or provincial 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. 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. The Company has not encountered any material problems related to
alcoholic beverage licensing to date.

x.Effect of Existing
and Probable Governmental Regulations.

(a) Twelve of the Companys 14 wholly-owned restaurants are
subject to local, state or provincial regulations that prevent or restrict
customers from smoking on the premises. This represents a growing trend in
Canada and the US, with two of the restaurants having been newly affected in
2005 or early 2006, and two in 2004. The introduction of smoking bans or
restrictions have an adverse impact upon restaurant revenues and profits in
areas where such restrictions are imposed. The Companys sales and profits were
adversely impacted by such restrictions in certain locales in 2005 and in
2004.

(b) 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

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establishment that wrongfully served alcoholic beverages to
such a person. The Company has never been the subject of a dram-shop claim.
The Company carries liquor liability coverage that it believes is 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.

xi.Research and
Development. The Company places significant emphasis on the design and
interior decor of its restaurants.

The typical Elephant & Castle unit designs require somewhat
higher capital costs and furniture and fixtures investment to open a new
restaurant than is usual in the industry. Landlord contributions defray a part
or a substantial part of interior design and decor at a new restaurant. The
Company may be required to expend greater resources to maintain the appearance
of its units and to remodel such units.

The Company believes that its design and decor features enhance
the dining experience. Each restaurant typically features a prominent British
Bar, and large dining areas. Additionally, several offer patio seating, which
adds substantially to seasonal capacity, revenues and profits. Table layouts are
flexible, permitting re-arrangement of seating to accommodate large groups and
effective utilization of maximum seating capacity.

The Company believes that the location of a restaurant is
critical to its opportunities for success. 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
and office complexes within larger metropolitan areas. In selecting future
sites, the Company 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.

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

xiii.Number of Total Employees and
Full-Time Employees. As of December 25, 2005, the Company employed
approximately 693 persons on a full-time and part-time basis. Eighteen of such
persons serve in administrative or executive capacities, approximately 60 serve
as restaurant management personnel and the remainder are hourly workers in the
Company's restaurant operations. The Company believes that its working
conditions and compensation packages are competitive with those offered by its
competitors. Management considers the Company's relations with its employees to
be good, and its rate of employee turnover to be low in relation to industry
standards. The Company's service personnel at the San Diego Elephant &
Castle unit and Rosie's on Robson are separately unionized.

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The Company has sought to attract and retain high-quality,
knowledgeable restaurant management and staff. Each restaurant is managed by one
general manager and from one to three assistant managers, depending on volume.
Most restaurants, again depending on volume, also have one kitchen manager and
one to three assistant kitchen managers. On average, general managers have in
excess of five years' experience with the Company. The Company also employs two
regional managers. The Companys future success may depend in part on its
ability to continue to attract and train capable additional managers. 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 preparation, 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. Any new
employee at all functional levels is closely supervised after his or her
on-the-job training.

Management has made a conscious commitment to provide customer
service of the highest standards. Recent evaluations by customers and other
independent testing appear to confirm customer satisfaction with the quality of
food and service at the Companys restaurant units.

Efficient, attentive and friendly service is integral to the
Company's overall concept. Management regularly solicits employee suggestions
concerning operations and endeavors to be responsive to legitimate employee
concerns. The Company considers the quality of its employee interaction with
customers to be an important element of its business strategy.

xiv.Seasonality of the
Companys Business. For a discussion of the seasonality of the Companys
business, please see Item 7  Managements Discussion and Analysis of Financial
Condition and Results of Operations  Seasonality.

Available Information.The Company files annual
and quarterly reports with the Securities and Exchange Commission (SEC). Its
Commission file number is 1-12134. The public may read and copy any materials
filed by the Company with the SEC at the SECs public reference room, 100 F
Street, N.W., Washington, DC. The public may obtain information on the operation
of the public reference room by calling the SEC at 1-800-SEC-0330. The Companys
internet website address is: www.elephantcastle.com

The Company also makes available, free of charge, through its
internet website, its annual report on Form 10-K as soon as reasonably
practicable after the same is electronically filed with, or furnished to the
SEC. The Company will provide paper copies of its SEC filings free of charge
upon request. The Companys board of directors has recently adopted a Code of
Ethics which was attached as an exhibit to the Companys Proxy Statement in
connection with its 2004 Annual Meeting of Shareholders.

-13-

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ITEM 1A        RISK
FACTORS

The price of the Companys common shares is subject to
  the risks and uncertainty inherent in the Companys business. You should
  consider the following factors as well as other information set forth in this
  annual report on Form 10-K, in connection with any investment in the Companys
  common shares. If any of the risks described below occur, the Companys
  business, results of operations and financial condition could be adversely affected.
  In such cases, the price of theCompanys common shares could decline,
  and you could lose all or part of your investment.

(i)The Company has a history of losses from operations, and
it may incur additional losses in the future.

During the fiscal year ended December 25, 2005, the Company
generated a net loss of US$3,266,000 under Canadian generally accepted
accounting principles (Canadian GAAP). With the exception of the fiscal years
ended December 28, 2003 and December 30, 2001 in which the Company had a net
income of approximately US$228,000 and US$192,000 respectively under Canadian
GAAP, the Company has incurred losses from operations during the last five years
under Canadian GAAP. For the period ended December 25, 2005, such loss included
a loss on foreign exchange of US$679,000 and interest costs of US$2,605,000
relating to the Companys funding structure. Although the Companys income from
restaurant operations has improved, in light of the fact that interest costs
associated with the Companys funding structure will not be significantly
reduced until December 2009 when such debts are scheduled to be repaid to GE
Private Placement Partners II

(GEIPPPII) and Crown Capital Partners (Crown) and the
Companys operations continue to remain subject to fluctuations in foreign
currency exchange rates, the Company may incur additional losses in the future
unless its operations generate significant revenues to offset these expense
items. If the Company continues to incur losses from operations in the future,
this may adversely affect the price of the Companys common shares.

(ii)The Companys results from operations are subject to
fluctuations in foreign currency exchange rates.

The Company generates approximately Cdn$2,400,000 of operating
cash flow from its Canadian restaurants each year, with these cash flows
generated in Canadian dollars. Offsetting this revenue, the Company incurs
approximately Cdn$2,700,000 of general and administrative expenses and
approximately Cdn$600,000 in cash interest expenses. As at December 25, 2005 the
Company had Cdn$13,800,000 of long-term debt denominated in Canadian dollars.
The Companys reported earnings are, therefore, subject to exchange rate
fluctuations on the approximately Cdn$900,000 net cash outflow in Canadian
dollars each year, and on its Canadian dollar denominated debt. During the year
ended December 25, 2005, the Company incurred a loss of approximately US$679,000
as a result of fluctuations in foreign currency exchange rates due to the
weakening of the US dollar against the Canadian dollar. If the US dollar
continues to weaken or remains unchanged against the Canadian dollar, the
Companys revenues in Canadian dollars decrease and/or the Companys expenses in
Canadian dollars increase, or the Company fails

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to hedge its exposure to foreign currency exchange rates in the
future, the Companys results from operations could be adversely affected by
fluctuations in foreign currency exchange rates.

(iii)The Company is dependent on certain key
personnel.

The Companys performance and future operating results are
substantially dependent upon the continued service and performance of the
Companys senior management, including its current Chief Executive Officer,
Chief Operating Officer and Chief Financial Officer. Each of these individuals
possesses significant operational knowledge and expertise about the Company, and
the loss of services of such individuals could have a material adverse effect on
the Companys business, financial condition and operating results. The Company
currently maintains key man insurance for its Chief Executive Officer and
Chief Operating Officer.

(iv)The concentration of ownership of the Companys common
shares and preferred shares with GEIPPPII results in GEIPPPII controlling all
matters requiring shareholder approval.

Although GEIPPPII disclaims beneficial ownership of certain
securities held by management and other third parties that own securities in the
Company, according to the latest amendment to the Schedule 13D filed by GEIPPPII
and related persons, GEIPPPII beneficially owns 92.3% of the Companys common
shares. As discussed elsewhere in this annual report, a significant portion of
this beneficial ownership interest was acquired by GEIPPPII through the
Companys new funding structure. See Item 1. Business  Financings. As a
result, GEIPPPII is able to control all matters requiring shareholder approval
including the election of directors and approval of significant corporate
transactions. This concentration of ownership may delay, deter or prevent
actions that would result in a change of control and might affect the market
price of the Companys common shares.

(v)The Companys ability to raise capital in the future may
be limited, which could adversely impact its operations and growth.

Changes in the Companys operating plans, acceleration of its
expansion plans, lower than anticipated sales, increased expenses or other
events described in this annual report may require us to seek additional debt or
equity financing. Financing may not be available on acceptable terms and the
Companys failure to raise capital when needed could negatively impact its
growth and its financial condition and results of operations. In addition, the
ownership interest held by GEIPPPII and security interest that GEIPPPII and
Crown possess in certain of the Companys assets may further complicate and
frustrate the Companys ability to raise additional capital in the future.
Additional equity financing, if obtained, may be dilutive to the holders of the
Companys common shares, and debt financing, if available, may involve
significant cash payment obligations, significant renegotiation with existing
debt holders in the Company and covenants that restrict the Companys ability to
operate its business.

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(vi)The Companys ability to expand its restaurant base is
influenced by factors beyond its control and, therefore, it may not be able to
achieve its planned growth.

The Companys growth strategy depends in large part upon its
ability to open new restaurants and to operate these restaurants profitably.
Delays or failures in opening new restaurants could impair the Companys ability
to meet its growth objectives. In the past, the Company has experienced delays
in restaurant openings, for example with its two latest restaurant openings in
Washington, DC, and Chicago, Illinois, in 2005, and may experience similar
delays in the future. Further, the Company may encounter unforeseen cost
over-runs when opening new restaurant locations, which might also contribute to,
or result in, delays in restaurant openings. The Companys ability to expand its
business successfully will depend upon numerous factors, including:

- Obtaining adequate financing for the construction of new restaurants;
- Locating and securing a sufficient number of suitable new restaurant sites
  in new and existing markets on acceptable lease terms;
- Managing the amount of time and construction and development costs
  associated with the opening of new restaurants;
- Hiring, training and retaining skilled management, chefs and other
  qualified personnel to open, manage and operate new restaurants;
- Securing governmental approvals and permits required to open new
  restaurants in a timely manner, if at all;
- Successfully promoting the Companys new restaurants and competing in the
  markets in which its new restaurants are located; and
- General economic conditions.

Some of these factors are beyond the Companys control. The
Company may not be able to achieve its expansion goals and its new restaurants
may not be able to achieve operating results similar to those of the Companys
existing restaurants.

(vii)Unexpected expenses and low market acceptance could
adversely affect the profitability of restaurants that the Company opens in new
markets.

The Companys growth strategy includes opening restaurants in
markets where it has little or no operating experience and in which potential
customers may not be familiar with its restaurants. The success of these new
restaurants may be affected by different competitive conditions, consumer tastes
and discretionary spending patterns, and the Companys ability to generate
market awareness and acceptance of the Elephant & Castle brand. As a result,
the Company may incur costs related to the opening, operation and promotion of
these new restaurants that are greater than those incurred in other areas. Even
though the Company may incur substantial additional costs with these new
restaurants, they may attract fewer customers than the Companys more
established restaurants in existing markets. Sales at restaurants

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the Company opens in new markets may take longer to reach its
average annual sales, if at all. As a result, the results of operations at the
Companys new restaurants may be inferior to those of its existing restaurants.
The Company may not be able to profitably open restaurants in new markets.

(viii)A decline in visitors or business travelers to areas
where the Companys restaurants are located could negatively affect its
restaurant sales.

Many of the Companys restaurants are located in hotel and
resort areas. The Company depends on both local residents and business travelers
to frequent these locations. The Company has experienced a decline in revenues
in its downtown locations in the past, caused in part by decreases in business
travel and the general decline in economic conditions. The Company may
experience a similar decline in its revenues in the future. If the number of
visitors to downtown areas were to decline due to economic or other conditions,
changes in consumer preferences, changes in discretionary consumer spending or
for other reasons, the Companys revenues could decline significantly and the
Companys results of operations could be adversely affected.

(ix)The Companys growth may strain its infrastructure and
resources, which could slow its development of new restaurants and adversely
affect its ability to manage its existing restaurants.

The Company opened two new company-owned restaurants in 2005,
and the Company plans to open an additional company-owned restaurant in 2006.
The Companys expansion and its future growth may strain its restaurant
management systems and resources, financial controls and information systems.
Those demands on the Companys infrastructure and resources may also adversely
affect its ability to manage its existing restaurants. If the Company fails to
continue to improve its infrastructure or to manage other factors necessary for
the Company to meet its expansion objectives, the Companys operating results
could be materially and adversely affected.

(x)Negative publicity concerning food quality, health and
other issues and costs or liabilities resulting from litigation may have a
material adverse effect on the Companys results of operations.

The Company may be subject of complaints or litigation from
customers alleging illness, injury or other food quality, health or operational
concerns. Litigation or adverse publicity resulting from these allegations may
materially and adversely affect the Company or its restaurants, regardless of
whether the allegations are valid or whether the Company is liable. Further,
these claims may divert the Companys financial and management resources from
revenue-generating activities and business operations.

(xi)Health concerns related to the consumption of beef,
chicken or other foods could affect consumer preferences and could negatively
impact the Companys results of operations.

The Company may lose customers based on health concerns about
the consumption of certain foods or negative publicity concerning food

-17-

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quality, illness and injury generally, such as negative
publicity concerning the accumulation of mercury or other carcinogens in
seafood, e-coli, "mad cow" or "foot-and-mouth" disease, avian flu or bird flu,
publication of government or industry findings about food products served by the
Company or other health concerns or operating issues stemming from the food
served in one of its restaurants. In addition, the Companys operational
controls and training may not be fully effective in preventing all food-borne
illnesses. Some food-borne illness incidents could be caused by food suppliers
and transporters and would be outside of the Companys control. Any negative
publicity, health concerns or specific outbreaks of food-borne illnesses
attributed to one or more of the Companys restaurants, or the perception of an
outbreak, could result in a decrease in guest traffic to its restaurants and
could have a material adverse effect on its business.

(xii)The Companys operations are susceptible to changes in
food availability and costs, which could adversely affect its operating results.

The Companys profitability depends significantly on its
ability to anticipate and react to changes in food-related costs. The Company
relies on local, regional and national suppliers to provide its food products.
Increases in distribution costs or sale prices or failure to perform by these
suppliers could cause the Companys food costs to increase. The Company could
also experience significant short-term disruptions in its supply if a
significant supplier failed to meet its obligations. The supply of seafood is
more volatile than other types of food. The type, variety, quality and price of
certain foods is subject to factors beyond the Companys control, including
weather, governmental regulation, availability and seasonality, each of which
may affect the Companys food costs or cause a disruption in its supply. Changes
in the price or availability of beef, chicken and other foods served in the
Companys restaurants could affect its ability to offer a broad menu and price
offering to customers and could materially adversely affect the Companys
profitability.

(xiii)Labor shortages or increases in labor costs could slow
the Companys growth or harm its business.

The Companys success depends in part upon its ability to
attract, motivate and retain a sufficient number of qualified employees,
including regional operational managers and regional chefs, restaurant general
managers and executive chefs, necessary to continue the Companys operations and
keep pace with its growth. Qualified individuals are in short supply and
competition for these employees is intense. If the Company is unable to recruit
and retain sufficient qualified individuals, the Companys business and its
growth could be adversely affected. Additionally, competition for qualified
employees could require the Company to pay higher wages, which could result in
higher labor costs. If the Companys labor costs increase, the Companys results
of operations will be negatively affected.

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(xiv)The Companys business is subject to significant
competition.

The restaurant industry is intensely competitive with respect
to price, service, location, food quality, ambiance and the overall dining
experience. The Companys competitors include a large and diverse group of
restaurant chains and individual restaurants that range from independent local
operators to well-capitalized national restaurant companies. Some of the
Companys competitors have been in existence for a substantially longer period
than it has and may be better established in the markets where the Companys
restaurants are or may be located. Some of the Companys competitors may have
substantially greater financial, marketing and other resources than it does. If
the Companys restaurants are unable to compete successfully with other
restaurants in new and existing markets, the Companys results of operations
will be adversely affected. The Company also competes with other restaurants for
experienced management personnel and hourly employees, and with other
restaurants and retail establishments for quality restaurant sites.

(xv)The Companys success depends on its ability to protect
its proprietary information. Failure to protect the Companys trademarks,
service marks or trade secrets could adversely affect its business.

The Companys business prospects depend in part upon its
ability to develop favorable consumer recognition of the Elephant & Castle
name. Although Elephant & Castle is a federally registered trademark with
the United States Patent and Trademark Office, the Companys trademark could be
imitated in ways that it cannot prevent. In addition, the Company relies on
trade secrets, proprietary know-how, concepts and recipes; however, the
Companys methods of protecting this information may not be adequate and others
could independently develop similar know-how or obtain access to the Companys
trade secrets, know-how, concepts and recipes. Moreover, the Company may face
claims of misappropriation or infringement of third parties rights that could
interfere with the Companys use of its proprietary know-how, concepts, recipes
or trade secrets. Defending these claims may be costly and, if unsuccessful, may
prevent the Company from continuing to use this proprietary information in the
future, and may result in a judgment or monetary damages.

The Company does not maintain confidentiality and
non-competition agreements with all of its executives, key personnel or
suppliers. If competitors independently develop or otherwise obtain access to
the Companys know-how, concepts, recipes or trade secrets, the appeal of its
restaurants could be reduced and its business could be harmed.

(xvi)You may have difficulty selling the Companys common
shares on the Over-The-Counter Bulletin Board.

The Companys common shares are quoted only on the
Over-The-Counter Bulletin Board. Trading in stocks quoted on the
Over-The-Counter Bulletin Board is often thin and characterized by wide
fluctuations in trading prices due to many factors that may have little to do
with a companys operations or business prospects. Moreover, the
Over-The-Counter Bulletin Board is not a stock exchange, and trading of
securities on the Over-The-Counter Bulletin Board is often more

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sporadic than the trading of securities listed on a quotation
system such as Nasdaq Global or Capital markets or a stock exchange such as the
American Stock Exchange. Accordingly, you may have difficulty reselling your
common shares of the Company.

(xvii)If trading in the Companys common shares is less than
$5.00 per common share, trading in the Companys common shares would be subject
to certain rules under the Securities Exchange Act of 1934, as amended.

If the trading price of the Companys common shares is less
than US$5.00 per share, trading in the Companys common shares would be subject
to the requirements of certain rules promulgated under the Securities Exchange
Act of 1934, as amended, which require additional disclosure by broker-dealers
in connection with any trades involving a stock defined as a penny stock. A
broker-dealer is required to deliver to each customer information regarding the
risks of investing in penny stocks, its offer and bid prices for the penny stock
and the amount of compensation received by the broker-dealer with respect to
such transactions. The additional burdens imposed upon broker-dealers may
discourage broker-dealers from effecting transactions in the Companys common
shares, which could reduce the liquidity of the Companys common shares, and
thereby have a material adverse effect on the trading market for the Companys
securities.

(xviii)The Company has never declared or paid dividends and
it does not have plans to do so in the near future.

The Company has never declared or paid any cash dividends on
its common shares. The payment of any future dividends will be of the sole
discretion of the Companys board of directors. The Company currently intends to
retain earnings to finance the expansion of its business and, therefore, it does
not anticipate paying dividends in the foreseeable future. Therefore, you likely
must rely upon the appreciation of the Companys common share price to gain from
your investment in the Companys common shares.

(xix)You may face difficulties in attempting to pursue legal
actions under United States laws against the Company, its directors and
officers.

The Company was incorporated under the laws of the province of
British Columbia, Canada. Most of the Companys directors and officers are
citizens or residents of countries other than the United States and certain of
the Companys assets and the assets of such persons are located outside of the
United States. Consequently, it may be difficult for you to effect service of
process within the United States upon the Company, its directors and officers or
to realize in the United States upon judgments against such persons granted by
courts of the United States based upon the civil liability provisions of the
U.S. federal securities laws or other laws of the United States. There is doubt
as to the enforceability against the Company and against its non-U.S. resident
directors and officers, in original actions in Canadian courts, of liabilities
based upon the U.S. federal securities laws and as to the enforceability against
the Company and against its non-U.S. resident directors and officers in Canadian

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courts of judgments of U.S. courts obtained in actions based
upon the civil liability provisions of the U.S. federal securities laws. As a
result, it may not be possible to enforce those actions against the Company or
against certain of its directors and officers.

ITEM
1B        UNRESOLVED STAFF
COMMENTS

Not applicable.

ITEM
2           PROPERTIES

All of the Companys restaurants are located on leased sites.
The Company owns the furnishings, fixtures and equipment in each of its
restaurants. Existing restaurant leases have expirations ranging from 2007
through 2020 (including existing renewal options).

Mall leases typically provide for fixed rent plus payment of
certain escalations and operating expenses as a percentage of restaurant sales.

The Company's hotel restaurant leases are more typically based
on a percentage of restaurant sales, in addition to 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 leased facilities at hotels and other non-mall
locations are as follows:

Hotel Locations
    Opening Date
    Square Ft.
    Indoor SeatingWinnipeg
    May. 1994
      4,300
      180Philadelphia
    Feb. 1995
      7,900
      310Vancouver
    Aug. 1995
      5,500
      200San Diego
    Jul. 1996
      7,500
      300Seattle
    Aug. 1997
      7,600
      230Boston
    Nov. 1997
      9,500
      200Chicago West Adams
    Apr. 2001
      6,000
      190San Francisco
    Mar. 2003
      5,230
      148(Joint venture)Chicago East Huron
    May. 2005
      5,000
      160


Other Non-Mall LocationsToronto King Street
    Oct. 1996
      9,200
    330Edmonton
    Nov. 1997
      5,600
    180Toronto Yonge Street
    Dec. 1999
      3,200
    160Washington, DC
    May. 2005
      7,000
    200


The Company also currently operates two mall-based restaurants,
both of which are in Canada. 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:

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IndoorCity
    Mall
    Opening Date
    Square Feet
    Seating(a)Ottawa, Ont.
    Rideau Center
    Mar. 1983
    7,119
    280Edmonton, Alb.
    Eaton Center
    Sep. 1988
    5,939
    225


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

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
|                          |                 |                    
|San Diego, Holiday Inn    | 2010            | 92,000             
|Edmonton, Eaton Centre    | 2007            | 54,000             
|Boston, Club Quarters     | 2007            | 60,000             
|Ottawa Rideau Center      | 2008            | 142,000            
|Toronto, Yonge Street     | 2008            | 121,000            
|Philadelphia, Holiday Inn | 2010            | 122,000            
|Chicago, West Adams       | 2010            | 141,000            
|Toronto, King Street      | 2011            | 109,000            
|Edmonton, Whyte Ave       | 2012            | 89,000             
|Seattle, WestCoast Grand  | 2012            | 101,000            
|San Francisco             | 2013            | 0*                 
|Winnipeg, Delta Hotel     | 2014            | 51,000             
|Vancouver, Rosedale Hotel | 2015            | 137,000            
|Washington, DC            | 2015            | 203,000            
|Chicago, East Huron       | 2015            | 202,000            
|                          |                 |                    
|Total:                    |                 | US$1,624,000       

* The Company operates the Club Quarters in San Francisco,
California on a joint venture basis and has no obligation for rent in respect
thereof. The joint venture has a 10-year term, which commenced March 2003.

In addition, the Company subleases a property in London,
Ontario to one of its franchisees. The Company remains fully liable for the
annual rent of US$139,000 until the lease expires in September 2008.

ITEM
3           LEGAL
PROCEEDINGS

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

A Canadian subsidiary of the Company has received notices of
reassessment from Canada Revenue Agency (CRA) involving a further demand from
the CRA for CDN$240,000 (US$206,000) relating to disputes concerning
construction allowances dating back to 1984.

On September 30, 2005, the Company paid CDN$46,000 (US$39,000)
to the

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CRA in partial settlement of this matter. The Company maintains
that the remaining CDN$194,000 (US$166,000) represents a miscalculation by the
CRA relative to the timing of tax losses. However, the Company maintains a
provision of CDN$163,000 (US$140,000) against the remaining disputed charge.

ITEM
4           SUBMISSION OF
MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

PART II

ITEM **5**
    MARKET FOR REGISTRANT'S COMMON
      EQUITY, AND RELATED STOCKHOLDER MATTERS AND
      ISSUER PURCHASES OF EQUITY SECURITIES


(a) The Companys common shares were traded on the NASDAQ Small
Cap Market from June 29, 1993 until it was involuntarily delisted on March 22,
2000 as a result of having failed to maintain a minimum bid price of $1.00. The
shares continue to be traded on the Over-the-Counter Bulletin Board (OTCBB)
under the symbol PUBSF.

The range of high and low bid and asked prices for the
Companys common shares from January 1, 2004, to the end of 2005 has been:

High
    LowFirst Quarter of 2004:
    $0.44
    $0.22Second Quarter of 2004:
    $0.95
    $0.30Third Quarter of 2004:
    $0.65
    $0.30Fourth Quarter of 2004:
    $0.51
    $0.30First Quarter of 2005:
    $0.50
    $0.28Second Quarter of 2005:
    $0.95
    $0.45Third Quarter of 2005:
    $0.51
    $0.40Fourth Quarter of 2005:
    $0.51
    $0.29


Such quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commissions, and may not reflect actual transactions.

(b) The approximate number of record holders of the Company's
common shares as of February 2, 2006 is 500.

(c) The Company has never paid any dividends in respect of any
of its capital shares, and does not intend to do so any time in the foreseeable
future.

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

Equity based compensation plans in force as at December 25,
2005:

Plan category
    Number of securities to be issued upon
      exercise of outstanding options (a)
    Weighted-average exercise price of
      outstanding options (b)
    Number of securities remaining available
      for future issuance under equity compensation plans
      (excluding securities reflected in column (a)) (c)Equity compensation plans approved by security
      holders
      546,500
    US $ 5.79 
        CDN $ 8.98
      611,000Equity compensation plans not approved by security
      holders
      0
    
      0Total  546,500
    US $ 5.79 CDN $ 8.98
      611,000


Exchange Controls

There are presently no governmental laws, decrees or
regulations in Canada which restrict the export or import of capital or which
impose foreign exchange controls.

Except as provided in the Investment Canada Act (the
ICA), there are no restrictions specific to the rights of non-Canadians to
hold or vote securities of the Company under the laws of Canada or British
Columbia, or in the Companys charter documents.

The ICA requires non-Canadian persons or entities acquiring
control (as defined in the ICA) of a corporation carrying on business in
Canada to either notify, or file an application for review with, Investment
Canada, the federal agency created by the ICA. The ICA is applicable to, and
Investment Canada may review, transactions which result in the direct or
indirect acquisition of control of a Canadian business, where the gross value of
corporate assets, calculated in the manner prescribed, exceeds certain
thresholds (generally five million dollars, in the case of direct acquisitions
and fifty million dollars, in the case of indirect acquisitions), such
thresholds being favourably varied by the Minister each year for WTO investors
(including the U.S.), except where the activity of the business is related to
uranium production, financial services, transportation or culture. No change of
voting control will be deemed to have occurred, for purposes of the ICA, if less
than one-third of the voting control of a Canadian corporation is acquired by an
investor.

If an investment is reviewable under the ICA, an application
for review in the form prescribed is normally required to be filed with
Investment Canada prior to the investment taking place, and the investment may
not be implemented until the review has been completed and the Minister
responsible for Investment Canada is satisfied that the investment is likely to
be of net benefit to Canada. If the

-24-

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Minister is not satisfied that the investment is likely to be
of net benefit to Canada, the non-Canadian applicant must not implement the
investment, or if the investment has been implemented, may be required to divest
itself of control of the business that is the subject of the investment.

Certain Canadian Federal Income Tax Considerations for U.S.
Resident Holders

The following discussion is a summary of certain Canadian
federal income tax consequences of the acquisition, ownership and disposition of
the common shares of the Company by a holder who is not resident in Canada nor
deemed to be resident in Canada under the Income Tax Act (Canada) (ITA). This
summary assumes that at all relevant times (i) the holder has never been
resident in Canada; (ii) the Companys dealings with the holder are at arms
length within the meaning of the ITA; (iii) the holder holds the common shares
as capital property; (iv) the holder does not use or hold and is not deemed or
considered to use or hold the common shares in carrying on business in Canada
and has not acquired any of the common shares in one or more transactions
considered to be an adventure in the nature of trade within the meaning of the
ITA; and (v) the holder is not otherwise required by or for the purposes of the
laws of Canada to include an amount in respect of any of the common shares in
computing income from carrying on business in Canada. This summary further
assumes that the holder, for purposes of the Canada-U.S. Income Tax Convention
(the Treaty), is at all relevant times a resident of the U.S., has never been
a resident of Canada, has not held or used common shares in connection with a
permanent establishment or fixed base in Canada, and otherwise qualifies for the
full benefits of the Treaty. This summary is not applicable to special
circumstances such as where the holder is a limited liability company, a
tax-exempt entity, an insurer, or a financial institution, a specified
financial institution, or an interest in which would be a tax shelter
investment, all as defined in the ITA.

This summary is based on the current provisions of the ITA and
the regulations thereunder, our understanding of the current published
administrative practices of the Canada Revenue Agency, and all specific
proposals to amend the ITA and the regulations thereunder announced by the
Minister of Finance (Canada) prior to the date hereof. This summary does not
otherwise take into account or anticipate any changes in the law, whether by
judicial, governmental or legislative decisions or action, nor does it take into
account tax legislation or considerations of any province or territory of Canada
or any jurisdiction other than Canada.

The summary is of a general nature only, is not exhaustive
of all Canadian income tax considerations, and is not intended to be, and should
not be construed to be, legal or tax advice to any particular holder of the
common shares and no representation with respect to the Canadian tax
consequences to any particular holder is made. Each holder should consult with
their own tax advisors with respect to the income tax consequences to them of
acquiring, holding or disposing of the common shares.

Dividends

Dividends paid on the common shares to a U.S. resident holder
will be subject to Canadian withholding tax at a rate of 15% of the gross
dividend, and 5% where the beneficial owner of the dividend is a corporation
resident in the U.S. that owns at least 10% of the Companys common shares.

Capital Gains

A U.S. resident holder will not be subject to Canadian tax in
respect of a capital gain realized upon the disposition of common shares unless
the common shares represent taxable Canadian property to the holder, as
defined in the ITA. The common shares will be taxable Canadian property to a
U.S. resident holder only if the U.S. resident holder, together with persons
with whom the holder does not deal at arms length, collectively owned at least
25% of the issued shares of any class of the capital stock of the Company at any
time during

-25-

---

the five year period preceding the disposition of the common
shares. Even if the common shares represent taxable Canadian property, under the
Treaty no Canadian tax will generally be payable on a capital gain realized on
the disposition of the common shares by a U.S. resident holder, unless the value
of the common shares is derived principally from real property situated in
Canada. Management of the Company is of the view that the value of the common
shares of the Company is not derived principally from real property situated in
Canada. Provided this is correct, in no instance will Canadian tax be payable on
a capital gain realized on a disposition of common shares of the Company by a
U.S. resident holder.

Recent Sales of Unregistered Securities

Pursuant to the terms of a certain investment agreement dated
December 17, 2004 by and among the Company, Management, GEIPPPII and Crown, the
Company issued 56,094 common shares and 39,070 preferred shares, on December 31,
2005 to Messrs. Bryant, and Laurie in consideration for an aggregate of
Cdn$21,000.

The preferred shares are automatically convertible into common
shares subject to the Company achieving an EBITDA target of $3,500,000 at the
rate of three common shares for every preferred share. Such securities were
issued to Messrs. Bryant, Sexton and Laurie in reliance upon the exclusion from
registration available under Regulation S of the Securities Act of 1933, as
amended, (Regulation S), because such purchasers were located outside the
United States.

Purchases of Equity Securities by the Issuer and Affiliated
Purchasers

No repurchases of the Companys equity securities were made by
the Company or by an affiliated purchaser during the fourth quarter of 2005.

-26-

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|ITEM **6** | SELECTED FINANCIAL DATA                     
|---------- | --------------------------------------------
|           | (in thousands of US dollars except per share
|           | information which is set forth in US        
|           | dollars)                                    

|UNDER CDN GAAP        |   | 2005       |   |   | 2004      |   |   | 2003      |  |   | 2002      |   |   | 2001      | 
|--------------------- | - | ---------- | - | - | --------- | - | - | --------- |  | - | --------- | - | - | --------- | 
|                      |   |            |   |   |           |   |   |           |  |   |           |   |   |           | 
|Sales                 | $ | 33,045     |   | $ | 28,202    |   | $ | 26,725    |  | $ | 27,716    |   | $ | 30,235    | 
|Income from           |   |            |   |   |           |   |   |           |  |   |           |   |   |           | 
|Restaurant Operations |   | 3,252      |   |   | 2,719     |   |   | 2,740     |  |   | 2,640     |   |   | 3,041     | 
|Per share             |   | 0.57       |   |   | 0.52      |   |   | 0.53      |  |   | 0.51      |   |   | 0.78      | 
|Diluted per share     |   | 0.27       |   |   | 0.35      |   |   | 0.33      |  |   | 0.33      |   |   | 0.49      | 
|                      |   |            |   |   |           |   |   |           |  |   |           |   |   |           | 
|Earnings (loss)       |   |            |   |   |           |   |   |           |  |   |           |   |   |           | 
|before Income Taxes   |   | (3,008     | ) |   | (710      | ) |   | 173       |  |   | (1,514    | ) |   | 192       | 
|Per share             |   | (0.52      | ) |   | (0.14     | ) |   | 0.03      |  |   | (0.29     | ) |   | 0.05      | 
|Diluted per share     |   | n/a        |   |   | n/a       |   |   | 0.02      |  |   | n/a       |   |   | 0.03      | 
|                      |   |            |   |   |           |   |   |           |  |   |           |   |   |           | 
|Net income (loss)     |   | (3,266     | ) |   | (888      | ) |   | 228       |  |   | (1,344    | ) |   | 192       | 
|Earnings (loss)       |   |            |   |   |           |   |   |           |  |   |           |   |   |           | 
|per share - basic     |   | ($0.57     | ) |   | ($0.17    | ) | $ | 0.04      |  |   | ($0.26    | ) | $ | 0.05      | 
|Earnings (loss)       |   |            |   |   |           |   |   |           |  |   |           |   |   |           | 
|per share - diluted   |   | n/a        |   |   | n/a       |   | $ | 0.03      |  |   | n/a       |   | $ | 0.03      | 
|                      |   |            |   |   |           |   |   |           |  |   |           |   |   |           | 
|Total assets          |   | 14,682     |   |   | 15,164    |   |   | 10,677    |  |   | 10,656    |   |   | 13,043    | 
|Shareholders'         |   |            |   |   |           |   |   |           |  |   |           |   |   |           | 
|equity (deficit)      |   | (5,795     | ) |   | (2,642    | ) |   | 2,470     |  |   | 1,908     |   |   | 3,421     | 
|Long-term debt        |   | 17,347     |   |   | 15,262    |   |   | 4,622     |  |   | 5,142     |   |   | 6,012     | 
|Average shares        |   |            |   |   |           |   |   |           |  |   |           |   |   |           | 
|outstanding - basic   |   | 5,744,360  |   |   | 5,244,507 |   |   | 5,163,271 |  |   | 5,163,354 |   |   | 3,890,000 | 
|Average shares        |   |            |   |   |           |   |   |           |  |   |           |   |   |           | 
|outstanding - diluted |   | 12,219,672 |   |   | 7,802,309 |   |   | 8,268,578 |  |   | 8,085,848 |   |   | 6,164,000 | 

-27-

---

|UNDER US GAAP                            |   | 2005       |   |   | 2004      |   |   | 2003      |   |   | 2002      |   |   | 2001      |  
|---------------------------------------- | - | ---------- | - | - | --------- | - | - | --------- | - | - | --------- | - | - | --------- | -
|                                         |   |            |   |   |           |   |   |           |   |   |           |   |   |           |  
|Sales                                    | $ | 32,431     |   | $ | 27,615    |   | $ | 26,270    |   | $ | 27,716    |   | $ | 30,235    |  
|Income from                              |   |            |   |   |           |   |   |           |   |   |           |   |   |           |  
|Restaurant Operations                    |   | 3,272      |   |   | 2,744     |   |   | 2,677     |   |   | 2,669     |   |   | 2,967     |  
|Per share                                |   | 0.57       |   |   | 0.52      |   |   | 0.52      |   |   | 0.52      |   |   | 0.76      |  
|Diluted per share                        |   | 0.27       |   |   | 0.35      |   |   | 0.32      |   |   | 0.33      |   |   | 0.48      |  
|                                         |   |            |   |   |           |   |   |           |   |   |           |   |   |           |  
|Earnings (loss)                          |   |            |   |   |           |   |   |           |   |   |           |   |   |           |  
|before Income Taxes                      |   | (2,981     | ) |   | (132      | ) |   | 957       |   |   | (1,810    | ) |   | (823      | )
|Per share                                |   | (0.52      | ) |   | (0.03     | ) |   | 0.19      |   |   | (0.35     | ) |   | (0.21     | )
|Diluted per share                        |   | n/a        |   |   | n/a       |   |   | 0.12      |   |   | n/a       |   |   | n/a       |  
|                                         |   |            |   |   |           |   |   |           |   |   |           |   |   |           |  
|Net income (loss) as previously stated   |   | (3,239     | ) |   | (1,170    | ) |   | (166      | ) |   | (1,646    | ) |   | (362      | )
|Restatements:                            |   |            |   |   |           |   |   |           |   |   |           |   |   |           |  
|Gain on exchange of junior notes         |   | 0          |   |   | 0         |   |   | 201       |   |   | 0         |   |   | 0         |  
|Gain on translation of convertible notes |   |            |   |   |           |   |   |           |   |   |           |   |   |           |  
|using period end rate for US GAAP        |   | 0          |   |   | 860       |   |   | 1,023     |   |   | 51        |   |   | (416      | )
|Amortize set up costs of junior notes    |   | 0          |   |   | 0         |   |   | (45       | ) |   | (45       | ) |   | (45       | )
|Net income (loss) as restated            |   | (3,239     | ) |   | (310      | ) |   | 1,013     |   |   | (1,640    | ) |   | (823      | )
|Earnings (loss)                          |   |            |   |   |           |   |   |           |   |   |           |   |   |           |  
|per share - basic                        |   | ($0.56     | ) |   | ($0.06    | ) | $ | 0.20      |   |   | ($0.32    | ) |   | ($0.21    | )
|Earnings (loss)                          |   |            |   |   |           |   |   |           |   |   |           |   |   |           |  
|per share - diluted                      |   | n/a        |   |   | n/a       |   | $ | 0.12      |   |   | n/a       |   |   | n/a       |  
|                                         |   |            |   |   |           |   |   |           |   |   |           |   |   |           |  
|Total assets                             |   | 12,454     |   |   | 12,876    |   |   | 10,046    |   |   | 9,886     |   |   | 12,025    |  
|Shareholders' equity (deficit)           |   |            |   |   |           |   |   |           |   |   |           |   |   |           |  
|as previously stated                     |   | (6,146     | ) |   | (3,020    | ) |   | (4,482    | ) |   | (3,742    | ) |   | (1,955    | )
|Restatements:                            |   |            |   |   |           |   |   |           |   |   |           |   |   |           |  
|Gain on translation of convertible notes |   |            |   |   |           |   |   |           |   |   |           |   |   |           |  
|using period end rate for US GAAP        |   | 0          |   |   | 0         |   |   | (136      | ) |   | (90       | ) |   | (45       | )
|Amortize set up costs of junior notes    |   | 0          |   |   | 0         |   |   | 657       |   |   | (365      | ) |   | (416      | )
|Shareholders' equity (deficit)           |   |            |   |   |           |   |   |           |   |   |           |   |   |           |  
|as restated                              |   | (6,146     | ) |   | (3,020    | ) |   | (3,961    | ) |   | (4,197    | ) |   | (2,416    | )
|                                         |   |            |   |   |           |   |   |           |   |   |           |   |   |           |  
|Long-term debt                           |   | 15,510     |   |   | 13,386    |   |   | 10,327    |   |   | 10,387    |   |   | 10,786    |  
|Average shares                           |   |            |   |   |           |   |   |           |   |   |           |   |   |           |  
|outstanding - basic                      |   | 5,744,360  |   |   | 5,244,507 |   |   | 5,163,271 |   |   | 5,163,354 |   |   | 3,890,000 |  
|Average shares                           |   |            |   |   |           |   |   |           |   |   |           |   |   |           |  
|outstanding - diluted                    |   | 12,219,672 |   |   | 7,802,309 |   |   | 8,268,578 |   |   | 8,085,848 |   |   | 6,164,000 |  

-28-

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Summary of differences between CDN GAAP and US GAAP for selected
  financial data

(a) Consolidated statement of operations
  items

For Canadian GAAP purposes, the Company
  uses the proportionate method of consolidation to record its one-third ownership
  stake in the joint venture Elephant & Castle restaurant in San Francisco,
  CA. For US GAAP purposes, there is no proportional consolidation of sales or
  costs for such joint ventures. Instead, the Companys share of profits
  is recorded as investment income.

For Canadian GAAP purposes, pre-opening
  costs associated with new store openings are amortized over a period of 12 months
  commencing at date of opening. For US GAAP purposes, such costs are written
  off in full as they are incurred.

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

For Canadian GAAP purposes, the GEIPPPII
  Junior Notes were treated as equity, since the debt was convertible into common
  shares of the Company at the option of the issuer. For US GAAP purposes these
  amounts were treated as a liability.

Accordingly, the dividends associated
  with these notes were recorded as other paid-in capital for Canadian GAAP purposes,
  but as interest costs for US GAAP purposes. In addition, when the GEIPPPII Junior
  Notes were exchanged for preferred shares in December 2004, the associated gain
  on foreign exchange was recorded as contributed surplus for Canadian GAAP purposes,
  but as gain on foreign exchange for US GAAP purposes. Also, the set up costs
  of the GEIPPPII Junior Notes which were recorded as other paid-in capital for
  Canadian GAAP purposes, were recorded as a debt set-up cost for US GAAP purposes
  and were accordingly amortized over the term of the debt. Since these notes
  were a liability for US GAAP purposes, they were consolidated each year at period
  end rates, rather than historic rates, resulting in a gain or loss on foreign
  exchange for US GAAP purposes only.

-29-

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The impact of the above on net income (loss) may be
  summarized as follows:

| |                                                 | 2005     | 2004    | 2003   | 2002     | 2001  
| | ----------------------------------------------- | -------- | ------- | ------ | -------- | ------
| |                                                 |          |         |        |          |       
| | Net income (loss) Canadian GAAP                 | ($3,266) | ($888)  | $228   | ($1,344) | 192   
| |                                                 |          |         |        |          |       
| | Adjustments decreasing (increasing)             |          |         |        |          |       
| | net income (loss):                              |          |         |        |          |       
| | Amortization of improvement costs               | 218      | 6       | (2)    | (6)      | (39)  
| | Pre-opening costs, expensed under US GAAP       | (191)    | 45      | (45)   | 35       | (36)  
| | Dividend on paid-in capital that would
      be |          |         |        |          |       
| | treated as interest under US GAAP               | 0        | (333)   | (347)  | (330)    | (479) 
| |                                                 |          |         |        |          |       
| | Net (loss) US GAAP as previously stated         | (3,239)  | (1,170) | (166)  | (1,645)  | (362) 
| |                                                 |          |         |        |          |       
| | Restatements decreasing (increasing)            |          |         |        |          |       
| | net income (loss):                              |          |         |        |          |       
| | Gain on exchange of junior notes                | 0        | 0       | 201    | 0        | 0     
| | Amortize set up costs of junior notes           | 0        | 0       | (45)   | (45)     | (45)  
| | Gain on translation of convertible notes        |          |         |        |          |       
| | using period end
      rate for US GAAP         | 0        | 860     | 1,023  | 51       | (416) 
| | Net income
      (loss) US GAAP as restated     | ($3,239) | ($310)  | $1,013 | ($1,640) | ($823)

(b) Balance sheet items

For Canadian GAAP purposes, the Company uses the proportionate
  method of consolidation to record its one-third ownership stake in the joint
  venture Elephant & Castle restaurant in San Francisco, CA. For US GAAP purposes,
  there is no proportional consolidation of assets or liabilities for such joint
  ventures. Instead, the value of the Companys investment is included in
  other assets.

For Canadian GAAP purposes, pre-opening costs associated
  with new store openings are amortized over a period of 12 months commencing
  at date of opening. For US GAAP purposes, such costs are written off in full
  as they are incurred.

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

For Canadian GAAP purposes, deferred financing costs
  are recorded as an asset which is then amortized over the life of

-30-

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the associated instrument. Under US GAAP, such costs
  are offset against long term debt.

For Canadian GAAP purposes, the GEIPPPII Junior Notes
  were treated as equity, since the debt was convertible into common shares of
  the Company at the option of the issuer. For US GAAP purposes these amounts
  were treated as a liability.

Accordingly, the dividends associated with these notes
  were recorded as other paid-in capital for Canadian GAAP purposes, but as interest
  costs for US GAAP purposes. In addition, when the GEIPPPII Junior Notes were
  exchanged for preferred shares in December 2004, the associated gain on foreign
  exchange was recorded as contributed surplus for Canadian GAAP purposes, but
  as gain on foreign exchange for US GAAP purposes. Also, the set up costs of
  the GEIPPPII Junior Notes which were recorded as other paid-in capital for Canadian
  GAAP purposes, were recorded as a debt set-up cost for US GAAP purposes and
  were accordingly amortized over the term of the debt. Since these notes were
  a liability for US GAAP purposes, they were consolidated each year at period
  end rates, rather than historic rates, resulting in a gain or loss on foreign
  exchange for US GAAP purposes only.

The impact of the above on shareholders equity (deficit)
  may be summarized as follows:

| |                                                    | 2005     | 2004     | 2003     | 2002     | 2001    
| | -------------------------------------------------- | -------- | -------- | -------- | -------- | --------
| |                                                    |          |          |          |          |         
| | Shareholders' equity (deficit) Canadian
      GAAP | ($5,795) | ($2,642) | $2,470   | $1,908   | 3,421   
| |                                                    |          |          |          |          |         
| | Adjustments decreasing (increasing)                |          |          |          |          |         
| | shareholders' equity (deficit):                    |          |          |          |          |         
| | Amortization of improvement costs                  | (160)    | (378)    | (384)    | (382)    | (376)   
| | Pre-opening costs, expensed under US GAAP          | (191)    | 0        | (45)     | (1)      | (36)    
| | GEIPPPII Junior Notes                              |          |          |          |          |         
| | treated as liability under US GAAP                 | 0        | 0        | (6,524)  | (5,267)  | (4,964) 
| |                                                    |          |          |          |          |         
| | Equity (deficit) US GAAP as previously stated      | (6,146)  | (3,020)  | (4,483)  | (3,742)  | (1,955) 
| |                                                    |          |          |          |          |         
| | Restatements decreasing (increasing)               |          |          |          |          |         
| | shareholders' equity (deficit):                    |          |          |          |          |         
| | Gain on exchange of junior notes                   |          |          |          |          |         
| | Amortize set up costs of junior notes              | 0        | 0        | (135)    | (90)     | (45)    
| | Gain on translation of convertible notes           |          |          |          |          |         
| | using period end
      rate for US GAAP            | 0        | 0        | 657      | (365)    | (416)   
| | Equity (deficit)
      US GAAP as restated         | ($6,146) | ($3,020) | ($3,961) | ($4,197) | ($2,416)

-31-

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|ITEM **7** | MANAGEMENT'S DISCUSSION
        AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
|---------- | --------------------------------------------------------------------------------------------
|

Overview

The Company owns, operates and franchises casual full service
  brand name restaurants in Canada and the United States. Its principal brand
  is Elephant and Castle.

Revenues are generated from two main sources:

- Food and beverage sales from Company
  owned and operated (Corporate) stores; and

- Franchise fees and other franchise
  income.

The casual dining industry is highly competitive. Profitability
  is susceptible to changes in economic conditions, consumer taste and lifestyle,
  government regulations, and fluctuating commodity prices.

The Company focuses on four key areas which are the main drivers
  of its profitability:

| | (a) | Sales growth from comparable restaurants;                                                           
| | --- | ----------------------------------------------------------------------------------------------------
| | (b) | Operating costs and margins in corporate restaurants;                                               
| | (c) | Development of new corporate restaurants in order to
        expand the Companys earnings base; and
| | (d) | Control of general and administrative expenses.                                                     

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Fifty-two Weeks Ended December 25, 2005 vs. Fifty-two Weeks
  Ended December 26, 2004

During the fifty-two weeks ended December 25, 2005, the Company
  saw strong comparable store sales and profit growth from its US operations,
  reflecting improved operational standards and a strengthening US economy. Comparisons
  with available market data suggest that the Companys growth in comparable
  US store sales has exceeded the average for the casual dining sector by approximately
  3% for 12 months to December 25, 2005. (Source: KnappTrack). Canadian same store
  performance (excluding the three stores which closed in 2005) also showed an
  encouraging return to growth.

During the fifty-two weeks ended December 25, 2005, the Company
  opened two new corporate restaurants, a first restaurant in Washington, DC and
  a second restaurant in Chicago, IL. In addition, an eight franchise restaurant
  opened in Wexford, PA.

During the fifty-two weeks ended December 25, 2005, the Company
  generated Earnings Before Tax, Interest, Depreciation and Amortization (EBITDA)
  of US$2,384,000 which represents a 46% increase on the prior year when EBITDA
  was US$1,634,000. EBITDA is a non-GAAP term, but the Company believes it to
  be a good measure of underlying business performance, since it excludes the
  impact of gain/loss on foreign exchange and interest costs, both of which can
  vary significantly from year to year. The following table provides a reconciliation
  between Income (Loss) Before Income Taxes and EBITDA:

|US$000                                | 2005    | 2004  | 2003 
|------------------------------------- | ------- | ----- | -----
|                                      |         |       |      
|Income (Loss) Before Income Taxes     | (3,008) | (710) | 173  
|Add back:                             |         |       |      
|Interest on Long-Term Debt            | 2,605   | 558   | 545  
|(Gain) Loss
      on Foreign Exchange | 679     | 28    | (679)
|Amotization                           | 1,872   | 1,559 | 1,538
|Restaurant
      Closing Costs        | 55      | 0     | 94   
|Impairment of Long-Lived Assets       | 181     | 199   | 0    
|                                      |         |       |      
|EBITDA                                | 2,384   | 1,634 | 1,671

The Company presents its consolidated financial statements in
  Canadian GAAP, and provides reconciliations to US GAAP where required.

With effect from the reporting period ended December 26, 2004,
  the Company denominated its functional and reporting currency to be the US Dollar.
  Previously the Companys functional and reporting currency was the Canadian
  Dollar.

-33-

---

Sales

Sales increased during the fifty-two weeks ended December 25,
  2005 to US$33,045,000 from US$28,202,000 in 2004. The year on year increase
  in sales of US$4,843,000 is comprised of:

US$Increase in sales from same US stores (+5.9%)
      
      789,000Increase in sales from same Canadian stores (+5.2%)
      
      590,000Impact of Canadian store closures
      
      (527,000
      )Consolidation of Canadian Sales at higher exchange rate
      
      1,040,000Share of sales from new store in San Francisco
      
      29,000Impact of new stores (Chicago-Huron and Washington, DC)
      
      2,824,000Changes in other income
      
      98,000Total change in sales versus 2005
      $
      4,843,000


For the five US Corporate locations open throughout the year,
  sales for the 2005 period were US$14,127,000, which represents an increase of
  5.9% compared to the prior year. Four out of five US same stores showed year
  on year growth. San Diego sales grew +11.2% versus 2004, representing two year
  growth of +33.8%, reflecting continuing high hotel occupancy and local events.
  Chicago (+8.9%), Philadelphia (+7.9%), and Boston (+1.9%) have also shown consistent
  growth. Seattle (-5.8%) performed below last year.

For the seven Canadian Elephant & Castle corporate locations
  fully open throughout both periods, sales for the fifty-two weeks ended December
  25, 2005 totaled CDN$14,578,000 and were up 5.2% compared to the fifty-two weeks
  ended December 26, 2004. Three of the seven stores (Toronto Yonge St. +17.2%;
  Winnipeg +11.7%; Ottawa +6.5%) showed year on year sales increases. The return
  of NHL hockey in the fourth quarter of 2005 had a positive impact on the Edmonton
  Whyte Avenue and Rosies on Robson locations bringing their year on year sales
  to flat. Rosies on Robson also benefited from the Grey Cup week during the month
  of November.

Net Income/Loss

For the fifty-two weeks ended December 25, 2005, the Company
  generated a net loss of US$3,266,000 compared to a net loss of US$888,000 for
  the fifty-two week period in 2004. The current year loss includes a loss on
  foreign exchange of US$679,000 (2004s loss was US$28,000), and interest
  costs of US$2,605,000 (2004s interest costs were US$558,000) reflecting
  the Companys new funding structure. Losses per Common Share for the current
  period were US$0.57, versus a loss per Common Share of US$0.17 in 2004. The
  weighted average number of Common Shares outstanding increased from 5,244,507
  in 2004 to 5,744,360 for the current year, reflecting the sale and issuance
  of Common Shares in connection with the Companys new funding structure,
  purchase of Common Shares by Management and the issuance of 15,000 Common Shares
  to directors.

-34-

---

Income from Restaurant Operations

The Company generated income from restaurant operations of US$3,252,000
  compared to US$2,719,000 for 2004. The increase versus 2004 of US$533,000 is
  comprised of:

US$Increase in income from same US stores
      
      568,000Increase in income from same Canadian stores
      
      353,000Impact of Canadian store closures
      
      (303,000
      )Impact of foreign exchange
      
      90,000Income from new store in San Francisco
      
      45,000Impact of new stores (Chicago-Huron and Washington)
      
      (365,000
      )Changes in other income
      
      145,000Total change in income versus 2005
      $
      533,000


The Company opened two new corporate stores in May 2005, a first
  store in Washington, DC, and a second store in Chicago, IL (East Huron Street).
  These new stores generated losses of US$365,000, but this included depreciation
  and pre-opening cost amortization of US$596,000. Chicago East Huron is operating
  in line with expectations, but initial operations in Washington, DC have been
  below budget.

-35-

---

Same Store Performance

The following tables show same store sales and profit performance
  for US and Canadian stores (in local currency):

US same stores (US$000)

|                                  |  |        |  |  | % of  |  |  |        |  |  | % of  | 
|--------------------------------- |  | ------ |  |  | ----- |  |  | ------ |  |  | ----- | 
|                                  |  | 2005   |  |  | sales |  |  | 2004   |  |  | sales | 
|                                  |  |        |  |  |       |  |  |        |  |  |       | 
|SALES                             |  | 14,127 |  |  |       |  |  | 13,338 |  |  |       | 
|                                  |  |        |  |  |       |  |  |        |  |  |       | 
|RESTAURANT EXPENSES               |  |        |  |  |       |  |  |        |  |  |       | 
|Food and Beverage Costs           |  | 3,471  |  |  | 24.6% |  |  | 3,366  |  |  | 25.2% | 
|Restaurant Operating Expenses     |  |        |  |  |       |  |  |        |  |  |       | 
|Labour                            |  | 4,518  |  |  | 32.0% |  |  | 4,349  |  |  | 32.6% | 
|Occupancy and Other               |  | 3,349  |  |  | 23.7% |  |  | 3,259  |  |  | 24.4% | 
|Amortization                      |  | 735    |  |  | 5.2%  |  |  | 899    |  |  | 6.7%  | 
|Loss on Asset Disposal            |  | 20     |  |  | 0.1%  |  |  | 0      |  |  | 0.0%  | 
|                                  |  |        |  |  |       |  |  |        |  |  |       | 
|                                  |  | 12,093 |  |  | 85.6% |  |  | 11,873 |  |  | 89.0% | 
|                                  |  |        |  |  |       |  |  |        |  |  |       | 
|INCOME FROM RESTAURANT OPERATIONS |  | 2,034  |  |  | 14.4% |  |  | 1,465  |  |  | 11.0% | 
|                                  |  |        |  |  |       |  |  |        |  |  |       | 
|                                  |  |        |  |  |       |  |  |        |  |  |       | 
|CDN same stores (CDN$000)         |  |        |  |  |       |  |  |        |  |  |       | 
|                                  |  |        |  |  | % of  |  |  |        |  |  | % of  | 
|                                  |  | 2005   |  |  | sales |  |  | 2004   |  |  | sales | 
|                                  |  |        |  |  |       |  |  |        |  |  |       | 
|SALES                             |  | 14,578 |  |  |       |  |  | 13,863 |  |  |       | 
|                                  |  |        |  |  |       |  |  |        |  |  |       | 
|RESTAURANT EXPENSES               |  |        |  |  |       |  |  |        |  |  |       | 
|Food and Beverage Costs           |  | 4,275  |  |  | 29.3% |  |  | 4,215  |  |  | 30.4% | 
|Restaurant Operating Expenses     |  |        |  |  |       |  |  |        |  |  |       | 
|Labour                            |  | 4,475  |  |  | 30.7% |  |  | 4,342  |  |  | 31.3% | 
|Occupancy and Other               |  | 3,674  |  |  | 25.2% |  |  | 3,494  |  |  | 25.2% | 
|Amortization                      |  | 644    |  |  | 4.4%  |  |  | 724    |  |  | 5.2%  | 
|Loss on Asset Disposal            |  | 2      |  |  | 0.0%  |  |  | 9      |  |  | 0.1%  | 
|                                  |  |        |  |  |       |  |  |        |  |  |       | 
|                                  |  | 13,070 |  |  | 89.7% |  |  | 12,784 |  |  | 92.2% | 
|                                  |  |        |  |  |       |  |  |        |  |  |       | 
|INCOME FROM RESTAURANT OPERATIONS |  | 1,508  |  |  | 10.3% |  |  | 1,079  |  |  | 7.8%  | 

Canadian same store performance is reported above in Canadian
  dollars to eliminate the impact of foreign exchange fluctuations and to facilitate
  year on year comparisons. It excludes the three stores that closed during 2005.

-36-

---

Food and Beverage Costs

Overall, food and beverage costs, as a percentage of sales, decreased
  to 26.4% for the fifty-two weeks ended December 25, 2005, compared to 27.2%
  for the fifty-two weeks ended December 26, 2004.

Food costs improved reflecting some softening of commodity pricing
  and an increasing effort in training kitchen personnel and management. The produce
  market experienced a very stable year without any of the traditional spikes
  in costs experienced in previous years.

Favorable beef prices reflected increased slaughter in the US
  and the opening of the Canada/US border early in the year.

Pork slaughter remained fairly high in volume and pork belly
  prices were traded to a much more favorable price than the previous year.

The Company introduced a wide menu change in July, including
  price increases in line with the casual dining market.

Labour and Benefits Costs

Labour and benefits increased from 31.4% of sales in 2004 to
  31.7% in the current period.

Same store percentages were below last year for both US and Canada.

Higher overall costs reflect start-up staffing costs in the two
  new US stores, increased minimum wages in Alberta, Manitoba, Saskatoon and Ontario
  and additional labour cost related to closing three Canadian stores.

Occupancy and Other Operating Costs

Occupancy and other operating expenses as a percentage of sales
  increased to 25.7% from 25.5% in the same period last year.

In same stores, costs were at or below prior year levels. The
  overall increase was driven by new and closed store performance.

Impairment of Long-Lived Assets

In accordance with the recommendations of the Canadian Institute
  of Chartered Accountants (CICA), the Company has compared the net
  book value of its long-lived assets with the cash flows those assets are expected
  to generate over their remaining useful lives.

The lease of the Companys restaurant in Calgary, AB, expired
  in December 2005. As at September 25, 2005, the Company determined that cash
  flows expected from this store until the end of the lease were less than the
  remaining book value of the associated fixed assets.

Accordingly, the Company reduced the net book value of these
  assets by recording a US$57,000 charge for the impairment of long-lived assets
  in the third quarter of 2005.

-37-

---

In 2004, the Company agreed to an extension for the lease of
  its restaurant in Victoria, BC. The extension was for 5 years, but with a landlords
  option to terminate on December 31, 2005, provided that notice was given before
  June 30, 2005.

In April 2005, the Company received a lease termination notice
  from the landlord, and vacated the premises on December 31, 2005.

As at September 25, 2005, the net book value of the assets at
  the Victoria store exceeded the expected cash flows for the remainder of the
  lease.

Accordingly, the Company reduced the net book value of these
  assets by recording a US$124,000 charge for the impairment of long-lived assets
  in the third quarter of 2005.

Restaurant Closing Costs

(i) Closure of Elephant & Castle restaurant in Saskatoon,
  SK

The Company closed its Saskatoon location in October 2005, on
  expiry of the lease. Capital asset write-downs and other closure costs totaled
  US$11,000.

(ii) Closure of Elephant & Castle restaurant in Calgary,
  AB

The Company closed its Calgary location in December 2005, on
  expiry of the lease. Capital asset write-downs and other closure costs totaled
  US$23,000.

(iii) Closure of Elephant & Castle restaurant in Victoria,
  BC

The Company closed its Victoria location in December 2005, on
  expiry of the lease. Capital asset write-downs and other closure costs totaled
  US$21,000.

Amortization Expense

Amortization costs increased from 5.5% of sales in 2004 to 5.7%
  in 2005.

The increase in amortization can be attributed to an additional
  US$596,000 in amortization expenses from the new Chicago  Huron and Washington,
  DC stores.

General and Administrative Costs

General and administrative costs were 9.0% of sales for 2005
  and 10.1% for 2004. Costs increased from US$2,843,000 in 2004 to US$2,976,000
  in the current period. This reflects conversion of the mainly Canadian dollar
  costs into US dollars at a higher exchange rate than that used in the prior
  year, additional travel costs in support of new store openings and the increasing
  cost of complying with the Sarbanes Oxley Act of 2002 and other SEC requirements.
  The US$133,000 increase versus 2004 is comprised of:

-38-

---

|                                                           |  | US $     |  
|---------------------------------------------------------- |  | -------- | -
|Increase in costs of Vancouver office                      |  | (202,000 | )
|Exchange rate applied to Vancouver office costs            |  | (215,000 | )
|Decrease in costs of San Antonio office, closed
      2004 |  | 284,000  |  
|                                                           |  |          |  
|Total increase in G&A costs vs 2004                        |  | (133,000 | )

Gain (loss) on foreign exchange

For the fifty-two weeks ended December 25, 2005, the Company
  recorded a loss on foreign exchange of US$679,000 (a loss of US$28,000 in 2004).
  The loss in the current year reflects the impact of a stronger Canadian dollar
  on the value of Canadian dollar debt, including preferred shares, when converted
  into US dollars.

Interest on Long-Term Debt

Interest on long-term debt was US$2,605,000 for the fifty-two
  weeks ended December 25, 2005, compared to US$558,000 in 2004. The increase
  is attributable to the interest cost associated with the Companys new
  funding structure agreed to in December 2004.

Income/Loss Before Taxes

The Company generated a loss before income taxes of US$3,008,000
  for the fifty-two weeks ended December 25, 2005 compared to a loss of US$710,000
  for 2004. The current year loss includes a loss on foreign exchange of US$679,000
  (loss of US$28,000 in 2004), and interest costs of US$2,605,000 (internet costs
  of US$558,000 in 2004) reflecting the Companys new funding structure.

Income Taxes

The Company recorded income taxes of US$88,000 for the fifty-two
  weeks ended December 25, 2005 (US$52,000 in 2004), representing state taxes
  which are payable in the US. The Company also recorded a US$170,000 reduction
  in the value of its Future Income Tax asset in 2005 (versus a reduction of US$126,000
  in 2004).

Net Income/Loss

For the fifty-two weeks ended December 25, 2005, the Company
  generated a net loss of US$3,266,000 compared to a net loss of US$888,000 for
  the fifty-two week period ended December 26, 2004. The current year loss includes
  a loss on foreign exchange of US$679,000 (versus a loss of US$28,000 in 2004),
  and interest costs of US$2,605,000 (versus interest costs of US$558,000 in 2004)
  reflecting the Companys new funding structure. Losses per Common Share
  for the current period were US$0.57, versus a loss per Common Share of US$0.17
  in 2004. The weighted average number of Common Shares outstanding increased
  from 5,244,507 in 2004 to 5,744,360 for the current year, reflecting the sale
  and issuance of Common Shares in connection with the Companys new funding
  structure, purchase of Common Shares by Management and the issue of 15,000 Common
  Shares to directors.

-39-

---

Market Risk  Foreign Exchange

The Companys functional and reporting currency is US dollars.
  The Company generates approximately CDN$2,400,000 of operating cash flow from
  its Canadian restaurants each year. These cash flows are generated in Canadian
  dollars. Offsetting this, the Company incurs approximately CDN$2,700,000 of
  general and administrative expenses, and approximately CDN$600,000 interest
  on long-term debt in Canadian dollars.

The Companys reported earnings are, therefore, subject
  to exchange rate fluctuations on the approximately CDN$900,000 net cash outflow
  in Canadian dollars each year.

Also, as noted above, the Companys reported earnings include
  gains/losses on foreign exchange, which largely reflect revaluation of the Companys
  approximately CDN$13,900,000 of long-term debt.

Seasonality

The fourth quarter of each calendar year continues to be the
  Companys strongest trading period, reflecting high volumes during the
  holiday season.

Seasonal trends have remained broadly constant over the past
  two years.

The third and fourth quarters of 2004 showed an encouraging improvement
  in sales and profitability, mainly reflecting double digit same store sales
  growth in the US. This trend continued during 2005, with continued sales growth
  in the US, and a return to growth in same Canadian stores.

Total assets and long-term financial liabilities both increased
  in the fourth quarter of 2004, reflecting the Companys new funding agreements.

-40-

---

Fifty-two Weeks Ended December 26, 2004 vs. Fifty-two Weeks
  Ended December 28, 2003

During the fifty-two weeks ended December 26, 2004, the Company
  saw strong same store sales and profit growth from its US operations, reflecting
  improved operational standards and a strengthening US economy. Canadian store
  performance during the same period was mixed. Three of the ten Canadian stores
  operated under smoking legislation that was not in place during the first half
  of the prior year.

Sales

Sales increased during the fifty-two weeks ended December 26,
  2004 to US$28,202,000 from US$26,725,000 in 2003. The year on year increase
  in sales of US$1,477,000 was comprised of:

|                                                         |  | US $      |  
|-------------------------------------------------------- |  | --------- | -
|Increase in sales from same US stores (+10.3%)           |  | 1,250,000 |  
|Increase in sales from same Canadian stores (+1.3%)      |  | 174,000   |  
|Consolidation of CDN sales at higher exchange
      rate |  | 995,000   |  
|Impact of store closures                                 |  | (985,000  | )
|Share of sales from new store in San Francisco           |  | 128,000   |  
|Changes in other income                                  |  | (85,000   | )
|                                                         |  |           |  
|Total change in sales versus 2003                        |  | 1,477,000 |  

For the five US Corporate locations open throughout both periods,
  sales for the 2004 period were US$13,338,000, an increase of 10.3% compared
  to the prior year. Four out of five US same stores showed year on year growth,
  including 12.7% from Boston, despite a smoking ban which was introduced mid-2003.
  San Diego sales had grown 20.1%, partly reflecting high hotel occupancy and
  local events. Chicago (8.3%) and Philadelphia (8.2%) also showed consistent
  growth. Only Seattle (-0.6%) performed below 2003s levels

For the ten Canadian Elephant & Castle Corporate locations
  open throughout both periods, sales for the fifty-two weeks ended December 26,
  2004 totaled CDN$18,162,000 and up 1.3% compared to the fifty-two weeks ended
  December 28, 2003, reflecting a stronger third and fourth quarter. Five of the
  ten stores (Ottawa 8.2%; Winnipeg 7.9; Toronto Yonge St. 7.5%; Toronto King
  St. 4.7%; Victoria 2.4%;) showed year on year sales increases. Sales in the
  three stores operating under smoking bans that were not in force during the
  first half of 2003 were all down versus the prior year (Edmonton City Centre
  6.8%; Saskatoon 15.3%; Calgary 11.2%) . The hockey lockout during the fourth
  quarter had a negative impact on Rosies on Robson and Edmonton Whyte Avenue
  resulting in full year sales being down 1.1% and 1.2%, respectively, for the
  year, despite strong first half performances.

-41-

---

Net Income/Loss

For the fifty-two weeks ended December 26, 2004, the Company
  generated a net loss of US$888,000 compared to a net profit of US$228,000 for
  the fifty-two week period in 2003. In March 2004, the Company made the strategic
  decision to increase store expenditure in certain areas in order to roll-out
  brand enhancements and to underpin and build on the strong store sales trends
  that had been experienced particularly in US stores in the previous six months.
  As a result, the Company invested US$180,000 mainly during the second quarter
  of 2004 in marketing, menu development and non-capital store improvements. US$148,000
  is reported as store operating costs and US$32,000 as additional brand development
  costs in general and administration costs. The current year loss is after charging
  US$199,000 for the impairment of long-lived assets, in accordance with recommendations
  of the CICA (2003 = Nil). The net income for the prior year includes the benefit
  of a US$679,000 gain on foreign exchange (there was a loss of US$28,000 in 2004).
  Losses per share for the current period were US$0.17, versus income per share
  of US$0.04 in 2003. The weighted average number of shares outstanding increased
  from 5,163,271 in 2003 to 5,244,507 for 2004, following the issue of 81,900
  shares to subordinated note holders in consideration of their agreeing to vary
  the terms of the notes and the issue of 18,000 shares to directors. A further
  382,927 shares were issued to subordinated note holders and Management on completion
  of the new funding arrangements.

Income from Restaurant Operations

The Company generated income from restaurant operations of US$2,719,000
  compared to US$2,740,000 for 2003. The decrease versus 2003 of US$(21,000) was
  comprised of:

|                                            |  | US $     |  
|------------------------------------------- |  | -------- | -
|Increase in income from same US stores      |  | 365,000  |  
|Decline in income from same Canadian stores |  | (278,000 | )
|Impact of foreign exchange                  |  | 83,000   |  
|Impact of store closures                    |  | (51,000  | )
|Income from new store in San Francisco      |  | 100,000  |  
|Asset impairment charges                    |  | (199,000 | )
|Changes in other income                     |  | (41,000  | )
|                                            |  |          |  
|Total change in income versus 2003          |  | (21,000  | )

Same store performance

The following tables show same store sales and profit performance
  for US and Canadian stores (in local currency):

-42-

---

|US same stores (US$000)           |  |        |  |  |                |  |  |        |  |  |                | 
|--------------------------------- |  | ------ |  |  | -------------- |  |  | ------ |  |  | -------------- | 
|                                  |  | 2004   |  |  | **% of sales** |  |  | 2003   |  |  | **% of sales** | 
|                                  |  |        |  |  |                |  |  |        |  |  |                | 
|SALES                             |  | 13,338 |  |  |                |  |  | 12,088 |  |  |                | 
|                                  |  |        |  |  |                |  |  |        |  |  |                | 
|RESTAURANT EXPENSES               |  |        |  |  |                |  |  |        |  |  |                | 
|Food and Beverage Costs           |  | 3,366  |  |  | 25.2%          |  |  | 3,060  |  |  | 25.3%          | 
|Restaurant Operating Expenses     |  |        |  |  |                |  |  |        |  |  |                | 
|Labour                            |  | 4,349  |  |  | 32.6%          |  |  | 3,957  |  |  | 32.7%          | 
|Occupancy and Other               |  | 3,259  |  |  | 24.4%          |  |  | 3,139  |  |  | 26.0%          | 
|Depreciation and Amortization     |  | 899    |  |  | 6.7%           |  |  | 832    |  |  | 6.9%           | 
|                                  |  |        |  |  |                |  |  |        |  |  |                | 
|                                  |  | 11,873 |  |  | 89.0%          |  |  | 10,988 |  |  | 90.9%          | 
|                                  |  |        |  |  |                |  |  |        |  |  |                | 
|INCOME FROM RESTAURANT OPERATIONS |  | 1,465  |  |  | 11.0%          |  |  | 1,100  |  |  | 9.1%           | 
|                                  |  |        |  |  |                |  |  |        |  |  |                | 
|                                  |  |        |  |  |                |  |  |        |  |  |                | 
|                                  |  |        |  |  |                |  |  |        |  |  |                | 
|                                  |  |        |  |  |                |  |  |        |  |  |                | 
|CDN same stores (CDN$000)         |  |        |  |  |                |  |  |        |  |  |                | 
|                                  |  | 2004   |  |  | % of sales     |  |  | 2003   |  |  | % of sales     | 
|                                  |  |        |  |  |                |  |  |        |  |  |                | 
|SALES                             |  | 18,162 |  |  |                |  |  | 17,936 |  |  |                | 
|                                  |  |        |  |  |                |  |  |        |  |  |                | 
|RESTAURANT EXPENSES               |  |        |  |  |                |  |  |        |  |  |                | 
|Food and Beverage Costs           |  | 5,423  |  |  | 29.9%          |  |  | 5,256  |  |  | 29.3%          | 
|Restaurant Operating Expenses     |  |        |  |  |                |  |  |        |  |  |                | 
|Labour                            |  | 5,564  |  |  | 30.6%          |  |  | 5,365  |  |  | 29.9%          | 
|Occupancy and Other               |  | 4,885  |  |  | 26.9%          |  |  | 4,690  |  |  | 26.1%          | 
|Depreciation and Amortization     |  | 771    |  |  | 4.2%           |  |  | 753    |  |  | 4.2%           | 
|Loss on Asset Disposal            |  | 9      |  |  | 0.0%           |  |  | 0      |  |  | 0.0%           | 
|                                  |  |        |  |  |                |  |  |        |  |  |                | 
|                                  |  | 16,652 |  |  | 91.7%          |  |  | 16,064 |  |  | 89.6%          | 
|                                  |  |        |  |  |                |  |  |        |  |  |                | 
|INCOME FROM RESTAURANT OPERATIONS |  | 1,510  |  |  | 8.3%           |  |  | 1,872  |  |  | 10.4%          | 

Food and Beverage Costs

Overall, food and beverage costs, as a percentage of sales, increased
  to 27.2% for the fifty-two weeks ended December 26, 2004, compared to 26.8%
  for the fifty-two weeks ended December 28, 2003.

During 2004, the Company experienced upward pressure on food
  costs, particularly for protein products. In line with most of its competitors,
  the Company held its menu prices steady until the end of June 2004.

In both the US and Canada, the beef market was difficult throughout
  2004 due to the continued uncertainty caused by BSE. Fixed price contract items
  were 5% higher than 2003. Non-contracted items peaked in cost in the third quarter
  and eased slightly in the fourth quarter.

Poultry prices in the US during 2004 saw as much as a 25% increase
  at their peak. This pricing eased in the fourth quarter of 2004. However, poultry
  consumption in the US was estimated at 25% higher in 2004 than in 2003. Canadian
  chicken prices were substantially higher throughout most of 2004. The Avian
  Influenza epidemic increased costs by up to 20%.

-43-

---

The Fraser Valley poultry operations came back on stream in 2004
  with September hatchings but this product did not start to hit the markets until
  mid-November so no price relief was felt in 2004 as consumption remained very
  high and supply remained limited.

US pork prices remained high in 2004 with bacon in particular
  still up 30 to 40%. Canadian pork prices eased in the fourth quarter of 2004
  but were still 20 to 25% higher than the year prior.

Labour and Benefits Costs

Labour and benefits increased from 31.0% of sales in 2003 to
  31.4% in the current period.

Lower costs in same US stores reflected good labour control against
  a background of improved sales, more than offsetting wage and benefit rate pressures.

Higher costs in same Canadian stores in 2004 reflected broadly
  flat sales and the minimum wage increases in Ontario and Manitoba.

Occupancy and Other Operating Costs

Occupancy and other operating expenses as a percentage of sales
  decreased to 25.5% in 2004 from 25.9% in 2003.

In March 2004, the Company made the strategic decision to increase
  store expenditure in certain areas in order to roll-out brand enhancements and
  to underpin and build on the strong store sales trends which had been experienced
  particularly in US stores in the preceding six months. As a result, the Company
  invested US$148,000 mainly during the second quarter of 2004 in marketing, menu
  development and non-capital store improvements.

Lower percentage costs in same US stores reflected higher volumes.

Depreciation and Amortization Expense

Depreciation and amortization costs decreased to 5.5% of sales
  for 2004 from 5.8% in 2003.

The fall in same US store depreciation as a percentage of sales
  reflected higher sales.

Flat depreciation as a percentage of sales in Canadian same stores
  in 2004 reflected limited refurbishments, against a background of marginally
  improved sales.

General and Administrative Costs

General and administrative costs were 10.1% for both 2003 and
  2004. Costs increased from $2,701,000 in 2003 to $2,843,000 in 2004. This reflected
  conversion of the mainly Canadian dollar costs into US dollars at a higher exchange
  rate than that used in the prior year. The US$142,000 increase in 2004 versus
  2003 was comprised of:

-44-

---

|                                                      |  | US $     |  
|----------------------------------------------------- |  | -------- | -
|Exchange rate applied to Vancouver office
      costs |  | (123,000 | )
|Increase in costs of Vancouver office                 |  | (7,000   | )
|Increase in costs of San Antonio office               |  | (12,000  | )
|                                                      |  |          |  
|Total increase in G&A costs vs 2003                   |  | (142,000 | )

Higher costs of the Vancouver office included US$32,000 of brand
  and menu development costs. Increased costs in San Antonio reflected the cost
  of closing this office in the fourth quarter of 2004.

Impairment of Long-Lived Assets

In accordance with the new recommendations of the CICA, the Company
  compared the net book value of its long-lived assets with the cash flows those
  assets were expected to generate over their remaining useful lives.

The lease of the Companys restaurant in Saskatoon, SK,
  expired in October 2005 and the discounted value of the cash flows expected
  from this store from March 29, 2004 until that time were US$147,000 lower than
  the net book value of the associated fixed assets as at March 28, 2004.

The lease of the Companys restaurant in Calgary, AB, expired
  in August 2005, and the discounted value of the cash flows expected from this
  store from December 26, 2004 until that time were US$52,000 lower than the net
  book value of the associated fixed assets as at December 26, 2004.

Accordingly, the Company reduced the net book value of these
  assets by recording a US$199,000 charge for the Impairment of Long-Lived Assets
  in 2004.

Gain (loss) on foreign exchange

For the fifty-two weeks ended December 26, 2004, the Company
  recorded a loss on foreign exchange of US$28,000 (in 2003, there was a gain
  of US$679,000).

Interest on Long-Term Debt

Interest on long-term debt was US$558,000 for the fifty-two weeks
  ended December 26, 2004, compared to US$545,000 in 2003. The 2004 figure includes
  only 10 days of interest costs under the Companys new funding arrangements,
  and is therefore only US$13,000 higher than the prior year. For the year ending
  December 25, 2005, interest costs increased significantly, reflecting the Companys
  new funding arrangements.

Income/Loss Before Taxes

The Company generated a loss before income taxes of US$710,000
  for the fifty-two weeks ended December 26, 2004 compared to an income of US$173,000
  for 2003. In March 2004, the Company made the strategic

-45-

---

decision to increase store expenditures in certain areas in order
  to roll-out brand enhancements and to underpin and build on the strong store
  sales trends which had been experienced particularly in US stores in the prior
  six months. As a result, the Company invested US$180,000 mainly during the second
  quarter of 2004 in marketing, menu development and non-capital store improvements.
  The loss in 2004 was after charging US$199,000 for the impairment of long-lived
  assets, in accordance with the new recommendations of the CICA (2003 = Nil).
  The prior year profit included the benefit of a US$679,000 gain on foreign exchange
  (in 2004, there was a loss of US$28,000).

Income Taxes

The Company recorded income taxes of US$52,000 for the fifty-two
  weeks ended December 26, 2004 (US$55,000 in 2003), representing State taxes
  which are payable in the US. The Company also reassessed the value of its future
  income tax asset, resulting in a charge for 2004 of US$126,000.

Net Income/Loss

For the fifty-two weeks ended December 26 2004, the Companys
  net loss was US$888,000 compared to a net income of US$228,000 for the fifty-two
  week period in 2003. In March 2004, the Company made the strategic decision
  to increase store expenditure in certain areas in order to roll-out brand enhancements
  and to underpin and build on the strong store sales trends that had been experienced
  particularly in US stores in the previous six months. As a result, the Company
  invested US$180,000 mainly during the second quarter of 2004 in marketing, menu
  development and non-capital store improvements. The loss in 2004 was after charging
  US$199,000 for the impairment of long-lived assets, in accordance with the new
  recommendations of the CICA (2003 = Nil). The 2003 profit included the benefit
  of a US$679,000 gain on foreign exchange (there was a loss of US$28,000 in 2004).
  Losses per share for the current period were US$0.17, versus income per share
  of US$0.04 in 2003. The weighted average number of shares outstanding increased
  from 5,163,271 in 2003 to 5,244,507 for 2004.

Critical accounting policies

(1) Impairment of Long-Lived Assets

In line with the recommendations of the CICA, the Company compares
  annually the valuation of the long-lived assets at each of its locations with
  the cash flows that operation is expected to generate until the end of the lease
  for that location, or next break option if earlier.

Where asset valuations exceed expected cash flows, an impairment
  charge, representing the difference between the asset valuation and the discounted
  value of expected future cash flows, is made.

If the Company becomes aware of a material change in circumstances
  between annual comparisons, the Company reviews the need for further impairment
  charges on a quarterly basis.

-46-

---

The Company conducted a full review for the year ended December
  25, 2005 and concluded that, having completed the closure of three Canadian
  stores during 2005, no further provisions for the impairment of long-lived assets
  were required as at December 25, 2005.

(2) Future income taxes

The Company has calculated, as at December 25, 2005, the following
  values for future income tax benefits:

(a) Non-capital loss carry forwards -

US $000
      
      
      
      
      FIT
      
      
      Valuation
      
      
      
      
      
      FITLosses
      
      
      Benefit
      
      
      Allowance
      
      
      
      
      
      AssetUS operations
      
      8,079
      
      
      2,828
      
      
      (1,414
      )
      
      50%
      
      
      1,414CDN operations
      
      595
      
      
      232
      
      
      (116
      )
      
      50%
      
      
      116Group functions
      
      5,132
      
      
      2,002
      
      
      (2,002
      )
      
      100%
      
      
      013,806
      
      
      5,062
      
      
      (3,532
      )
      
      
      
      
      1,530


(b) Fixed asset values for tax purposes
  in excess of book values

| | US $000         |  | FIT     |  |  | Valuation |   |  |      |  |  | FIT   | 
| | --------------- |  | ------- |  |  | --------- | - |  | ---- |  |  | ----- | 
| |                 |  | Benefit |  |  | Allowance |   |  |      |  |  | Asset | 
| | US operations   |  | 685     |  |  | (343      | ) |  | 50%  |  |  | 342   | 
| | CDN operations  |  | 454     |  |  | (227      | ) |  | 50%  |  |  | 227   | 
| | Group functions |  | 27      |  |  | (27       | ) |  | 100% |  |  | 0     | 
| |                 |  |         |  |  |           |   |  |      |  |  |       | 
| |                 |  | 1,166   |  |  | (597      | ) |  |      |  |  | 569   | 

The Company has applied 50% valuation allowances against both
  its US and Canadian operations. The Company considers these valuation allowances
  to be appropriate. The Company has applied a 100% valuation allowance against
  its group function, since at current business volumes this entity does to generate
  taxable profits.

In addition, the Company has US$8,362,000 of net capital losses,
  against which a 100% valuation allowance has been applied.

Summary of future income tax asset as at December 25, 2005 -

| | US $000                                                            |  | FIT     |  |  | Valuation |   |  | FIT   | 
| | ------------------------------------------------------------------ |  | ------- |  |  | --------- | - |  | ----- | 
| |                                                                    |  | Benefit |  |  | Allowance |   |  | Asset | 
| | Tax benefit of non-capital loss carry forwards                     |  | 5,062   |  |  | (3,546    | ) |  | 1,516 | 
| | Tax benefit of capital loss carry forwards                         |  | 1,203   |  |  | (1,203    | ) |  | 0     | 
| | Fixed asset values for tax purposes in excess
      of book values |  | 1,166   |  |  | (583      | ) |  | 583   | 
| |                                                                    |  |         |  |  |           |   |  |       | 
| |                                                                    |  | 7,431   |  |  | (5,332    | ) |  | 2,099 | 

-47-

---

Liquidity and Capital Resources

On December 17, 2004, the Company entered into a series of financing
  agreements. The transactions resulted in the raising of CDN$5,000,000 (US$4,288,000)
  for the purposes of opening new Elephant & Castle restaurants and refurbishing
  existing Elephant & Castle restaurants.

As at December 25, 2005, the Company had invested US$4,685,000
  in the building of its two new restaurants in Chicago, IL and Washington, DC,
  both of which opened in the spring of 2005.

The Company experienced significant unbudgeted construction issues
  in the building of its Washington, DC store, resulting in a higher than expected
  total cost to open of US$3,067,000.

The Companys remaining cash balance as at December 25,
  2005 was US$956,000. This balance will allow the Company to continue its planned
  refurbishment and to maintain current operations. The Company expects to generate
  sufficient cash from its existing and new stores to be able to continue its
  expansion program in 2006.

As a result of the December 17, 2004 funding arrangements, the
  structure of the Companys pre-existing debt and equity were substantially
  altered, as described below.

(a) Transactions with GE Investment Private
  Placement Partners II ("GEIPPPII")

In consideration for the surrender of
  US$3,900,000 of the existing Senior Notes, the surrender of US$5,000,000 of
  the existing Junior Notes and the exchange of US$1,209,000 of accrued interest
  on these Notes the Company issued US$4,204,000 of new Secured Notes, 3,653,972
  of CDN$2 (US$1.72) Preferred Shares and a warrant to purchase 1,750,000 Common
  Shares. The Secured Notes bear interest at 14%, which is deferred until payments
  commence in March 2007, except in certain circumstances and are fully repayable
  on December 18, 2009. The Preferred Shares accrue a cumulative annual dividend
  of 6%, payable only when the debt owing to Crown and the Secured Notes are repaid
  in full. The Preferred Shares are redeemable at the Company's option at 100%
  of redemption principal plus a redemption premium of up to 50% of the principal
  amount. The premium shall accrue at 10% per year or part thereof. Unless redeemed
  earlier, the Preferred Shares are automatically convertible, subject to the
  Company achieving an EBITDA target of US$3,500,000, at the rate of three Common
  Shares for every Preferred Share. The warrants are exercisable for a period
  of ten years at a price of CDN$0.667 (US$0.572) per share.

(b) Transactions with Crown

The Company has entered into a credit
  agreement with Crown, pursuant to which it borrowed CDN$5,000,000 (US$4,288,000).
  The loan bears interest at the rate of 12% per annum. Interest is payable monthly
  and monthly principal payments of CDN$40,000 (US$34,000) commence in December
  2006, rising to CDN$60,000 (US$51,000) in December 2007 and CDN$100,000 (US$86,000)
  in

-48-

---

December 2008, with the balance of CDN$2,600,000
  (US$2,230,000) repayable by December 17, 2009. In connection with the making
  of the loan, Crown received a first secured position over all of the Company's
  assets and properties, including the capital stock of the subsidiary companies,
  in respect of the loan indebtedness. Additionally, the Company granted Crown
  a warrant to purchase 1,049,301 Common Shares of the Company and 730,794 Preferred
  Shares of the Company for one hundred Canadian dollars, representing 15% of
  the outstanding shares of both classes of shares and a further warrant to purchase
  350,000 Common Shares. These further warrants are exercisable for a period of
  ten years at a price of CDN$0.667 (US$0.572) per share.

(c) Transactions with Management

The Company has entered into an agreement
  with the three senior managers of the Company ("Management"), whereby Management
  has committed to purchase for CDN$265,000 (US$227,000), over a period of 18
  months, 699,534 Common Shares and 487,196 Preferred Shares, representing 10%
  of the outstanding shares of both classes of shares. Management has made an
  initial payment of CDN$115,000 (US$99,000). In connection with this purchase,
  Management have also been issued a warrant for the purchase of an additional
  5% of both classes of shares for CDN$133,000 (US$114,000).

(d) Agreements between investors

GEIPPPII and Crown have entered into
  an inter-creditor agreement, which establishes the seniority of the Crown Security
  and the subordination of the GEIPPPII Security over the assets of the Company.

GEIPPPII, Crown and Management have entered
  into an inter-shareholder agreement. Under this agreement all parties agree
  to appoint two GEIPPPII nominees, one Crown nominee and one Management nominee
  to the board of directors of the Company. Additionally the parties have agreed
  conditions and entitlements associated with the sale or transfer of their shares.

The terms of the 8% convertible, subordinated
  notes of the Company issued in 2000 ("Delphi Financing") have been amended such
  that the coupon has been increased to 9.25% and repayment has been scheduled
  to re-commence in March 2007.

(e) Accounting treatment of Preferred
  Shares

Holders of Preferred Shares have the
  ability to require redemption of their shares at a future date at a predetermined
  price. In accordance with CICA handbook sections 3860.20 and 3860.22 and with
  EIC 149, the Preferred Shares have been recorded as long-term debt at CDN$2
  (US$1.72) per share, with dividends earned on the shares recorded as interest
  expense. In addition, redemption premiums accrued from the date of issue have
  been added to long-term debt. All warrants issued for the purchase of Preferred
  Shares are treated as a liability. Accordingly, no stock-based compensation
  expense was recorded for the issue of these warrants.

-49-

---

(f) Prior years accounting treatment
  of Junior Notes

For the fifty-two weeks ended December
  26, 2004, the Junior Notes were recorded as an equity instrument.

For the twelve-month period ended June
  30, 2002, the Company did not achieve the EBITDA target required to convert
  the first tranche of Junior Notes into shares. It did, however, achieve 67%
  of the target and, therefore, would still have been able to convert both the
  first and second tranche of Junior Notes into equity, if the Company had met
  100% of its EBITDA target for the twelve months ending June 30, 2003. Achievement
  of 80% of the EBITDA target for the twelve months ending June 30, 2003 would
  have allowed the Company to convert two-thirds of the second tranche of Junior
  Notes into equity, but the Company would have lost the ability to convert any
  of the first tranche.

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

The Company, however, reached an agreement
  with GEIPPPII to modify the terms of the Junior Notes, such that the test for
  mandatory conversion of all four tranches was dependent on achievement of EBITDA
  targets for the twelve months ending June 30, 2005. Accordingly, no reclassification
  of the Junior Notes was required for the fifty-two week period ended December
  26, 2004.

DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
  ACCOUNTING PRINCIPLES (CDN GAAP AND US GAAP)

The Company prepares its financial statements in accordance with
  Canadian GAAP. (The reader is referred to note 16 of the Notes to Consolidated
  Financial Statements for the year ended December 25, 2005 for additional explanation.)
  The financial statements, if prepared in accordance with US GAAP, would have
  differed as follows:

Net loss for the year ended December 25, 2005 would have been
  reduced by US$27,000, comprised primarily of pre-opening costs which would have
  been expensed in 2005 under US GAAP, offset by the closure of three Canadian
  stores and the consequent write-back for US GAAP of leasehold depreciation previously
  accelerated under US GAAP. Net loss for the year ended December 26, 2004 would
  have decreased by US$578,000, comprised primarily of dividends on convertible
  subordinated debentures that would have been treated as interest expense under
  US GAAP, offset by pre-opening costs which would have been expensed in 2003
  under US GAAP, and a gain on translation of convertible notes using period end
  rates for US GAAP. Net income for the year ended December 28, 2003 would be
  increased by US$785,000 comprised primarily of a gain on translation of convertible
  notes using period end rates for US GAAP, partly offset by dividends on convertible
  subordinated debentures that would have been treated as interest expense under
  US GAAP, and pre-opening costs that would have

-50-

---

been expensed in 2003 under US GAAP. The impact of these adjustments
  would leave the net loss per share in 2005 unchanged at $0.57 but would increase
  the net loss per share in 2004 from US$0.17 under CDN GAAP to a loss of US$0.22
  under US GAAP. For 2003, the income per share of US$0.04 under CDN GAAP would
  change to a loss of US$0.03 per share under US GAAP.

Shareholders deficit at December 25, 2005 would increase
  by

US$351,000 from a deficit of US$5,795,000 under CDN GAAP to a
  deficit of US$6,146,000 under US GAAP. Shareholders deficit at December
  26, 2004 would increase by US$378,000 from a deficit of US$2,642,000 under CDN
  GAAP to a deficit of US$3,020,000 under US GAAP.

Off-Balance Sheet Arrangements

At December 25, 2005, the Company did not have any off-balance
  sheet arrangements.

Tabular Disclosure of Contractual Obligations

Payments due by period:Total
      
      
      Less than
      
      
      1 to 3
      
      
      3 to 5
      
      
      More thanUS$000
      
      Outstanding
      
      
      1 year
      
      
      years
      
      
      years
      
      
      5 yearsLong-term debt obligations
      
      17,339
      
      
      34
      
      
      1,388
      
      
      15,917
      
      
      0Capital lease obligations
      
      8
      
      
      7
      
      
      1
      
      
      0
      
      
      0Operating lease obligations
      
      10,366
      
      
      1,719
      
      
      3,182
      
      
      2,387
      
      
      3,078Purchase obligations
      
      107
      
      
      107
      
      
      0
      
      
      0
      
      
      0Other long-term obligations
      
      57
      
      
      57
      
      
      0
      
      
      0
      
      
      0Total contractual obligations
      
      27,877
      
      
      1,924
      
      
      4,571
      
      
      18,304
      
      
      3,078


Recent Accounting Pronouncements

Not Applicable.

ITEM 7A         QUANTITATIVE
  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk represents the risk of loss that may impact the Companys
  financial position due to adverse changes in financial market prices and rates.
  The Companys market risk exposure is primarily a result of fluctuations
  in foreign currency exchange risks. The Companys borrowings are at fixed
  interest rates, so the Company is not significantly exposed to changes in interest
  rates. The Company is also subject to risk associated with changes to commodity
  prices such as meat, poultry and dairy products. In the event of a significant
  shift in pricing of one or more commodity, the Company would attempt to vary
  its pricing, product mix or recipes to mitigate any adverse impact of such changes,
  to the extent that the competitive nature of the restaurant industry may allow.

Market Risk  Foreign Exchange

-51-

---

The Companys functional and reporting currency is US dollars.
  The Company generates approximately CDN$2,400,000 of operating cash flow from
  its Canadian restaurants each year. These cash flows are generated in Canadian
  dollars. Offsetting this, the Company incurs approximately CDN$2,700,000 of
  general and administrative expenses, and approximately CDN$600,000 interest
  on long-term debt in Canadian dollars.

The Companys reported earnings are, therefore, subject
  to exchange rate fluctuations on the approximately CDN$900,000 net cash outflow
  in Canadian dollars each year.

Also, the Companys reported earnings include gains/losses
  on foreign exchange, which largely reflect revaluation of the Companys
  approximately CDN$13,900,000 of long-term debt.

As of December 25, 2005, the potential reduction in future reported
  earnings from a hypothetical instantaneous 10% change in quoted foreign currency
  exchange rates applied to our foreign currency sensitive contracts and assets
  would be approximately US$1,066,000. The sensitivity model does not include
  the inherent risks associated with anticipated future transactions denominated
  in foreign currencies or future forward contracts entered into for hedging purposes.

To minimize the risk associated with the effects of certain foreign
  currency exposures, we occasionally use foreign currency forward exchange contracts.
  We do not use forward contracts for trading or speculative purposes. From time
  to time we may also purchase Canadian dollars in the open market and hold these
  funds in order to satisfy forecasted operating needs in Canadian dollars. At
  December 25, 2005 and December 26, 2004, we had no outstanding currency forward
  exchange contracts and during the 12 months ended December 25, 2005 and December
  26, 2004, we did not enter into any forward exchange contracts. We therefore
  did not record any gain or loss as a result of these contracts for these periods.

ITEM 8            FINANCIAL
  STATEMENTS AND SUPPLEMENTARY DATA

-52-

---

ELEPHANT & CASTLE GROUP INC.

Consolidated Financial StatementsDecember 25, 2005, December 26, 2004 and December 28, 2003 
  (US Dollars)

|INDEX                                                           | Page      
|--------------------------------------------------------------- | ----------
|                                                                |           
|Management Report                                               | F-1       
|                                                                |           
|Report of Independent
      Registered Public Accounting Firm   | F-2       
|                                                                |           
|Consolidated Financial Statements                               | F-3       
|                                                                |           
|Consolidated Balance Sheets                                     | F-3       
|                                                                |           
|Consolidated Statements of Operations                           | F-4       
|                                                                |           
|Consolidated Statements of Shareholders'
      Equity (Deficit) | F-5       
|                                                                |           
|Consolidated Statements of Cash Flows                           | F-6       
|                                                                |           
|Notes to Consolidated Financial Statements                      | F-7 - F-33

---

MANAGEMENT REPORT

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

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

Pannell Kerr Forster audits the Company's consolidated financial
  statements in accordance with auditing standards generally accepted in Canada
  and the standards of the Public Company Accounting Oversight Board (United States).

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



President and Chief Executive Officer



F-1

---

REPORT OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

TO THE SHAREHOLDERS OF ELEPHANT & CASTLE GROUP INC.

We have audited the consolidated balance sheets of Elephant &
  Castle Group Inc. as at December 25, 2005 and December 26, 2004 and the consolidated
  statements of operations, shareholders equity (deficit) and cash flows
  for each of the three years in the period ended December 25, 2005. These financial
  statements are the responsibility of the Companys management. Our responsibility
  is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards
  generally accepted in Canada and the standards of the Public Company Accounting
  Oversight Board (United States). Those standards require that we plan and perform
  the audit to obtain reasonable assurance about whether the financial statements
  are free of material misstatement. An audit includes examining, on a test basis,
  evidence supporting the amounts and disclosures in the financial statements.
  An audit also includes assessing the accounting principles used and significant
  estimates made by management, as well as evaluating the overall financial statement
  presentation. We believe that our audits provide a reasonable basis for our
  opinion.

In our opinion, the consolidated financial statements referred
  to above, present fairly, in all material respects, the financial position of
  Elephant & Castle Group Inc. as at December 25, 2005 and December 26, 2004
  and the results of its operations and its cash flows for each of the three years
  in the period ended December 25, 2005 in accordance with Canadian generally
  accepted accounting principles, applied on a consistent basis. Accounting principles
  generally accepted in Canada differ in certain significant respects from accounting
  principles generally accepted in the United States of America and are discussed
  in Note 16 (as restated) to the consolidated financial statements.

Pannell Kerr Forster
  (Registered with the PCAOB as Smythe Ratcliffe).

Chartered Accountants

Vancouver, Canada 
  February 3, 2006

F-2

---

ELEPHANT & CASTLE GROUP INC.Consolidated Balance Sheets 
  At December 25, 2005 and December 26, 2004 
  (US Dollars) 
  (In Thousands of Dollars)

|                                                     |   | 2005    |   |   | 2004    |  
|---------------------------------------------------- | - | ------- | - | - | ------- | -
|Assets(note 6)                                       |   |         |   |   |         |  
|Current                                              |   |         |   |   |         |  
|Cash                                                 | $ | 956     |   | $ | 3,981   |  
|Accounts receivable                                  |   | 558     |   |   | 423     |  
|Inventory                                            |   | 380     |   |   | 354     |  
|Deposits and prepaid expenses                        |   | 396     |   |   | 664     |  
|Pre-opening costs                                    |   | 191     |   |   | 0       |  
|Total Current Assets                                 |   | 2,481   |   |   | 5,422   |  
|Property, Plant and Equipment(note
      3)          |   | 8,187   |   |   | 5,469   |  
|Future Income Tax Benefits(note 13)                  |   | 2,099   |   |   | 2,250   |  
|Other(note 4)                                        |   | 1,915   |   |   | 2,023   |  
|Total Assets                                         | $ | 14,682  |   | $ | 15,164  |  
|                                                     |   |         |   |   |         |  
|Liabilities                                          |   |         |   |   |         |  
|Current                                              |   |         |   |   |         |  
|Accounts payable and accrued liabilities (note 5)    | $ | 2,713   |   | $ | 2,535   |  
|Current portion of long-term debt (notes 6 and 7)    |   | 41      |   |   | 20      |  
|Total Current Liabilities                            |   | 2,754   |   |   | 2,555   |  
|Long-Term Debt(notes 6, 7 and 8(b))                  |   | 17,306  |   |   | 15,242  |  
|Other Liabilities                                    |   | 417     |   |   | 9       |  
|Total Liabilities                                    |   | 20,477  |   |   | 17,806  |  
|                                                     |   |         |   |   |         |  
|Shareholders' Equity (Deficit)                       |   |         |   |   |         |  
|                                                     |   |         |   |   |         |  
|Common Shares(note 8(a))                             |   | 13,112  |   |   | 12,999  |  
|Contributed Surplus(note 8(c))                       |   | 1,282   |   |   | 1,282   |  
|Cumulative Translation Adjustment(note
      8(e))   |   | (880    | ) |   | (880    | )
|Deficit                                              |   | (19,309 | ) |   | (16,043 | )
|Total Shareholders Equity (Deficit)                 |   | (5,795  | ) |   | (2,642  | )
|                                                     |   |         |   |   |         |  
|Total Liabilities and Shareholders Equity (Deficit) | $ | 14,682  |   | $ | 15,164  |  

Contingencies and Commitments (notes 10 and 11) 
  Approved on behalf of the Board:

|/s/ R. Bryant | Director | /s/ T.
      Chambers | Director
|------------- | -------- | --------------------- | --------
|R. Bryant     |          | T. Chambers           |         

See notes to consolidated financial statements. 
  F-3

---

ELEPHANT & CASTLE GROUP INC.Consolidated Statements of OperationsYears Ended December 25, 2005, December 26, 2004 and December 28, 2003
  
  (US Dollars) 
  (In Thousands of Dollars, except net income (loss) per share)

|                                                             |   | 2005      |   |   | 2004      |   |   | 2003      |  
|------------------------------------------------------------ | - | --------- | - | - | --------- | - | - | --------- | -
|Sales                                                        |   |           |   |   |           |   |   |           |  
|Corporate locations                                          |   | 32,542    |   |   | 27,719    |   |   | 26,206    |  
|Revenue from Franchises                                      |   | 503       |   |   | 483       |   |   | 519       |  
|Total Sales                                                  |   | 33,045    |   |   | 28,202    |   |   | 26,725    |  
|                                                             |   |           |   |   |           |   |   |           |  
|Restaurant Expenses                                          |   |           |   |   |           |   |   |           |  
|Food and beverage                                            |   | 8,731     |   |   | 7,682     |   |   | 7,171     |  
|Operating                                                    |   |           |   |   |           |   |   |           |  
|Labour                                                       |   | 10,466    |   |   | 8,862     |   |   | 8,273     |  
|Occupancy and other                                          |   | 8,488     |   |   | 7,181     |   |   | 6,909     |  
|Impairment of Long Lived Assets (notes
      12 (a) and (b)) |   | 181       |   |   | 199       |   |   | 0         |  
|Restaurant closing costs (notes 12 (c) and (d))              |   | 55        |   |   | 0         |   |   | 94        |  
|Amortization                                                 |   | 1,872     |   |   | 1,559     |   |   | 1,538     |  
|                                                             |   | 29,793    |   |   | 25,483    |   |   | 23,985    |  
|Income from Restaurant Operations                            |   | 3,252     |   |   | 2,719     |   |   | 2,740     |  
|                                                             |   |           |   |   |           |   |   |           |  
|General and Administrative Expenses                          |   | 2,976     |   |   | 2,843     |   |   | 2,701     |  
|(Gain) Loss on Foreign Exchange(note 2 (h))                  |   | 679       |   |   | 28        |   |   | (679      | )
|Interest on Long-Term Debt                                   |   | 2,605     |   |   | 558       |   |   | 545       |  
|                                                             |   | 6,260     |   |   | 3,429     |   |   | 2,567     |  
|                                                             |   |           |   |   |           |   |   |           |  
|Income (Loss) Before Income Taxes                            |   | (3,008    | ) |   | (710      | ) |   | 173       |  
|Income Taxes (Charge) Recovery(notes
      10 and 13)        |   | (88       | ) |   | (52       | ) |   | 55        |  
|Future Income Tax (Charge) Recovery(note 13)                 |   | (170      | ) |   | (126      | ) |   | 0         |  
|                                                             |   |           |   |   |           |   |   |           |  
|Net Income (Loss) for Year                                   | $ | (3,266    | ) | $ | (888      | ) | $ | 228       |  
|                                                             |   |           |   |   |           |   |   |           |  
|Net Income (Loss) Per Common Share(note 2(i))                |   |           |   |   |           |   |   |           |  
|Basic                                                        |   | (0.57     | ) |   | (0.17     | ) |   | 0.04      |  
|Diluted (note 2(i))                                          |   |           |   |   |           |   |   | 0.04      |  
|                                                             |   |           |   |   |           |   |   |           |  
|Weighted Average Number of                                   |   |           |   |   |           |   |   |           |  
|Common Shares Outstanding                                    |   |           |   |   |           |   |   |           |  
|Basic                                                        |   | 5,744,360 |   |   | 5,244,507 |   |   | 5,163,271 |  
|Diluted (note 2(i))                                          |   |           |   |   |           |   |   | 5,163,271 |  

See notes to consolidated financial statements. 
  F-4

---

ELEPHANT & CASTLE GROUP INC.Consolidated Statements of Shareholders' Equity (Deficit)Years Ended December 25, 2005, December 26, 2004 and December 28, 2003
  (US Dollars) 
  (In Thousands of Dollars)

|                                       |   | 2005      |   |   | 2004      |   |   | 2003      |  
|-------------------------------------- | - | --------- | - | - | --------- | - | - | --------- | -
|Number of Common Shares Issued         |   |           |   |   |           |   |   |           |  
|Beginning balance                      |   | 5,629,411 |   |   | 5,146,604 |   |   | 5,144,604 |  
|Issue of shares                        |   |           |   |   |           |   |   |           |  
|On renegotiation of debenture interest |   |           |   |   | 161,235   |   |   | 0         |  
|For services                           |   | 15,000    |   |   | 18,000    |   |   | 27,000    |  
|Purchased by Management                |   | 227,676   |   |   | 303,572   |   |   | 0         |  
|Repurchase and cancellation of shares  |   |           |   |   | 0         |   |   | (25,000   | )
|Ending Balance                         |   | 5,872,087 |   |   | 5,629,411 |   |   | 5,146,604 |  
|Common Shares Issued                   |   |           |   |   |           |   |   |           |  
|Beginning balance                      | $ | 12,999    |   | $ | 12,829    |   | $ | 12,879    |  
|Issue of shares                        |   |           |   |   |           |   |   |           |  
|On renegotiation of debenture interest |   | 0         |   |   | 59        |   |   | 0         |  
|For services                           |   | 5         |   |   | 6         |   |   | 11        |  
|Purchased by Management                |   | 108       |   |   | 106       |   |   | 0         |  
|Repurchase and cancellation of shares  |   | 0         |   |   | 0         |   |   | (61       | )
|Ending balance                         | $ | 13,112    |   | $ | 12,999    |   | $ | 12,829    |  
|Contributed Surplus                    |   |           |   |   |           |   |   |           |  
|Beginning balance                      | $ | 1,282     |   | $ | 0         |   | $ | 0         |  
|Issue of shares                        |   |           |   |   |           |   |   |           |  
|On cancellation of Junior Notes and    |   |           |   |   |           |   |   |           |  
|issuance of
      Preferred Shares     |   | 0         |   |   | 201       |   |   | 0         |  
|For issue of warrants                  |   | 0         |   |   | 1,081     |   |   | 0         |  
|Ending balance                         | $ | 1,282     |   | $ | 1,282     |   | $ | 0         |  
|Other Paid-In Capital                  |   |           |   |   |           |   |   |           |  
|Beginning balance                      | $ | 0         |   | $ | 5,343     |   | $ | 4,996     |  
|Deferred interest on convertible notes |   | 0         |   |   | 0         |   |   | 347       |  
|On cancellation of shares              |   | 0         |   |   | 0         |   |   | 0         |  
|On cancellation of Junior Notes        |   | 0         |   |   | (5,343    | ) |   | 0         |  
|Ending balance                         | $ | 0         |   | $ | 0         |   | $ | 5,343     |  
|Currency Translation Adjustment        |   |           |   |   |           |   |   |           |  
|Beginning balance                      | $ | (880      | ) | $ | (880      | ) | $ | ($1,347   | )
|Deferred gain incurred during year     |   | 0         |   |   | 0         |   |   | 467       |  
|Ending balance                         | $ | (880      | ) | $ | (880      | ) | $ | (880      | )
|Deficit                                |   |           |   |   |           |   |   |           |  
|Beginning balance                      | $ | (16,043   | ) | $ | (14,822   | ) | $ | (14,620   | )
|Dividends on other paid-in capital     |   | 0         |   |   | (333      | ) |   | (347      | )
|On cancellation of shares              |   | 0         |   |   | 0         |   |   | (83       | )
|Net income (loss)                      |   | (3,266    | ) |   | (888      | ) |   | 228       |  
|Ending balance                         | $ | (19,309   | ) | $ | (16,043   | ) | $ | (14,822   | )
|Total Shareholders' Equity (Deficit)   | $ | (5,795    | ) | $ | (2,642    | ) | $ | 2,470     |  

See notes to consolidated financial statements. 
  F-5

---

ELEPHANT & CASTLE GROUP INC.Consolidated Statements of Cash FlowsYears Ended December 25, 2005, December 26, 2004 and December 28, 2003
  
  (US Dollars) 
  (In Thousands of Dollars)

|                                                  |   | 2005   |   |   | 2004   |   |   | 2003  |  
|------------------------------------------------- | - | ------ | - | - | ------ | - | - | ----- | -
|                                                  |   |        |   |   |        |   |   |       |  
|Operating Activities                              |   |        |   |   |        |   |   |       |  
|Net income (loss)                                 | $ | (3,266 | ) | $ | (888   | ) | $ | 228   |  
|Operating items not using cash                    |   |        |   |   |        |   |   |       |  
|Amortization                                      |   | 1,872  |   |   | 1,559  |   |   | 1,538 |  
|Loss (Gain) on Foreign
      Exchange             |   | 679    |   |   | 28     |   |   | (679  | )
|Impairment of Long-Lived Assets                   |   | 181    |   |   | 199    |   |   | 0     |  
|Non-Cash Interest                                 |   | 1,998  |   |   | 317    |   |   | 216   |  
|Future Income Tax                                 |   | 170    |   |   | 126    |   |   | 0     |  
|Other                                             |   | (569   | ) |   | 992    |   |   | (308  | )
|                                                  |   |        |   |   |        |   |   |       |  
|Operating Cash Flow                               |   | 1,065  |   |   | 2,333  |   |   | 995   |  
|                                                  |   |        |   |   |        |   |   |       |  
|Changes in Non-Cash Working Capital               |   |        |   |   |        |   |   |       |  
|Accounts receivable                               |   | (135   | ) |   | (75    | ) |   | (145  | )
|Inventory                                         |   | (26    | ) |   | (49    | ) |   | (2    | )
|Deposits and prepaid expenses                     |   | 268    |   |   | (442   | ) |   | 115   |  
|Accounts payable and accrued liabilities          |   | 178    |   |   | (1,045 | ) |   | 116   |  
|                                                  |   |        |   |   |        |   |   |       |  
|                                                  |   | 285    |   |   | (1,611 | ) |   | 84    |  
|                                                  |   |        |   |   |        |   |   |       |  
|Cash Provided by Operating Activities             |   | 1,350  |   |   | 722    |   |   | 1,079 |  
|                                                  |   |        |   |   |        |   |   |       |  
|Investing Activities                              |   |        |   |   |        |   |   |       |  
|Acquisition of property, plant and equipment      |   | (4,495 | ) |   | (560   | ) |   | (277  | )
|Acquisition of other assets and pre-opening costs |   | (521   | ) |   | 0      |   |   | (181  | )
|                                                  |   |        |   |   |        |   |   |       |  
|Cash Used in Investing Activities                 |   | (5,016 | ) |   | (560   | ) |   | (458  | )
|                                                  |   |        |   |   |        |   |   |       |  
|Financing Activities                              |   |        |   |   |        |   |   |       |  
|Deferred finance charges                          |   | 601    |   |   | (372   | ) |   | 0     |  
|Repurchase of shares                              |   | 0      |   |   | 0      |   |   | (150  | )
|Proceeds from long-term debt                      |   | 0      |   |   | 3,842  |   |   | 0     |  
|Proceeds from sale of shares                      |   | 71     |   |   | 93     |   |   | 0     |  
|Repayment of long-term debt                       |   | (31    | ) |   | (154   | ) |   | (488  | )
|                                                  |   |        |   |   |        |   |   |       |  
|Cash Provided by (Used in) Financing Activities   |   | 641    |   |   | 3,409  |   |   | (638  | )
|                                                  |   |        |   |   |        |   |   |       |  
|Inflow (Outflow) of Cash                          |   | (3,025 | ) |   | 3,571  |   |   | (17   | )
|Cash, Beginning of Year                           |   | 3,981  |   |   | 410    |   |   | 427   |  
|                                                  |   |        |   |   |        |   |   |       |  
|Cash, End of Year                                 | $ | 956    |   | $ | 3,981  |   | $ | 410   |  
|                                                  |   |        |   |   |        |   |   |       |  
|Supplemental Disclosure of Cash Flow Information  |   |        |   |   |        |   |   |       |  
|Cash paid during the year for                     |   |        |   |   |        |   |   |       |  
|Interest                                          | $ | 608    |   | $ | 86     |   | $ | 241   |  
|Income taxes                                      | $ | 126    |   | $ | 45     |   | $ | 221   |  

See notes to consolidated financial statements. 
  F-6

---

|ELEPHANT & CASTLE GROUP INC.                                                
|----------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                  
|Years Ended December 25, 2005, December 26, 2004 and December
      28, 2003
|(US Dollars)                                                                
|(In Thousand of
      Dollars)                                              

|1. | BASIS OF PRESENTATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | These financial statements include the accounts
        of Elephant & Castle Group Inc. ("the Company") and its wholly-owned
        subsidiaries described below. All significant inter-company balances and
        transactions are eliminated.                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | (a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | (b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | (c)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | With effect from the reporting period ended
        December 26, 2004, the Company denominated its functional and reporting
        currency to be the US Dollar. Previously the Companys functional
        and reporting currency was the Canadian Dollar. Comparative figures for
        2003 have been restated in US Dollars.                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | This change in functional and reporting currency
        has been adopted because:                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | (a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | (b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | For comparative purposes, in line with the
        recommendations of the Canadian Institute of Chartered Accountants (CICA)
        handbook and of the Financial Accounting Standards Board (FASB)
        as set out in FAS 52, the Company has translated its prior years
        consolidated financial statements as reported in Canadian Dollars into
        US Dollars using the current method of translation.                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | These consolidated financial statements have
        been prepared assuming the Company will continue as a going concern, realizing
        its assets and discharging its liabilities in the normal course of business.                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | These consolidated financial statements are
        prepared in accordance with Canadian generally accepted accounting principles
        and all figures are in US dollars unless otherwise stated. Canadian generally
        accepted accounting principles differ in certain respects from accounting
        principles generally accepted in the United States of America. The significant
        differences and the approximate related effect on the consolidated financial
        statements are set forth in note 16.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | Certain comparative figures have been restated
        to conform to the current years presentation.                                                                                                                                                                                                                                                                                                                                                                                                                             

F-7

---

|ELEPHANT & CASTLE GROUP INC.                                                
|----------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                  
|Years Ended December 25, 2005, December 26, 2004 and December
      28, 2003
|(US Dollars)                                                                
|(In Thousand of
      Dollars)                                              

|2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|-- | ------------------------------------------
|   |                                           
|   | (a)                                       
|   |                                           
|   |                                           
|   |                                           
|   |                                           
|   |                                           
|   |                                           
|   |                                           
|   |                                           
|   |                                           
|   |                                           

| |     |                                                                                                                                                                                      
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (b) | Inventory                                                                                                                                                                            
| |     |                                                                                                                                                                                      
| |     | Inventory consists of food, beverages and retail merchandise
        and is recorded at the lower of cost or market. Cost is determined using
        the first-in, first-out method.
| |     |                                                                                                                                                                                      
| | (c) | Property, plant and equipment                                                                                                                                                        
| |     |                                                                                                                                                                                      
| |     | Property, plant and equipment are recorded at cost and
        are amortized annually as follows:                                                                                    

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


| |     | Improvements to leased premises and property under capital
        leases are being amortized on a straight-line basis over the term of the
        lease except for locations opened prior to January 1, 1993. Those improvements
        are being amortized on the straight-line method over the term of the lease
        plus the first two renewal options.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                  
| |     | China, glassware and cutlery are recorded at cost. Replacements
        are charged directly to operations.                                                                                                                                                                                                                                                      
| |     |                                                                                                                                                                                                                                                                                                                                                                  
| | (d) | Intangible assets                                                                                                                                                                                                                                                                                                                                                
| |     |                                                                                                                                                                                                                                                                                                                                                                  
| |     | Intangible assets are amortized over their useful lives
        unless the life is determined to be indefinite, in which case no amortization
        is taken. Intangible assets are tested for impairment on an annual basis
        or when events occur that may indicate impairment.                                                                        
| |     |                                                                                                                                                                                                                                                                                                                                                                  
| |     | Liquor licences are recorded at cost of original acquisition.
        Additional costs incurred on an on-going basis to maintain and renew them
        are charged directly to operations.                                                                                                                                                                      

F-8

---

|ELEPHANT & CASTLE GROUP INC.                                                
|----------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                  
|Years Ended December 25, 2005, December 26, 2004 and December
      28, 2003
|(US Dollars)                                                                
|(In Thousand of
      Dollars)                                              

|2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)
|-- | -----------------------------------------------------
|   |                                                      
|   | (e)                                                  
|   |                                                      
|   |                                                      
|   |                                                      
|   | (f)                                                  
|   |                                                      
|   |                                                      

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

| | (g) | Income taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     | Income taxes are calculated using the liability
        method of tax accounting. Temporary differences arising from the difference
        between the tax basis of an asset or liability and its carrying amount
        on the balance sheet are used to calculate future income tax assets or
        liabilities. Future income tax assets or liabilities are calculated using
        tax rates anticipated to apply in the periods that the temporary differences
        are expected to reverse. A valuation allowance is provided to reduce the
        asset to the net amount management estimates to be more likely than not
        to be realized (note 13).
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | (h) | Foreign currency translation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     | Amounts recorded in foreign currency are remeasured
        into US dollars as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     | (i)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     | (ii)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     | (iii)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     | Gains and losses arising from this remeasurement
        of foreign currency are included in net income .                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | (i) | Net income (loss) per share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     | Net income (loss) per share computations are
        based on the weighted average number of common shares outstanding during
        the year. Diluted loss per share has not been presented as the effects
        of the outstanding stock options and warrants are anti-dilutive.                                                                                                                                                                                                                                                                                                                                                                                      

F-9

---

|ELEPHANT & CASTLE GROUP INC.                                                
|----------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                  
|Years Ended December 25, 2005, December 26, 2004 and December
      28, 2003
|(US Dollars)                                                                
|(In Thousand of
      Dollars)                                              

|2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)
|-- | -----------------------------------------------------
|   |                                                      
|   | (j)                                                  
|   |                                                      
|   |                                                      
|   |                                                      
|   | (k)                                                  
|   |                                                      
|   |                                                      
|   |                                                      
|   |                                                      
|   |                                                      
|   |                                                      
|   |                                                      
|   | (l)                                                  
|   |                                                      
|   |                                                      
|   |                                                      
|   |                                                      
|   |                                                      
|   |                                                      

F-10

---

|ELEPHANT & CASTLE GROUP INC.                                                
|----------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                  
|Years Ended December 25, 2005, December 26, 2004 and December
      28, 2003
|(US Dollars)                                                                
|(In Thousand of
      Dollars, Except Share Prices)                         

|3. | PROPERTY, PLANT AND EQUIPMENT
|-- | -----------------------------

| |                              |   |        |  |   | 2005         |  |   |       | 
| | ---------------------------- | - | ------ |  | - | ------------ |  | - | ----- | 
| |                              |   |        |  |   | Accumulated  |  |   |       | 
| |                              |   | Cost   |  |   | Amortization |  |   | Net   | 
| |                              |   |        |  |   |              |  |   |       | 
| |                              |   |        |  |   |              |  |   |       | 
| | Leasehold improvements       | $ | 13,261 |  | $ | 7,663        |  | $ | 5,598 | 
| | Furniture and fixtures       |   | 5,174  |  |   | 3,267        |  |   | 1,907 | 
| | China, glassware and cutlery |   | 350    |  |   | 0            |  |   | 350   | 
| | Computer equipment           |   | 787    |  |   | 455          |  |   | 332   | 
| |                              | $ | 19,572 |  | $ | 11,385       |  | $ | 8,187 | 
| |                              |   |        |  |   | 2004         |  |   |       | 
| |                              |   |        |  |   | Accumulated  |  |   |       | 
| |                              |   | Cost   |  |   | Amortization |  |   | Net   | 
| |                              |   |        |  |   |              |  |   |       | 
| |                              |   |        |  |   |              |  |   |       | 
| | Leasehold improvements       | $ | 10,593 |  | $ | 7,262        |  | $ | 3,331 | 
| | Furniture and fixtures       |   | 5,376  |  |   | 3,805        |  |   | 1,571 | 
| | China, glassware and cutlery |   | 346    |  |   | 0            |  |   | 346   | 
| | Computer equipment           |   | 758    |  |   | 537          |  |   | 221   | 
| |                              | $ | 17,073 |  | $ | 11,604       |  | $ | 5,469 | 

|4. | OTHER ASSETS
|-- | ------------

| |                        |   | 2005  |  |   | 2004  | 
| | ---------------------- | - | ----- |  | - | ----- | 
| |                        |   |       |  |   |       | 
| | Deferred finance costs | $ | 1,837 |  | $ | 1,876 | 
| | Other                  |   | 58    |  |   | 127   | 
| | Trademark              |   | 20    |  |   | 20    | 
| |                        |   |       |  |   |       | 
| |                        | $ | 1,915 |  | $ | 2,023 | 

|5. | ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
|-- | ----------------------------------------

| |                                      |   | 2005  |  |   | 2004  | 
| | ------------------------------------ | - | ----- |  | - | ----- | 
| |                                      |   |       |  |   |       | 
| | Trade Payables                       | $ | 1,444 |  | $ | 1,262 | 
| | Accrued salaries, wages and related  |   | 607   |  |   | 507   | 
| | Sales taxes                          |   | 249   |  |   | 198   | 
| | Occupancy and other operating        |   | 118   |  |   | 187   | 
| | Provision for income taxes (note 10) |   | 140   |  |   | 170   | 
| | Other payables                       |   | 105   |  |   | 128   | 
| | Debt redemption and other interest   |   | 50    |  |   | 33    | 
| | Prepaid supplier rebates             |   | 0     |  |   | 25    | 
| | Closing costs and legal settlement   |   | 0     |  |   | 25    | 
| |                                      | $ | 2,713 |  | $ | 2,535 | 

F-11

---

|ELEPHANT & CASTLE GROUP INC.                                                
|----------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                  
|Years Ended December 25, 2005, December 26, 2004 and December
      28, 2003
|(US Dollars)                                                                
|(In Thousand of
      Dollars, Except Share Prices)                         

|6. | FINANCING STRUCTURE                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | On December 17, 2004, the Company entered
        into a series of financing agreements. The transactions resulted in the
        raising of CDN$5,000 (US$4,288) for the purposes of opening new Elephant
        & Castle restaurants and refurbishing existing Elephant & Castle
        restaurants. In addition, the structure of the Companys pre-existing
        debt and equity were substantially altered, as described below.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | (a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | In consideration for the surrender of US$3,900
        of the existing Senior Notes, the surrender of US$5,000 of the existing
        Junior Notes (together with the Senior Notes, the Notes) and
        the exchange of US$1,209 of accrued interest on these Notes the Company
        issued US$4,204 of new Secured 14% Notes (the Secured Notes),
        3,653,972 of CDN$2 (US$1.72) preferred shares (note 8(b)) and a warrant
        to purchase 1,750,000 shares of common stock (note 8 (h) (ii)). The Secured
        Notes bear interest at 14%, which is deferred until payments commence
        in March 2007, except in certain circumstances, and are fully repayable
        on December 18th, 2009. The preferred shares accrue a cumulative annual
        dividend of 6%, payable only when the debt owing to Crown Capital Partners
        (Crown) and the Secured Notes are repaid in full. The preferred
        shares are redeemable at the Company's option at 100% of redemption principal
        plus a redemption premium of up to 50% of the principal amount. The premium
        shall accrue at 10% per year or part thereof (note 8(b)). Unless redeemed
        earlier, the preferred shares are automatically convertible, subject to
        the Company achieving an EBITDA target of US$3,500, at the rate of 3 shares
        of common stock for every preferred share. The warrants are exercisable
        for a period of ten years at a price of CDN$0.667 (US$0.572) per share.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | (b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | The Company has entered into a credit agreement
        with Crown, pursuant to which it borrowed CDN$5,000 (US$4,288). The loan
        bears interest at the rate of 12% per annum. Interest is payable monthly
        and monthly principal payments of CDN$40 (US$34) commence in December
        2006, rising to CDN$60 (US$51) in December 2007 and CDN$100 (US$86) in
        December 2008, with the balance of CDN$2,600 (US$2,230) repayable by December
        17, 2009. In connection with the making of the loan, Crown received a
        first secured position over all of the Company's assets and properties,
        including the capital stock of the subsidiary companies, in respect of
        the loan indebtedness. Additionally, the Company granted Crown a warrant
        to purchase 1,049,301 shares of common stock of the Company and 730,794
        preferred shares of the Company for one hundred Canadian dollars, representing
        15% of the outstanding shares of both classes of stock of the Company
        and a further warrant to purchase 350,000 shares of common stock. These
        further warrants are exercisable for a period of ten years at a price
        of CDN$0.667 (US$0.572) per share (notes 8 (g) (iv), 8 (g) (v) and 8(h)(ii)).                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | (c)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | The Company has entered into an agreement
        with the three senior managers of the Company ("Management"), whereby
        Management has committed to purchase for CDN$265 (US$227), over a period
        of 18 months commencing December 2004, 699,534 common shares and 487,196
        preferred shares, representing 10% of the outstanding shares of both classes
        of stock of the Company. Management made an initial payment of CDN$115
        (US$99) on December 17, 2004 and subsequent payments of CDN$86 (US$71)
        during the year ended December 25, 2005. The remaining balance of CDN$64
        (US$55) is payable by June 30, 2006 (note 17). In connection with this
        purchase, Management has also been issued a warrant for the purchase of
        an additional 5% of both classes of stock for CDN$133 (US$114) (notes
        8 (g) (ii) and 8 (h) (i)).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

F-12

---

|ELEPHANT & CASTLE GROUP INC.                                                
|----------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                  
|Years Ended December 25, 2005, December 26, 2004 and December
      28, 2003
|(US Dollars)                                                                
|(In Thousand of
      Dollars, Except Share Prices)                         

|6. | FINANCING STRUCTURE (continued)                                                                                                                                                                                                                                                                                                                                                                                      
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | (d)                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | GEIPPPII and Crown have entered into an inter-creditor
        agreement, which establishes the seniority of the Crown security and the
        subordination of the GEIPPPII security over the assets of the Company.                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | GEIPPPII, Crown and Management have entered
        into an inter-shareholder agreement. Under this agreement all parties
        agree to appoint two GEIPPPII nominees, one Crown nominee and one management
        nominee to the board of the Company. Additionally the parties have agreed
        conditions and entitlements associated with the sale or transfer of their
        shares.                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | The terms of the 8% convertible, subordinated
        notes of the Company issued in 2000 ("Delphi Financing") have been amended
        such that the coupon has been increased to 9.25% and repayment has been
        scheduled to re-commence in March 2007.                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | (e)                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | For the year ended December 28, 2003, the
        GEIPPPII Junior Notes were recorded as an equity instrument.                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | For the twelve month period ended June 29,
        2003, the Company achieved less than 67% of the original EBITDA target.
        Under the terms of the original agreement, this would have required the
        Company to reclassify the first two tranches as a debt instrument.                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | The Company, however, reached in 2003 an agreement
        with GEIPPPII to modify the terms of the Junior Notes, such that the test
        for mandatory conversion of all four tranches was dependent on achievement
        of EBITDA targets for the twelve months ending June 30, 2005. Accordingly,
        no reclassification of the Junior Notes was required for the year ended
        December 28, 2003.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | (f)                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | Prior to the agreement of the Company's new
        funding structure on December 17, 2004, GEIPPPII owned 62.1% of the Company's
        outstanding common shares.                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | Following the new funding agreement, and before
        any conversion of preferred shares, GEIPPPII owns 50.1% of the Company's
        outstanding common shares, once Crown exercises its CDN$ One Hundred warrant.                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | Post-conversion of the preferred shares, GEIPPPII
        will own the following percentages of the Companys outstanding common
        shares:                                                                                                                                                                                                                                                                     

| |                                                                                | % owned    
| | ------------------------------------------------------------------------------ | -----------
| |                                                                                | by GEIPPPII
| |                                                                                |            
| | (a) If Management performance warrants                                         | 66.7%      
| | (for purchase of a further 5% of outstanding
      shares) are not exercisable |            
| |                                                                                |            
| | (b) If Management performance warrants                                         | 62.3%      
| | (for purchase of a further 5% of outstanding
      shares) are exercisable     |            

As such, GEIPPPII continues to have voting
  control over the Company's operations.

F-13

---

|ELEPHANT & CASTLE GROUP INC.                                                
|----------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                  
|Years Ended December 25, 2005, December 26, 2004 and December
      28, 2003
|(US Dollars)                                                                
|(In Thousand of
      Dollars, Except Share Prices)                         

|7. | LONG TERM DEBT
|-- | --------------

| |                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | 2005   |  |   | 2004   | 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ------ |  | - | ------ | 
| | General Electric Investment Private
      Placement 
      Partners II ("GEIPPPII"), a limited partnership, 
      secured 14% notes, maturing December 18,
      2009. Interest payments are deferred until 
      March 2007, at which point interest is to be paid 
      quarterly in cash. Deferred interest is to be 
      repaid along with the principal on December 18, 
      2009.                                      | $ | 4,805  |  | $ | 4,204  | 
|
|
|
|
|
|
|
| |                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |        |  |   |        | 
| | First secured loan from Crown for
      CDN$5,000 
      (US$4,288) bearing an interest rate of 12% per 
      annum. Interest is payable monthly in cash. 
      Monthly principal payments of CDN$40 (US$34) 
      commence in December 2006 rising to CDN$60 
      (US$51) in December 2007 and CDN$100 
      (US$86) in December 2008, with the balance of 
      CDN$2,600 (US$2,230) repayable by
      December 17, 2009. |   | 4,288  |  |   | 4,066  | 
|
|
|
|
|
|
|
|
| |                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |        |  |   |        | 
| | 4,023,975 Preferred Shares, Series
      A, with a 
      redemption price of CDN$2 (US$1.72) per 
      share (note 8(b)). 3,653,972 shares were issued 
      to GEIPPPII in exchange for US$5,000 of Junior 
      Notes, plus US$905 of accrued interest (note 
      6(a)). The remaining 370,003 shares were 
      issued to management.                                                                                     |   | 6,902  |  |   | 6,287  | 
|
|
|
|
|
|
| |                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |        |  |   |        | 
| | Redemption premium on Preferred
      Shares, 
      accruing at 10% per annum or part thereof, to a 
      maximum of 50% (note 8(b)).                                                                                                                                                                                                                                                                                             |   | 695    |  |   | 17     | 
|
|
|
|
|
| |                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |        |  |   |        | 
| | Convertible subordinated notes
      issued in 2000 
      to the Delphi Investors, originally due December 
      31, 2003, but now repayable in quarterly 
      instalments of US$38 beginning March 2004
      with one final instalment of US$243 due on 
      December 31, 2009. Interest at 9.25% per 
      annum payable quarterly in cash (note 6(d)).                                                                   |   | 649    |  |   | 661    | 
|
|
|
| |                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |        |  |   |        | 
| | Capital
      lease obligations repayable over terms 
      ranging from 36 to 60 months, interest rates 
      average 13%.                                                                                                                                                                                                                                                                                                        |   | 8      |  |   | 27     | 
|
|
| |                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |        |  |   |        | 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | 17,347 |  |   | 15,262 | 
| | Less: Current portion                                                                                                                                                                                                                                                                                                                                                                                                               |   | 41     |  |   | 20     | 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |        |  |   |        | 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                     | $ | 17,306 |  | $ | 15,242 | 

F-14

---

|ELEPHANT & CASTLE GROUP INC.                                                
|----------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                  
|Years Ended December 25, 2005, December 26, 2004 and December
      28, 2003
|(US Dollars)                                                                
|(In Thousand of
      Dollars, Except Share Prices)                         

|7. | LONG TERM DEBT (continued)                                                                           
|-- | -----------------------------------------------------------------------------------------------------
|   |                                                                                                      
|   | Long-term debt principal repayments due in each of the
        next five fiscal years are as follows:

| | 2006           | $ | 41     | 
| | -------------- | - | ------ | 
| | 2007           |   | 584    | 
| | 2008           |   | 805    | 
| | 2009           |   | 15,917 | 
| | 2010 and after |   | 0      | 
| |                |   |        | 
| |                | $ | 17,347 | 

|8. | CAPITAL STOCK
|-- | -------------

| | (a) | Common Shares                                                                                                                                               
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                             
| |     | Authorized  20,000,000 Common Shares without par
        value                                                                                             
| |     |                                                                                                                                                             
| |     | Issued  5,872,087 (2004  5,629,411) Common
        Shares                                                                                                 
| |     |                                                                                                                                                             
| |     | Shares issued and cancelled are recorded at the market
        price on the date of the transaction.                                                        
| |     |                                                                                                                                                             
| | (b) | Preferred Shares                                                                                                                                            
| |     |                                                                                                                                                             
| |     | Authorized  10,000,000 Preferred Shares with a
        par value of CDN$1 (US$0.813) per share (6,000,000 designated as Preferred
        Shares, Series A)
| |     |                                                                                                                                                             
| |     | Issued  4,023,975 (2004  3,865,397) Preferred
        Shares, Series A                                                                                    

| | (i)  | Voting Rights                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |      | The holders of the Preferred Shares, Series A shall
        be entitled as such to receive notice of and to attend all meetings of
        the shareholders of the Company (except meetings at which only holders
        of another class or series of shares of the Company are required by law
        to vote separately as a class or series) and at each such meeting shall
        have that number of votes in person or by proxy for each Preferred Share,
        Series A held equal to the number of Common Shares into which such Preferred
        Shares, Series A may be converted at the Series A Conversion Rate of three
        Common Shares for each Preferred Share, Series A.
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | (ii) | Dividends                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |      | The holder of the Preferred Shares, Series A, in priority
        to the holders of the Common Shares, shall be entitled to receive and
        the Company shall pay thereon, as and when declared by the Directors provided
        the GEIPPPII 14% Secured Notes and the Crown term loan have been repaid
        in full, fixed, cumulative cash dividends at the rate of 6% of the Series
        A Redemption Price of CDN$2.00 (US$1.72) per share per annum payable on
        the dates to be fixed from time to time by the Directors.                                                                                                                                                    

F-15

---

|ELEPHANT & CASTLE GROUP INC.                                                
|----------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                  
|Years Ended December 25, 2005, December 26, 2004 and December
      28, 2003
|(US Dollars)                                                                
|(In Thousand of
      Dollars, Except Share Prices)                         

|8. | CAPITAL STOCK (continued)
|-- | -------------------------

| | (iii) | Redemption                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |       | Subject to the British Columbia Business Corporations
        Act and provided that all dividends in respect of the outstanding Preferred
        Shares, Series A have been declared and paid or set apart for payment,
        the Company may redeem the whole or any part of the outstanding Preferred
        Shares, Series A on payment for each share to be redeemed of the Series
        A Redemption Price of CDN$2 (US$1.72) per share, together with all unpaid
        declared dividends thereon, which for such purpose shall be treated as
        accruing up to but excluding the date of such redemption, plus a premium
        of 10% of the Series A Redemption Price for each year or part thereof
        from December 17, 2004, Series A, to a maximum premium of 50% of the Series
        A Redemption Price (all such sums, collectively, the "Series A Redemption
        Amount").
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |       | No partial redemption of the outstanding Preferred Shares,
        Series A may at any time be made except with the unanimous prior written
        consent of all holders of the Preferred Shares, Series A and the holders
        of any outstanding warrants for the purchase thereof. If a part only of
        the Preferred Shares, Series A represented by any certificate shall be
        redeemed, a new certificate for the balance shall be issued at the expense
        of the Company.                                                                                                                                                                                                                                                                                                                                                                                                            
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | (iv)  | Retraction                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |       | Commencing on the date which is 135 days following the
        close of the Company's second fiscal year after repayment in full by the
        Company of the GEIPPPII 14% Secured Notes and the Crown loan (the "Retraction
        Period"), any holder of Preferred Shares, Series A, may, at the holder's
        option, upon giving at least 20 Business Days before the date specified
        for redemption (the "Retraction Date") to the Company at its registered
        office written notice thereof (the "Retraction Notice"), require the Company
        to redeem at any time the whole or from time to time any part of the Preferred
        Shares, Series A held by the holder by payment of the Series A Redemption
        Amount for each share to be redeemed.                                                                                                                        

F-16

---

|ELEPHANT & CASTLE GROUP INC.                                                
|----------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                  
|Years Ended December 25, 2005, December 26, 2004 and December
      28, 2003
|(US Dollars)                                                                
|(In Thousand of
      Dollars, Except Share Prices)                         

|8. | CAPITAL STOCK (continued)
|-- | -------------------------

| | (v) | Conversion rights                                                                                                                                                                             
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                               
| |     | (a) The holders of Preferred Shares, Series A have
      the conversion rights set out below (the "Conversion Rights").                                                                       
| |     |                                                                                                                                                                                               
| |     | (b) Each outstanding Preferred Share, Series A shall
      be converted into Common Shares at the Series A Conversion Rate on the date
      (the "Conversion Date") which is the earliest of:

(i) the date which is specified for
  conversion in written notice given to the Company at its registered office (the
  "Holder's Conversion Notice") which shall in any event be no less than 20 Business
  Days following the delivery of such written notice, requiring the Company to
  convert the whole or from time to time any part of the Preferred Shares, Series
  A held by the holder into Common Shares; and

(iii) the date which is 20 Business
  Days following written notice (the "Company's Conversion Notice") by the Company
  to all of the holders of the Preferred Shares, Series A and holders of outstanding
  warrants for the purchase thereof of the repayment in full by the Company of
  the Indebtedness, provided that no such notice may be given unless the Company
  shall have achieved earnings before interest, taxes, depreciation, and amortization
  of not less than U.S.$3.5 million in the last fiscal year prior to such notice
  being given; and

(c) If the Company effects a consolidation
  or subdivision of the number of outstanding Common Shares into a lesser or greater
  number, then the Series A Conversion Rate shall be decreased or increased proportionately,
  as the case may be. If the Common Shares issueable upon the exchange of the
  Preferred Shares, Series A are changed into shares of any other class(es) in
  the capital of the Company, whether by capital reorganization, amalgamation,
  consolidation, merger or sale of assets or otherwise then the holder of each
  Preferred Share, Series A shall have the right thereafter to convert the share
  into the kind and number of shares, other securities and property receivable
  upon the reorganization, reclassification or other change as would the holder
  of the number of Common Shares into which the Preferred Shares, Series A might
  have been converted immediately prior to the reorganization, reclassification
  or change, but subject to further adjustment as otherwise provided herein.

(d) If at any time and from time to
  time there is (i) an amalgamation, consolidation or merger of the Company with
  or into another Company or (ii) the sale of all or substantially all of the
  properties and assets of the Company to any other person, then the Company shall
  provide that the holders of the Preferred Shares, Series A shall thereafter
  be entitled to receive upon exchange of the Preferred Shares, Series A the number
  of shares or other securities or property of the Company or of the successor
  Company resulting from the amalgamation, consolidation, merger or sale to which
  a holder of Common Shares deliverable upon exchange would have been entitled.
  In any such event, appropriate adjustments shall be made in the application
  of the provisions with respect to the rights of the holders of the Preferred
  Shares, Series A after the reorganization amalgamation, merger, consolidation
  or sale, as the case may be, so that the provisions of the articles of the Company,
  without limitation, adjustment of the Series A Conversion Rate then in effect
  and the number of Common Shares to be obtained by conversion of the Preferred
  Shares, Series A shall apply after the event as nearly equivalent as may be
  practicable.

F-17

---

|ELEPHANT & CASTLE GROUP INC.                                                
|----------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                  
|Years Ended December 25, 2005, December 26, 2004 and December
      28, 2003
|(US Dollars)                                                                
|(In Thousand of
      Dollars, Except Share Prices)                         

|8. | CAPITAL STOCK (continued)
|-- | -------------------------

| | (vi) | Accounting treatment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |      | (a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |      | Holders of Preferred Shares, Series A, have
        the ability to require redemption of their shares at a future date, and
        at a predetermined price. In accordance with CICA handbook sections 3860.20
        and 3860.22 and with EIC 149, the Preferred Shares, Series A, have been
        recorded as long term debt at CDN$2 (US$1.72) per share, with dividends
        earned on the shares recorded as interest expense. In addition, redemption
        premiums accrued from date of issue have been added to long term debt.
        All warrants issued for the purchase of preferred shares are treated as
        a liability. Accordingly, no stock based compensation expense was recorded
        for the issue of these warrants (note 8(h)).                                      
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |      | (b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |      | During the year ended December 26, 2004, the
        Company entered into an agreement with three senior managers (note 6(c))
        whereby in order for the lenders to renegotiate the existing debt, the
        lenders required management to commit to the purchase of 699,354 common
        and 487,196 preferred shares for total proceeds to the Company CDN$265
        (US$215). The price was agreed by way of arms length negotiation, and
        was deemed to represent fair market value for the shares acquired. As
        the commitment is directly related to the renegotiation of the debt, any
        difference between the agreed upon purchase price and the share price
        as at that date or redemption price per share will be accounted for as
        debt issue costs.
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |      | The common shares have a negotiated purchase
        price of US$0.10 per share representing fair value at the date of issuance.
        Any difference between the share price as at that date and the purchase
        price of US $0.10 per share will be recorded in the balance sheet as a
        deferred financing fee to be amortized over the remaining life of the
        GEIPPPII debt.                                                                                                                                                                                                                                                                                                                                                                                                           
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |      | The Preferred shares have a negotiated price
        of US$0.30 per share and a redemption value of CDN $2.00 (US$ 1.63) per
        share. As described in note 8 (b)(vi)(a) the preferred shares are treated
        as a liability, and accordingly, will be recorded as a liability in the
        books of the Company at the time of issuance. The difference between the
        negotiated price of US$0.30 per share and the redemption price will be
        recorded in the balance sheet as a deferred financing cost and amortized
        over the remaining life of the related debt.                                                                                                                                                                                                           
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |      | Warrants issued to management are exercisable
        in five years from the date of issue, exercisable for a 60 day period
        provided all the new notes and Crown debt are fully repaid. Past experience
        indicates the likelihood such warrants will be exercised is not high.
        Accordingly, no value has been assigned to these warrants.                                                                                                                                                                                                                                                                                                                                                                                                                                               

F-18

---

|ELEPHANT & CASTLE GROUP INC.                                                
|----------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                  
|Years Ended December 25, 2005, December 26, 2004 and December
      28, 2003
|(US Dollars)                                                                
|(In Thousand of
      Dollars, Except Share Prices)                         

|8. | CAPITAL STOCK (continued)
|-- | -------------------------

| | (c) | Contributed surplus            
| | --- | -------------------------------
| |     |                                
| |     | Contributed surplus represents:

| | (i)   | Historic values of GE Junior Notes, and associated accrued
        interest on cancellation;                   
| | ----- | ---------------------------------------------------------------------------------------------------------------
| |       |                                                                                                                
| | (ii)  | Nominal value of Preferred Shares issued to GEIPPPII
        for cancellation of Junior Notes; and             
| |       |                                                                                                                
| | (iii) | Deemed value of warrants issued to GEIPPPII and Crown
        in relation to new funding arrangements (note 6).

| | (d) | Other paid-in capital                                                                                                 
| | --- | ----------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                       
| |     | Other-paid in capital represents the value of the GEIPPPII
        Junior Notes, plus accrued dividends thereon.      
| |     |                                                                                                                       
| |     | The balance was written-down to $Nil in 2004 following
        the cancellation of the GEIPPPII Junior notes (note 6).

| | (e) | Cumulative translation adjustment                                                                                                                                                                                                                                                                                                   
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                     
| |     | With effect from the reporting period ended December
        26, 2004, the Company denominates its functional and reporting currency
        to be the US Dollar. Previously the Companys functional and reporting
        currency was the Canadian Dollar. Comparative figures have been restated
        in US Dollars (note 1).
| |     |                                                                                                                                                                                                                                                                                                                                     
| |     | For comparative purposes, in line with the recommendations
        of the CICA handbook and of the FASB as set out in FAS 52, the Company
        has translated its prior year consolidated statements as reported in Canadian
        Dollars into US Dollars using the current method of translation.                            
| |     |                                                                                                                                                                                                                                                                                                                                     
| |     | The cumulative translation adjustment of US$880 (2004
        - US$880) results from this accounting treatment.                                                                                                                                                                                                                     
| |     |                                                                                                                                                                                                                                                                                                                                     
| | (f) | Stock option plans                                                                                                                                                                                                                                                                                                                  
| |     |                                                                                                                                                                                                                                                                                                                                     
| |     | Commencing from the year ended December 26, 2004, the
        Company applies the fair value method in accounting for its stock options
        granted to employees, directors and consultants and accordingly, compensation
        expense of $Nil was recognised during the year. (2004 = $Nil)                                 

F-19

---

|ELEPHANT & CASTLE GROUP INC.                                                
|----------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                  
|Years Ended December 25, 2005, December 26, 2004 and December
      28, 2003
|(US Dollars)                                                                
|(In Thousand of
      Dollars, Except Share Prices)                         

|8. | CAPITAL STOCK (continued)
|-- | -------------------------

Stock option activity is summarized
  as follows:

| |                        | Number    | Exercise Price
| | ---------------------- | --------- | --------------
| |                        | of Shares | (US$)         
| |                        |           |               
| | Balance outstanding,   |           |               
| | December 28, 2003      | 584,000   | $5.70 *       
| |                        |           |               
| | 2004- Cancelled/lapsed | (27,500)  | 1.00          
| |                        |           |               
| | Balance outstanding,   |           |               
| | December 26, 2004      | 556,500   | $5.70 *       
| |                        |           |               
| | 2005- Cancelled/lapsed | (10,000)  | 1.00          
| |                        |           |               
| | Balance outstanding,   |           |               
| | December 25, 2005      | 546,500   | $5.79 *       

| | * | Weighted average exercise price.
| | - | --------------------------------

All outstanding options were vested
  and exercisable as at December 25, 2005.

At December 25, 2005 and at December
  26, 2004, options to purchase Common Shares were outstanding as follows:

Exercise
      Balance outstandingExpiry
      Price
      2005
      2004(i)
      2006/2007
      US $11.26 to US $12.00
      74,000
      74,000(ii)
      2006/2007
      US $10.00 to US $16.00
      162,500
      162,500(iii)
      2008
      US $1.00
      310,000
      320,000Outstanding and exercisable
      546,500
      556,500


| | (i)   | The 1997 employee option plan set aside 200,000 Common
        Shares. Options have been granted for 139,000 shares. All options expire
        on the 5th anniversary date of the grant. None have been exercised through
        December 25, 2005 and 65,000 of the options were cancelled through December
        25, 2005.                             
| | ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |       |                                                                                                                                                                                                                                                                                                                                                              
| | (ii)  | During 1999, options for 472,500 common shares were
        granted to five key executives, four of whom commenced employment with
        the Company in 1997. These stock options were granted in addition to the
        above stock option plans. None have been exercised and 310,000 of these
        options were cancelled through December 25, 2005.
| |       |                                                                                                                                                                                                                                                                                                                                                              
| | (iii) | The 2001 stock options and bonus plan set aside 950,000
        Common Shares of which 400,000 were granted in January 2003. None have
        been exercised, but 90,000 have been cancelled due to option holders leaving
        the Companys employment.                                                                                                

F-20

---

|ELEPHANT & CASTLE GROUP INC.                                                
|----------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                  
|Years Ended December 25, 2005, December 26, 2004 and December
      28, 2003
|(US Dollars)                                                                
|(In Thousand of
      Dollars, Except Share Prices)                         

|8. | CAPITAL STOCK (continued)
|-- | -------------------------

| | (g) | Warrants to purchase Common Shares.                                     
| | --- | ------------------------------------------------------------------------
| |     |                                                                         
| |     | Warrants to purchase Common Shares may be summarized
        as follows:

| |                        |  | Number    |  |   | Exercise Price | 
| | ---------------------- |  | --------- |  | - | -------------- | 
| |                        |  | of Shares |  |   | (US$)          | 
| | Balance outstanding,   |  |           |  |   |                | 
| | December 28, 2003      |  | 1,869,744 |  | $ | 1.00 *         | 
| | 2004- Issued           |  | 4,049,068 |  |   | 0.32           | 
| |                        |  |           |  |   |                | 
| | Balance outstanding,   |  |           |  |   |                | 
| | December 26, 2004      |  | 5,918,812 |  | $ | 0.54*          | 
| | 2005- Cancelled/lapsed |  | 0         |  |   | 0              | 
| |                        |  |           |  |   |                | 
| | Balance outstanding,   |  |           |  |   |                | 
| | December 25, 2005      |  | 5,918,812 |  | $ | 0.54*          | 

| | * | Weighted average exercise price.
| | - | --------------------------------

At December 25, 2005 and at December
  26, 2004, warrants to purchase Common Shares were outstanding as follows:

Exercise
      Balance outstandingExpiry
      Price
      2005
      2004(i)
      2006
      US $1.00
      1,869,744
      1,869,744(ii)
      2009
      See note (8 (g) (ii))
      566,434
      566,434(iii)
      2009
      CDN $0.667
      233,333
      233,333(iv)
      2014
      See note (8 (g) (iv))
      1,049,301
      1,049,301(v)
      2014
      CDN $0.667
      2,100,000
      2,100,000(vi)
      2014
      See
        note (8 (g) (vi))
      100,000
      100,000Outstanding
      
      5,918,812
      5,918,812Exercisable
      
      0
      0


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

(ii) Five year warrants, subject to
  certain restrictions, granted to Management on December 17, 2004 along with
  warrants for 295,799 Preferred Shares, Series A with a combined total exercise
  price of CDN$133 (US$108).

(iii) Five year warrants, subject to
  certain restrictions, granted to Management on December 17, 2004.

F-21

---

|ELEPHANT & CASTLE GROUP INC.                                                
|----------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                  
|Years Ended December 25, 2005, December 26, 2004 and December
      28, 2003
|(US Dollars)                                                                
|(In Thousand of
      Dollars, Except Share Prices)                         

|8. | CAPITAL STOCK (continued)
|-- | -------------------------

(iv) Ten year warrants, granted to Crown
  on December 17, 2004 along with warrants for 730,794 Preferred Shares, Series
  A with a combined total exercise price of one hundred Canadian dollars.

(v) Ten year warrants, granted to GEIPPPII
  (1,750,000) and Crown (350,000) on December 17, 2004.

(vi) Ten year warrants, with an exercise
  price of $nil, issued to Crown, exercisable only if the Management warrants
  in (iii) above are exercisable, to avoid dilution of Crowns position.

(vii) The value in the warrants in (ii)
  and (vi) above, totalling $1,792, has been recorded as deferred financing costs
  and will be amortized over the life of the associated debt. The Company has
  adopted the fair value method, applying the Black-Scholes option-pricing model,
  using the following weighted average assumptions:

| |                       | 2005 | 2004   
| | --------------------- | ---- | -------
| | Expected life (years) | n/a  | 5      
| | Interest rate         | n/a  | 4.00%  
| | Volatility            | n/a  | 154.87%
| | Dividend yield        | n/a  | 0.00%  

| |     | The warrants in (iii) and (vi) above are deemed to have
        a cost of $nil due to the restrictions which apply to their exercise.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                      
| | (h) | Warrants to purchase Preferred Shares.                                                                                               
| |     |                                                                                                                                      
| |     | Warrants to purchase Preferred Shares may be summarized
        as follows:                                                          

| |                        | Number          |  | Exercise Price | 
| | ---------------------- | --------------- |  | -------------- | 
| |                        | of
      Shares |  | (US$)          | 
| | Balance outstanding,   |                 |  |                | 
| | December 28, 2003      | 0               |  | $0.00          | 
| | 2004- Issued           | 1,078,794       |  | 0.06*          | 
| |                        |                 |  |                | 
| | Balance outstanding,   |                 |  |                | 
| | December 26, 2004      | 1,078,794       |  | $0.06          | 
| | 2005- Cancelled/lapsed | 0               |  | 0              | 
| |                        |                 |  |                | 
| | Balance outstanding,   |                 |  |                | 
| | December 25, 2005      | 1,078,794       |  | $0.06*         | 

| | * | Weighted average exercise price.
| | - | --------------------------------

F-22

---

|ELEPHANT & CASTLE GROUP INC.                                                
|----------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                  
|Years Ended December 25, 2005, December 26, 2004 and December
      28, 2003
|(US Dollars)                                                                
|(In Thousand of
      Dollars, Except Share Prices)                         

|8. | CAPITAL STOCK (continued)
|-- | -------------------------

At December 25, 2005 and at December
  26, 2004, warrants to purchase Common Shares were outstanding as follows:

Exercise
      Balance outstandingExpiry
      Price
      2005
      2004(i)
      2009
      See note (8 (h) (i))
      295,799
      295,799(ii)
      2014
      See note (8 (h) (ii))
      730,794
      730,794(iii)
      2014
      See note (8 (h) (iii))
      52,201
      52,201Outstanding
      
      1,078,794
      1,078,794Exercisable
      
      0
      0


(i) Five year warrants, subject to certain
  restrictions, granted to Management on December 17, 2004 along with warrants
  for 566,434 Common Shares, with a combined total exercise price of CDN$133 (US$108).

(ii) Ten year warrants, granted to Crown
  on December 17, 2004 along with warrants for 1,049,301 Common Shares, with a
  combined total exercise price of one hundred Canadian dollars.

(iii) Ten year warrants, with an exercise
  price of $Nil, issued to Crown, exercisable only if the Management warrants
  in (i) above are exercisable, to avoid dilution of Crowns position.

(iv) No compensation expense was recorded
  for the issuance of these warrants (note 8 (b) (vi)).

|9. | FINANCIAL INSTRUMENTS
|-- | ---------------------

| | (a) | Fair value                                                                                                                                                                                                                                                                                                                                                   
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                              
| |     | The carrying values of cash, accounts receivable, and
        accounts payable and accrued liabilities approximate their fair values
        because of the short maturity of these financial instruments.                                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                              
| |     | The carrying value of long term debt represents fair
        value, as the interest rate reflects the market rate which the Company
        would be able to obtain (note 6).                                                                                                                                                                                
| |     |                                                                                                                                                                                                                                                                                                                                                              
| |     | The carrying value of the Preferred Shares approximates
        the fair value. Redemption premiums and dividend accruals approximate
        interest rates the Company would acquire for similar loans.                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                              
| | (b) | Credit risk                                                                                                                                                                                                                                                                                                                                                  
| |     |                                                                                                                                                                                                                                                                                                                                                              
| |     | The Company's financial assets that are exposed to credit
        risk consist primarily of cash and accounts receivable. Cash is placed
        with major financial institutions rated in the two highest grades by nationally
        recognized rating agencies. Credit risk from customer exposure is nominal
        due to the nature of the business.

F-23

---

|ELEPHANT & CASTLE GROUP INC.                                                
|----------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                  
|Years Ended December 25, 2005, December 26, 2004 and December
      28, 2003
|(US Dollars)                                                                
|(In Thousand of
      Dollars, Except Share Prices)                         

|9.  | FINANCIAL INSTRUMENTS (continued)                                                                                                                                                                                                                                                                                                                                                   
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                     
|    | (c)                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                     
|    | (d)                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                     
|10. | CONTINGENCIES                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                     
|    | A Canadian subsidiary of the Company has received
        notices of reassessment from Canada Revenue Agency (CRA) involving
        a further demand from the CRA for CDN$240 (US$206) relating to disputes
        concerning construction allowances dating back to 1984.                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                     
|    | On September 30, 2005, the Company paid CDN$46
        (US$39) to the CRA in partial settlement of this matter. The Company maintains
        that the remaining CDN$194 (US$166) represents a miscalculation by the
        CRA relative to the timing of tax losses. However, the Company maintains
        a provision of CDN$163 (US$140) against the remaining disputed charge.

F-24

---

|ELEPHANT & CASTLE GROUP INC.                                                
|----------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                  
|Years Ended December 25, 2005, December 26, 2004 and December
      28, 2003
|(US Dollars)                                                                
|(In Thousand of
      Dollars, Except Share Prices)                         

|11. | COMMITMENTS                                                                                                                                                                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                 
|    | The subsidiaries are committed to leases on their restaurant
        locations extending into the 2015 fiscal year. Minimum annual rentals
        for the restaurants excluding realty taxes, common area maintenance and
        other charges are as follows:

| | 2006                   | $ | 1,719  | 
| | ---------------------- | - | ------ | 
| | 2007                   |   | 1,711  | 
| | 2008                   |   | 1,471  | 
| | 2009                   |   | 1,254  | 
| | 2010 to 2015 inclusive |   | 4,211  | 
| |                        |   |        | 
| |                        | $ | 10,366 | 

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

For the year ended December 25, 2005
  minimum rents were US$1,776 (2004 = US$1,457, 2003 =US$1,691) and additional
  rents paid based on gross revenues were US$418 (2004 = US$393, 2003 =US$292).

The Company has guaranteed payments for
  the regular purchase of liquor by way of letters of credit for CDN$66 (US$57)
  with its main Canadian banker.

The Company has arranged with third party
  financiers to pay its annual insurance premiums in monthly instalments. As at
  December 25, 2005 the Company owed US$107 (2004 - US$96) in relation to the
  insurance year ending May 2006.

The Companys total contractual
  obligations at December 25, 2005 can therefore be summarized as follows:

Payments due by period:Total
      Less than
      1 to 3
      3 to 5
      More thanOutstanding
      1 year
      years
      years
      5 yearsLong-term debt obligations
      17,339
      34
      1,388
      15,917
      0Capital lease obligations
      8
      7
      1
      0
      0Operating lease obligations
      10,366
      1,719
      3,182
      2,387
      3,078Purchase obligations
      107
      107
      0
      0
      0Other long-term obligations
      57
      57
      0
      0
      0Total contractual obligations
      27,877
      1,924
      4,571
      18,304
      3,078


F-25

---

|ELEPHANT & CASTLE GROUP INC.                                                
|----------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                  
|Years Ended December 25, 2005, December 26, 2004 and December
      28, 2003
|(US Dollars)                                                                
|(In Thousand of
      Dollars, Except Share Prices)                         

|12. | IMPAIRMENT OF OTHER TANGIBLE AND INTANGIBLE ASSETS
        AND RESTAURANT CLOSING COSTS
|--- | ---------------------------------------------------------------------------------------

| | (a) | Impairment of Long Lived Assets for 2005
| | --- | ----------------------------------------

In accordance with the recommendations
  of the CICA, the Company has compared the net book value of its long-lived assets
  with the cash flows those assets are expected to generate over their remaining
  useful lives.

The leases of the Companys Canadian
  restaurants in Calgary, AB and Victoria, BC, expired in December 2005. Calculations
  performed each quarter during the year ended December 25, 2005 determined that
  the discounted value of the cash flows expected from these stores until time
  of closure was US$181 lower than the net book value of the associated property,
  plant and equipment as that time.

Accordingly, the Company reduced the
  net book value of these assets by recording a US $181 charge for the Impairment
  of Long Lived Assets in 2005.

| | (b) | Impairment of Long Lived Assets for 2004
| | --- | ----------------------------------------

The leases of the Companys Canadian
  restaurants in Calgary, AB and Saskatoon, SK, expired in October and December
  2005 respectively. The discounted value of the cash flows expected from these
  stores until that time was US$199 lower than the net book value of the associated
  property, plant and equipment as at December 26, 2004.

Accordingly, the Company reduced the
  net book value of these assets by recording a US $199 charge for the Impairment
  of Long Lived Assets in 2004.

| | (c) | Restaurant closing costs for 2005 were comprised
        of the following:
| | --- | --------------------------------------------------------------------------

(i) Closure of Elephant & Castle
  restaurant in Saskatoon, SK

The Company closed its Saskatoon location
  in October 2005, on expiry of the lease. Capital asset write-downs and other
  closure costs totalled US$11.

(ii) Closure of Elephant & Castle
  restaurant in Calgary, AB

The Company closed its Calgary location
  in December 2005, on expiry of the lease. Capital asset write-downs and other
  closure costs totalled US$23.

(iii) Closure of Elephant & Castle
  restaurant in Victoria, BC

The Company closed its Victoria location
  in December 2005, on expiry of the lease. Capital asset write-downs and other
  closure costs totalled US$21.

| | (d) | Restaurant closing costs for 2003 were comprised
        of the following:
| | --- | --------------------------------------------------------------------------

(i) Closure of Elephant & Castle
  restaurant at BCIT, Burnaby, Vancouver, BC

The Company closed its BCIT location
  on June 15, 2003, on expiry of the lease. Capital asset write-downs and other
  closure costs totalled US$64.

(ii) Closure of Elephant & Castle
  restaurant at West Edmonton Mall, AB

On January 16, 2004 the Company closed
  its restaurant located in the West Edmonton Mall, AB, on expiry of the lease.
  Capital asset write-downs and estimated other closure costs totalled US$150,
  which were recognized in 2003.

F-26

---

|ELEPHANT & CASTLE GROUP INC.                                                
|----------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                  
|Years Ended December 25, 2005, December 26, 2004 and December
      28, 2003
|(US Dollars)                                                                
|(In Thousand of
      Dollars, Except Share Prices)                         

|12. | IMPAIRMENT OF OTHER TANGIBLE AND INTANGIBLE ASSETS
        AND RESTAURANT CLOSING COSTS (Continued)
|--- | ---------------------------------------------------------------------------------------------------

(iii) Write-back of surplus provisions
  in relation to stores closed in 2002

In the year ended December 29, 2002
  the Company made provision for the closure of its Elephant & Castle restaurant
  at Bellis Fair, Bellingham, WA and of its only Alamo Steakhouse and Grill restaurant
  at the Mall of America, Bloomington, MN. Provision was also made for the costs
  of closing the Companys Alamo office in Minnesota.

Actual costs were US$120 less than expected,
  mainly reflecting the payment of US$90 in termination fees by two Alamo Steakhouse
  and Grill franchisees who opted to terminate their franchise agreements in 2003.

|13. | INCOME TAXES                                                                                                        
|--- | --------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                     
|    | The components of the future income tax benefits at
        December 25, 2005 and December 26, 2004, are as follows:

| |                                                              |   | 2005   |   |   | 2004   |  
| | ------------------------------------------------------------ | - | ------ | - | - | ------ | -
| |                                                              |   |        |   |   |        |  
| | Future income tax benefits                                   |   |        |   |   |        |  
| | Tax benefit of non-capital loss
      carry forwards         | $ | 5,062  |   | $ | 5,057  |  
| | Tax benefit of capital
      loss carry forwards             |   | 1,203  |   |   | 1,141  |  
| | Fixed asset values for tax purposes in excess of book values |   | 1,166  |   |   | 819    |  
| |                                                              |   | 7,431  |   |   | 7,017  |  
| | Valuation allowance                                          |   | (5,332 | ) |   | (4,767 | )
| | Net future income tax benefits                               | $ | 2,099  |   | $ | 2,250  |  

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

| | (i)   | Non-capital losses of approximately US$8,575 which can
        be applied against future income for Canadian tax purposes up to and including
        2011.                             
| | ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |       |                                                                                                                                                                                         
| | (ii)  | Operating losses of approximately US$8,038 which may
        be carried forward to apply against future years' income for United States
        income tax purposes expiring up to 2023.
| |       |                                                                                                                                                                                         
| | (iii) | Net capital losses of approximately US$8,362 which can
        be applied against future capital gains income for Canadian tax purposes
        indefinitely.                           

Reconciliation of income tax provision
  computed at statutory rates to the reported income tax provision:

| |                                                               |   | 2005   |   |   | 2004  |  
| | ------------------------------------------------------------- | - | ------ | - | - | ----- | -
| |                                                               |   |        |   |   |       |  
| | Income tax benefit computed at Canadian statutory
      rates | $ | 1,776  |   | $ | 1,436 |  
| | Temporary differences not recognized in year                  |   | 206    |   |   | (45   | )
| | Recognition of FIT benefit resulting from recognition         |   |        |   |   |       |  
| | of loss carrryforwards                                        |   | (23    | ) |   | (209  | )
| | Recognized (unrecognized) tax losses                          |   | (1,696 | ) |   | (964  | )
| | Foreign exchange                                              |   | (5     | ) |   | (40   | )
| |                                                               | $ | 258    |   | $ | 178   |  

F-27

---

|ELEPHANT & CASTLE GROUP INC.                                                
|----------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                  
|Years Ended December 25, 2005, December 26, 2004 and December
      28, 2003
|(US Dollars)                                                                
|(In Thousand of
      Dollars, Except Share Prices)                         

|14. | RELATED PARTY TRANSACTIONS
|--- | --------------------------
|    |                           
|    | (a)                       
|    |                           
|    | (b)                       
|    |                           
|15. | GEOGRAPHIC SEGMENTED DATA 

| |                                 |   | 2005   |  |   | 2004   |  |   | 2003   | 
| | ------------------------------- | - | ------ |  | - | ------ |  | - | ------ | 
| |                                 |   |        |  |   |        |  |   |        | 
| | Sales to unaffiliated customers |   |        |  |   |        |  |   |        | 
| | Canada                          | $ | 15,149 |  | $ | 13,986 |  | $ | 13,830 | 
| | United States                   |   | 17,896 |  |   | 14,216 |  |   | 12,895 | 
| |                                 |   |        |  |   |        |  |   |        | 
| |                                 | $ | 33,045 |  | $ | 28,202 |  | $ | 26,725 | 
| |                                 |   |        |  |   |        |  |   |        | 
| |                                 |   |        |  |   |        |  |   |        | 
| | Capital assets and other assets |   |        |  |   |        |  |   |        | 
| | Canada                          | $ | 3,357  |  | $ | 4,038  |  | $ | 2,820  | 
| | United States                   |   | 6,745  |  |   | 3,454  |  |   | 4,176  | 
| |                                 |   |        |  |   |        |  |   |        | 
| |                                 | $ | 10,102 |  | $ | 7,492  |  | $ | 6,996  | 

|16. | DIFFERENCES BETWEEN CANADIAN AND UNITED
        STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CANADIAN GAAP AND US
        GAAP)
|--- | -----------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                    
|    | (a)                                                                                                                                
|    |                                                                                                                                    
|    |                                                                                                                                    

F-28

---

|ELEPHANT & CASTLE GROUP INC.                                                
|----------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                  
|Years Ended December 25, 2005, December 26, 2004 and December
      28, 2003
|(US Dollars)                                                                
|(In Thousand of
      Dollars, Except Share Prices)                         

|16. | DIFFERENCES BETWEEN CANADIAN AND UNITED
        STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CANADIAN GAAP AND US
        GAAP) (continued)
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                
|    |                                                                                                                                                
|    |                                                                                                                                                
|    |                                                                                                                                                
|    |                                                                                                                                                
|    |                                                                                                                                                
|    |                                                                                                                                                
|    |                                                                                                                                                

F-29

---

|ELEPHANT & CASTLE GROUP INC.                                                
|----------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                  
|Years Ended December 25, 2005, December 26, 2004 and December
      28, 2003
|(US Dollars)                                                                
|(In Thousand of
      Dollars)                                              

|16. | DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY
        ACCEPTED ACCOUNTING PRINCIPLES (CANADIAN GAAP AND US GAAP) (continued)
|--- | ---------------------------------------------------------------------------------------------------------------------------------------

| | (b) | Reconciliation of total assets, liabilities and shareholders'
        deficit.
| | --- | ------------------------------------------------------------------------------

| |                                                               |   | 2005   |   |   | 2004   |  
| | ------------------------------------------------------------- | - | ------ | - | - | ------ | -
| |                                                               |   |        |   |   |        |  
| | Total assets for Canadian GAAP                                | $ | 14,682 |   | $ | 15,164 |  
| | Adjustments increasing/(decreasing) total assets              |   |        |   |   |        |  
| | Less proportional
      share of assets in San Francisco      |   |        |   |   |        |  
| | joint venture (investment
      under US GAAP)                |   | (166   | ) |   | (211   | )
| | Add investment
      in San Francisco joint ventures          |   |        |   |   |        |  
| | (proportional consolidation
      under CDN GAAP)             |   | 126    |   |   | 177    |  
| | Less pre-opening
      costs (fully amortized for US GAAP)    |   | (191   | ) |   | 0      |  
| | Less additional amortization
      of leasehold improvements  |   |        |   |   |        |  
| | (amortized
      over lease plus first renewal for CDN GAAP)  |   | (160   | ) |   | (378   | )
| | Less deferred finance costs (liability for US GAAP)           |   | (1,837 | ) |   | (1,876 | )
| |                                                               |   |        |   |   |        |  
| | Total assets for
      US GAAP                                | $ | 12,454 |   | $ | 12,876 |  
| |                                                               |   |        |   |   |        |  
| | Total liabilities per Canadian GAAP                           | $ | 20,477 |   | $ | 17,806 |  
| | Adjustments increasing/(decreasing) total liabilities         |   |        |   |   |        |  
| | Less proportional share of
      liabilities in San Francisco |   |        |   |   |        |  
| | joint venture
      (investment under US GAAP)                |   | (40    | ) |   | (34    | )
| | Less deferred finance costs (asset for CDN GAAP)              |   | (1,837 | ) |   | (1,876 | )
| |                                                               |   |        |   |   |        |  
| | Total liabilities
      for US GAAP                           |   | 18,600 |   |   | 15,896 |  
| |                                                               |   |        |   |   |        |  
| | Total deficit for Canadian GAAP                               |   | (5,795 | ) |   | (2,642 | )
| | Adjustments increasing/(decreasing) total (deficit)           |   |        |   |   |        |  
| | Less pre-opening costs (fully
      amortized for US GAAP)    |   | (191   | ) |   | 0      |  
| | Less additional
      amortization of leasehold improvements  |   |        |   |   |        |  
| | (amortized over lease plus first renewal for CDN GAAP)        |   | (160   | ) |   | (378   | )
| |                                                               |   |        |   |   |        |  
| | Total deficit for
      US GAAP                               |   | (6,146 | ) |   | (3,020 | )
| |                                                               |   |        |   |   |        |  
| | Total deficit and
      liabilities for US GAAP               | $ | 12,454 |   | $ | 12,876 |  

For Canadian GAAP purposes, the Company
  uses the proportionate method of consolidation to record its one-third ownership
  stake in the joint venture Elephant & Castle restaurant in San Francisco,
  CA. For US GAAP purposes these amounts would have been recorded as single line
  entries representing income from joint venture and investment in joint venture.
  (2005: Reduces assets and liabilities by $40; 2004: Reduces assets and liabilities
  by $34).

For Canadian GAAP purposes, pre-opening
  costs associated with new store openings are amortized over a period of 12 months
  commencing at date of opening. For US GAAP purposes, such costs are written
  off in full as they are incurred. (2005: Reduces assets and increases shareholders
  deficit by $191; 2004: No impact).

F-30

---

|ELEPHANT & CASTLE GROUP INC.                                                
|----------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                  
|Years Ended December 25, 2005, December 26, 2004 and December
      28, 2003
|(US Dollars)                                                                
|(In Thousands of
      Dollars)                                             

|16. | DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
      ACCOUNTING PRINCIPLES (CANADIAN GAAP AND US GAAP) (continued)
|--- | -------------------------------------------------------------------------------------------------------------------------------------

| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     | Improvements to leased premises and property under capital
        leases are being amortized on a straight-line basis over the term of the
        lease except for locations opened prior to January 1, 1993. Those improvements
        are being amortized on the straight-line method over the term of the lease
        plus the first two renewal options. Under US GAAP, amortization of leasehold
        improvement costs would be restricted to the term of the lease. (2005:
        Reduces assets and increases deficit by $160; 2004: Reduces assets and
        increases deficit by $378).
      For Canadian GAAP purposes, deferred financing costs are
        recorded as an asset which is then amortized over the life of the associated
        instrument. Under US GAAP, such costs are offset against long term debt.
        (2005: Reduces assets and liabilities by $1,837; 2004: Reduces assets
        and liabilities by $1,876).
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | (c) | Reconciliation of earnings (loss) reported in accordance with Canadian
      GAAP and US GAAP:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     | The financial statements under US GAAP for the years ended
      December 26, 2004 and December 28, 2003 have been restated to reflect previously
      undisclosed gains on translation of convertible notes recorded as equity
      for Canadian GAAP purposes but as a liability under US GAAP. The Company
      has restated the 2004 and 2003 financial statements as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

|                                                             | 2005       | 2004      | 2003     
|------------------------------------------------------------ | ---------- | --------- | ---------
|                                                             |            |           |          
|Net income (loss) Canadian GAAP                              | ($3,266)   | ($888)    | $228     
|                                                             |            |           |          
|Adjustments decreasing (increasing) net income
      (loss)  |            |           |          
|Amortization of improvement
      costs*                     | 218        | 6         | (2)      
|Dividend
      on paid-in capital that would be treated      |            |           |          
|as interest under US GAAP                                    | 0          | (333)     | (347)    
|Pre-opening
      costs, expensed under US GAAP              | (191)      | 45        | (45)     
|                                                             |            |           |          
|Net (loss) US GAAP as previously stated                      | (3,239)    | (1,170)   | (166)    
|                                                             |            |           |          
|Restatements decreasing (increasing) net income
      (loss) |            |           |          
|Gain on exchange of junior
      notes                       | 0          | 0         | 201      
|Gain on translation
      of convertible notes               |            |           |          
|using period end rate for
      US GAAP                      | 0          | 860       | 1,023    
|Amortize
      set up costs of junior notes                  | 0          | 0         | (45)     
|                                                             |            |           |          
|Net income (loss) US GAAP as restated                        | ($3,239)   | ($310)    | $1,013   
|                                                             |            |           |          
|Net income (loss) per common share                           |            |           |          
|Canadian GAAP - Basic                                        | ($0.57)    | ($0.17)   | $0.04    
|US GAAP -
      Basic                                        | ($0.56)    | ($0.06)   | $0.20    
|Canadian GAAP - Diluted (note
      2(i))                    |            |           | $0.03    
|US GAAP -
      Diluted (note 2(i))                          |            |           | $0.12    
|                                                             |            |           |          
|Weighted average number of shares outstanding
      - basic  | 5,744,360  | 5,244,507 | 5,163,271
|Average options outstanding                                  | 556,500    | 577,125   | 623,375  
|Average warrants
      outstanding                           | 5,918,812  | 1,980,677 | 2,481,932
|                                                             |            |           |          
|Weighted average number of shares outstanding - diluted      | 12,219,672 | 7,802,309 | 8,268,578

| | * | Under US GAAP, amortization of leasehold improvement
        costs would be restricted to the term of the lease.
| | - | ----------------------------------------------------------------------------------------------------------------

F-31

---

|ELEPHANT & CASTLE GROUP INC.                                                
|----------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                  
|Years Ended December 25, 2005, December 26, 2004 and December
      28, 2003
|(US Dollars)                                                                
|(In Thousand of
      Dollars)                                              

|16. | DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY
        ACCEPTED ACCOUNTING PRINCIPLES (CANADIAN GAAP AND US GAAP) (continued)
|--- | ---------------------------------------------------------------------------------------------------------------------------------------

| | (d) | Statement of cash flows under US GAAP:
| | --- | --------------------------------------

| |                                                        |   | 2005   |   |   | 2004   |   |   | 2003   |  
| | ------------------------------------------------------ | - | ------ | - | - | ------ | - | - | ------ | -
| |                                                        |   |        |   |   |        |   |   |        |  
| | Operating Activities                                   |   |        |   |   |        |   |   |        |  
| | Net income (loss)                                      | $ | (3,239 | ) | $ | (310   | ) | $ | 1,013  |  
| | Operating items not using cash                         |   |        |   |   |        |   |   |        |  
| | Amortization                                           |   | 1,845  |   |   | 1,508  |   |   | 1,585  |  
| | Loss (Gain) on Foreign
      Exchange                  |   | 679    |   |   | (831   | ) |   | (1,903 | )
| | Impairment of Long-Lived Assets                        |   | 181    |   |   | 199    |   |   | 0      |  
| | Non-Cash Interest                                      |   | 1,998  |   |   | 650    |   |   | 608    |  
| | Future Income Tax                                      |   | 170    |   |   | 126    |   |   | 0      |  
| | Other                                                  |   | (568   | ) |   | 991    |   |   | (308   | )
| |                                                        |   |        |   |   |        |   |   |        |  
| | Operating Cash Flow                                    |   | 1,066  |   |   | 2,333  |   |   | 995    |  
| |                                                        |   |        |   |   |        |   |   |        |  
| | Changes in Non-Cash Working Capital                    |   |        |   |   |        |   |   |        |  
| | Accounts receivable                                    |   | (150   | ) |   | (59    | ) |   | (136   | )
| | Inventory                                              |   | (27    | ) |   | (51    | ) |   | 8      |  
| | Deposits and prepaid expenses                          |   | 268    |   |   | (442   | ) |   | 116    |  
| | Accounts payable and accrued liabilities               |   | 201    |   |   | (1,055 | ) |   | 76     |  
| |                                                        |   | 292    |   |   | (1,607 | ) |   | 64     |  
| |                                                        |   |        |   |   |        |   |   |        |  
| | Cash Provided by Operating Activities                  |   | 1,358  |   |   | 726    |   |   | 1,059  |  
| |                                                        |   |        |   |   |        |   |   |        |  
| | Investing Activities                                   |   |        |   |   |        |   |   |        |  
| | Acquisition of property, plant and equipment           |   | (4,495 | ) |   | (560   | ) |   | (277   | )
| | Acquisition of other assets and pre-opening costs      |   | (521   | ) |   | 0      |   |   | (176   | )
| |                                                        |   |        |   |   |        |   |   |        |  
| | Cash Used in Investing Activities                      |   | (5,016 | ) |   | (560   | ) |   | (453   | )
| | Financing Activities                                   |   |        |   |   |        |   |   |        |  
| | Deferred finance charges                               |   | 601    |   |   | (372   | ) |   | 0      |  
| | Repurchase of shares                                   |   | 0      |   |   | 0      |   |   | (150   | )
| | Proceeds from long-term debt                           |   | 0      |   |   | 3,842  |   |   | 0      |  
| | Proceeds from sale of shares                           |   | 71     |   |   | 93     |   |   | 0      |  
| | Repayment of long-term debt                            |   | (31    | ) |   | (154   | ) |   | (488   | )
| |                                                        |   |        |   |   |        |   |   |        |  
| | Cash Provided by (Used in) Financing Activities        |   | 641    |   |   | 3,409  |   |   | (638   | )
| |                                                        |   |        |   |   |        |   |   |        |  
| | Inflow (Outflow) of Cash                               |   | (3,017 | ) |   | 3,575  |   |   | (32    | )
| | Cash, Beginning of Year                                |   | 3,970  |   |   | 395    |   |   | 427    |  
| |                                                        |   |        |   |   |        |   |   |        |  
| | Cash, End of Year                                      | $ | 953    |   | $ | 3,970  |   | $ | 395    |  
| |                                                        |   |        |   |   |        |   |   |        |  
| | Reconcilation to cash flow under CDN GAAP              |   |        |   |   |        |   |   |        |  
| | Cash, End of Year under CDN GAAP                       | $ | 956    |   | $ | 3,981  |   | $ | 410    |  
| | Less proportional share
      of cash in joint venture |   | (3     | ) |   | (11    | ) |   | (15    | )
| | Cash, End of Year under US GAAP                        | $ | 953    |   | $ | 3,970  |   | $ | 395    |  

F-32

---

|ELEPHANT & CASTLE GROUP INC.                                                
|----------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                  
|Years Ended December 25, 2005, December 26, 2004 and December
      28, 2003
|(US Dollars)                                                                
|(In Thousand of
      Dollars)                                              

|16. | DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY
        ACCEPTED ACCOUNTING PRINCIPLES (CANADIAN GAAP AND US GAAP) (continued)
|--- | ---------------------------------------------------------------------------------------------------------------------------------------

| | (e) | Statement of Shareholders Equity (Deficit) under
        US GAAP:
| | --- | ------------------------------------------------------------------

| |                                           |   | 2005    |   |   | 2004    |   |   | 2003    |  
| | ----------------------------------------- | - | ------- | - | - | ------- | - | - | ------- | -
| | Common Shares Issued                      |   |         |   |   |         |   |   |         |  
| | Beginning balance                         | $ | 12,999  |   | $ | 12,829  |   | $ | 12,879  |  
| | Issue of shares                           |   |         |   |   |         |   |   |         |  
| | On renegotiation of debenture interest    |   | 0       |   |   | 59      |   |   | 0       |  
| | For services                              |   | 5       |   |   | 6       |   |   | 11      |  
| | Purchased by Management                   |   | 108     |   |   | 106     |   |   | 0       |  
| | Repurchase and cancellation of shares     |   | 0       |   |   | 0       |   |   | (61     | )
| | Ending balance                            | $ | 13,112  |   | $ | 12,999  |   | $ | 12,829  |  
| | Contributed Surplus                       |   |         |   |   |         |   |   |         |  
| | Beginning balance                         | $ | 1,081   |   | $ | 0       |   | $ | 0       |  
| | For issue of warrants                     |   | 0       |   |   | 1,081   |   |   | 0       |  
| | Ending balance                            | $ | 1,081   |   | $ | 1,081   |   | $ | 0       |  
| | Currency Translation Adjustment           |   |         |   |   |         |   |   |         |  
| | Beginning balance                         | $ | (2,494  | ) | $ | (2,494  | ) | $ | (1,851  | )
| | Deferred gain (loss) incurred during year |   | 0       |   |   | 0       |   |   | (643    | )
| | Ending balance                            | $ | (2,494  | ) | $ | (2,494  | ) | $ | (2,494  | )
| | Deficit                                   |   |         |   |   |         |   |   |         |  
| | Beginning balance                         | $ | (14,606 | ) | $ | (14,296 | ) | $ | (15,225 | )
| | On cancellation of shares                 |   | 0       |   |   | 0       |   |   | (83     | )
| | Net income (loss)                         |   | (3,239  | ) |   | (310    | ) |   | 1,012   |  
| | Ending balance                            | $ | (17,845 | ) | $ | (14,606 | ) | $ | (14,296 | )
| | Total Shareholders' Equity (Deficit)      | $ | (6,146  | ) | $ | (3,020  | ) | $ | (3,961  | )

|17. | SUBSEQUENT EVENTS                                                                                                                                                                                                                                           
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                             
|    | Management share purchases                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                             
|    | On December 31, 2005, in accordance with the agreements
        dated December 17, 2004 (note 6 (c)), Management purchased additional
        Common Shares and Preferred Shares.                                                                           
|    |                                                                                                                                                                                                                                                             
|    | Messrs. Bryant and Laurie purchased a further 1/6 of
        their remaining commitment, in line with the agreement dated December
        17, 2004 (note 6 (c)). Mr. Sexton had already purchased all of his remaining
        commitment on April 4, 2005.
|    |                                                                                                                                                                                                                                                             
|    | Common Shares and Preferred Shares purchased by Management
        on December 31, 2005 were as follows:                                                                                                                                                    

| |              | Amount   | Common    | Preferred | 
| | ------------ | -------- | --------- | --------- | 
| |              | Paid     | Shares    | Shares    | 
| |              | CDN $000 | Purchased | Purchased | 
| |              |          |           |           | 
| | Rick Bryant  | 15       | 39,596    | 27,579    | 
| | Peter Laurie | 6        | 16,498    | 11,491    | 
| |              |          |           |           | 
| |              |          |           |           | 
| |              | 21       | 56,094    | 39,070    | 

F-33

---

SELECTED FINANCIAL INFORMATION

8 quarter selected financial historyUS$000 except per share information which is stated in US$

12 monthsCDN GAAP
      
      
      
      
      Quarter ended:
      
      
      
      
      
      ended12/25/2005
      
      
      9/25/2005
      
      
      6/26/2005
      
      
      3/27/2005
      
      
      12/25/2005Revenue
      $
      9,065
      
      $
      8,927
      
      $
      8,081
      
      $
      6,972
      
      $
      33,045Income (loss) from Restaurant Operations
      $
      1,000
      
      $
      689
      
      $
      831
      
      $
      732
      
      $
      3,252Per share
      $
      0.17
      
      $
      0.12
      
      $
      0.15
      
      $
      0.13
      
      $
      0.57Diluted per share
      $
      0.08
      
      $
      0.06
      
      $
      0.07
      
      $
      0.06
      
      $
      0.27Earnings (loss) before income taxes
      $
      (372
      )
      $
      (1,285
      )
      $
      (594
      )
      $
      (757
      )
      $
      (3,008
      )Per share
      $
      (0.06
      )
      $
      (0.22
      )
      $
      (0.10
      )
      $
      (0.13
      )
      $
      (0.52
      )Diluted per share
      
      n/a
      
      
      n/a
      
      
      n/a
      
      
      n/a
      
      
      n/aNet income (loss)
      $
      (557
      )
      $
      (1,294
      )
      $
      (611
      )
      $
      (804
      )
      $
      (3,266
      )Per share
      $
      (0.10
      )
      $
      (0.22
      )
      $
      (0.11
      )
      $
      (0.14
      )
      $
      (0.57
      )Diluted per share
      
      n/a
      
      
      n/a
      
      
      n/a
      
      
      n/a
      
      
      n/aTotal assets
      $
      14,682
      
      $
      14,623
      
      $
      15,108
      
      $
      14,693
      
      $
      14,682Shareholders' equity (deficit)
      $
      (5,795
      )
      $
      (5,260
      )
      $
      (3,994
      )
      $
      (3,440
      )
      $
      (5,795
      )Long term debt
      $
      17,347
      
      $
      16,470
      
      $
      15,687
      
      $
      15,533
      
      $
      17,347Cash dividend per share
      $
      -
      
      $
      -
      
      $
      -
      
      $
      -
      
      $
      -


-53-

---

Elephant & Castle Group Inc.US$000 except per share information which is stated in US$

12 monthsCDN GAAP
      
      
      
      
      Quarter ended:
      
      
      
      
      
      ended12/26/2004
      
      
      9/26/2004
      
      
      6/27/2004
      
      
      3/28/2004
      
      
      12/26/2004Revenue
      $
      7,499
      
      $
      7,294
      
      $
      6,782
      
      $
      6,627
      
      $
      28,202Income (loss) from Restaurant Operations
      $
      964
      
      $
      785
      
      $
      459
      
      $
      511
      
      $
      2,719Per share
      $
      0.18
      
      $
      0.15
      
      $
      0.09
      
      $
      0.10
      
      $
      0.52Diluted per share
      $
      0.12
      
      $
      0.10
      
      $
      0.06
      
      $
      0.07
      
      $
      0.35Earnings (loss) before income taxes
      $
      (66
      )
      $
      (27
      )
      $
      (336
      )
      $
      (281
      )
      $
      (710
      )Per share
      $
      (0.01
      )
      $
      (0.01
      )
      $
      (0.06
      )
      $
      (0.05
      )
      $
      (0.14
      )Diluted per share
      
      n/a
      
      
      n/a
      
      
      n/a
      
      
      n/a
      
      
      n/aNet income (loss)
      $
      (202
      )
      $
      (35
      )
      $
      (353
      )
      $
      (298
      )
      $
      (888
      )Per share
      $
      (0.04
      )
      $
      (0.01
      )
      $
      (0.07
      )
      $
      (0.06
      )
      $
      (0.17
      )Diluted per share
      
      n/a
      
      
      n/a
      
      
      n/a
      
      
      n/a
      
      
      n/aTotal assets
      $
      15,164
      
      $
      9,768
      
      $
      9,713
      
      $
      10,098
      
      $
      15,164Shareholders' equity (deficit)
      $
      (2,642
      )
      $
      1,819
      
      $
      1,855
      
      $
      2,208
      
      $
      (2,642
      )Long term debt
      $
      15,262
      
      $
      4,633
      
      $
      4,683
      
      $
      4,734
      
      $
      15,262Cash dividend per share
      $
      -
      
      $
      -
      
      $
      -
      
      $
      -
      
      $
      -


-54-

---

8 quarter selected financial historyUS$000 except per share information which is stated in US$

12 monthsUS GAAP
      
      
      
      
      Quarter ended:
      
      
      
      
      
      ended12/25/2005
      
      
      9/25/2005
      
      
      6/26/2005
      
      
      3/27/2005
      
      
      12/25/2005Revenue
      $
      8,893
      
      $
      8,767
      
      $
      7,943
      
      $
      6,828
      
      $
      32,431Income (loss) from Restaurant Operations
      $
      1,353
      
      $
      741
      
      $
      546
      
      $
      632
      
      $
      3,272Per share
      $
      0.23
      
      $
      0.13
      
      $
      0.10
      
      $
      0.11
      
      $
      0.57Diluted per share
      $
      0.11
      
      $
      0.06
      
      $
      0.04
      
      $
      0.05
      
      $
      0.27Earnings (loss) before income taxes
      $
      (31
      )
      $
      (1,211
      )
      $
      (883
      )
      $
      (856
      )
      $
      (2,981
      )Per share
      $
      (0.01
      )
      $
      (0.21
      )
      $
      (0.15
      )
      $
      (0.15
      )
      $
      (0.52
      )Diluted per share
      
      n/a
      
      
      n/a
      
      
      n/a
      
      
      n/a
      
      
      n/aNet income (loss)
      $
      (216
      )
      $
      (1,219
      )
      $
      (900
      )
      $
      (903
      )
      $
      (3,239
      )Per share
      $
      (0.04
      )
      $
      (0.21
      )
      $
      (0.16
      )
      $
      (0.16
      )
      $
      (0.56
      )Diluted per share
      
      n/a
      
      
      n/a
      
      
      n/a
      
      
      n/a
      
      
      n/aTotal assets
      $
      12,453
      
      $
      11,913
      
      $
      12,396
      
      $
      12,327
      
      $
      12,454Shareholders' equity (deficit)
      $
      (6,146
      )
      $
      (5,944
      )
      $
      (4,760
      )
      $
      (3,917
      )
      $
      (6,146
      )Long term debt
      $
      15,510
      
      $
      14,492
      
      $
      13,777
      
      $
      13,646
      
      $
      15,510Cash dividend per share
      $
      -
      
      $
      -
      
      $
      -
      
      $
      -
      
      $
      -


Elephant & Castle Group Inc.US$000 except per share information which is stated in US$

12 monthsUS GAAP
      
      
      
      
      Quarter ended:
      
      
      
      
      
      ended12/26/2004
      
      
      9/26/2004
      
      
      6/27/2004
      
      
      3/28/2004
      
      
      12/26/2004Revenue
      $
      7,339
      
      $
      7,151
      
      $
      6,632
      
      $
      6,493
      
      $
      27,615Income (loss) from Restaurant Operations
      $
      952
      
      $
      775
      
      $
      459
      
      $
      557
      
      $
      2,744Per share
      $
      0.18
      
      $
      0.15
      
      $
      0.09
      
      $
      0.11
      
      $
      0.52Diluted per share
      $
      0.12
      
      $
      0.10
      
      $
      0.06
      
      $
      0.07
      
      $
      0.35Earnings (loss) before income taxes
      $
      706
      
      $
      (112
      )
      $
      (412
      )
      $
      (314
      )
      $
      (132
      )Per share
      $
      0.13
      
      $
      (0.02
      )
      $
      (0.08
      )
      $
      (0.06
      )
      $
      (0.03
      )Diluted per share
      $
      0.09
      
      
      n/a
      
      
      n/a
      
      
      n/a
      
      
      n/aNet income (loss)
      $
      570
      
      $
      (120
      )
      $
      (429
      )
      $
      (331
      )
      $
      (310
      )Per share
      $
      0.11
      
      $
      (0.02
      )
      $
      (0.08
      )
      $
      (0.06
      )
      $
      (0.06
      )Diluted per share
      $
      0.07
      
      
      n/a
      
      
      n/a
      
      
      n/a
      
      
      n/aTotal assets
      $
      12,876
      
      $
      9,229
      
      $
      9,240
      
      $
      9,656
      
      $
      12,876Shareholders' equity (deficit)
      $
      (3,020
      )
      $
      (5,002
      )
      $
      (4,870
      )
      $
      (4,445
      )
      $
      (3,020
      )Long term debt
      $
      13,386
      
      $
      10,262
      
      $
      10,284
      
      $
      10,279
      
      $
      13,386Cash dividend per share
      $
      -
      
      $
      -
      
      $
      -
      
      $
      -
      
      $
      -


-55-

---

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

Not applicable.

ITEM 9A. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures.As of the end of the
  period covered by this report, the Company carried out an evaluation, under
  the supervision and with the participation of management, including the Chief
  Executive Officer (CEO) and the Vice President, Finance and Chief
  Financial Officer (CFO), of the effectiveness of the design and
  operation of the Companys disclosure controls and procedures as defined
  in Rules 13a-15(e) of the Securities Exchange Act of 1934, as amended (the Exchange
  Act). Based on that evaluation, the CEO and the CFO have concluded that
  the Companys disclosure controls and procedures were effective as of December
  25, 2005 in timely alerting them to the material information relating to the
  Company (or its consolidated subsidiaries) required to be in the Companys
  periodic reports filed with the SEC. Because of the inherent limitations in
  all control systems, no evaluation of controls can provide absolute assurance
  that the Companys disclosure controls and procedures will detect or uncover
  every situation involving the failure of persons within the Company to disclose
  material information otherwise required to be set forth in our periodic reports.

Internal Control over Financial Reporting.Management
  is responsible for establishing and maintaining adequate internal controls over
  financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange
  Act). The Companys internal controls over financial reporting is a process
  designed under the supervision of the CEO and the CFO to provide reasonable
  assurance regarding the reliability of financial reporting and the preparation
  of the Companys financial statements for external reporting purposes.
  We are reporting a control weakness in the Companys US GAAP reporting
  of foreign exchange gains and losses related to complex funding transactions.
  This weakness related specifically to the Company not maintaining sufficient
  resources in its accounting function to accurately identify, evaluate and report
  in a timely manner non-routine and complex transactions under US GAAP. Neither
  did the Company seek independent expert guidance in the proper recording of
  such transactions. This control weakness led to errors in the Companys
  reporting of gains and losses on foreign exchange under US GAAP in its Form
  10-K for the year ended December 26, 2004. Upon identification of this control
  weakness, immediate corrective action was taken as follows:

| | (a) | Where necessary, the Company will retain outside experts
        to supplement its core knowledge of the
| | --- | --------------------------------------------------------------------------------------------------------

-56-

---

| |     | differences between US GAAP and Canadian GAAP in relation
        to complex transactions.                                                                                                                                                                              
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                         
| | (b) | The Company has enhanced the detail contained in the
        reporting of its financial results under US GAAP and of the reconciling
        items between its results under Canadian GAAP and its results under US
        GAAP to ensure greater clarity in this area.

Changes in Internal Control over Financial Reporting.Other
  than as noted above, during the year ended December 25, 2005, no change in the
  Companys internal controls over financial reporting (as such term is defined
  in Rules 13a-15(f) under the Exchange Act) occurred that has materially affected
  or is reasonably likely to materially affect, the Companys internal controls
  over financial reporting.

The assessment report of management due in respect of this item
  is not required of non-accelerated filers prior to fiscal years ending on or
  after July 15, 2007.

ITEM 9B. OTHER INFORMATION

None.

-57-

---

PART III

****The
  information required by PART III is incorporated by reference from Registrants
  joint proxy and information statement, provided such statement is filed not
  later than 120 days after the end of the fiscal year covered by the Form 10-K,
  or by an amendment to the Form 10-K, not later than the end of such 120-day
  period.

-58-

---

PART IV

ITEM 15.            EXHIBITS,
  FINANCIAL STATEMENT SCHEDULES

| | (a) |    
| | --- | ---
| |     |    
| |     | (1)
| |     |    
| |     |    
| |     |    
| |     |    
| |     |    
| |     |    
| |     |    
| |     |    
| |     |    
| |     |    
| |     |    
| |     |    
| |     |    
| |     |    
| |     |    
| |     |    
| |     |    
| |     | (2)
| |     |    
| |     |    
| |     |    
| |     | (3)

The following exhibits are filed herewith:

|Exhibit | **Exhibit**                                                                                                                                         
|------- | ----------------------------------------------------------------------------------------------------------------------------------------------------
|No.     |                                                                                                                                                     
|3.1     | Certificate of Incorporation
        and Certificate of Name Change of Registrant (1)                                                               
|3.2     | Articles of Association of Registrant
        (1)                                                                                                   
|3.3     | Certificate of Amalgamation,
        dated May 1, 1990 (1)                                                                                          
|4.1     | Specimen of Common Share Certificate(1)                                                                                                             
|4.2     | Form of Convertible Subordinated
        Note issued in Delphi Financing(5)                                                                         
|4.3     | Form of Warrant issued to Delphi
        Noteholders(5)                                                                                             
|4.4     | Special Rights and Restrictions
        Attached to Preferred Shares, Series A (10)                                                                 
|10.1    | Letter Agreement dated June 26,
        1991, regarding expansion of facilities at Edmonton Eaton Centre (1)                                        
|10.2    | Restaurant Lease Agreement with
        Holiday Inns of Canada, Ltd. with respect to Holiday Inn Crown Plaza in
        Winnipeg, Manitoba (2)      
|10.3    | Restaurant Lease Agreement with
        respect to Holiday Inn, Philadelphia, Pennsylvania location (3)                                             
|10.4    | Abstract of Restaurant Lease
        Agreement with respect to Holiday Inn, San Diego location(4)                                                   
|10.5    | Abstract of Lease Agreement of
        Elephant & Castle Group Inc. with respect to Edmonton, Alberta location
        (5)                          
|10.6    | Form of Franchise Agreement for
        Elephant & Castle Group Inc. (6)                                                                            
|10.7    | Abstract of Lease Agreement of
        Elephant & Castle Group, Inc. with respect to Chicago, Illinois location
        (7)                         
|10.8    | Operating Agreement of BC Restaurants,
        LLC dated January 3, 2003 (8)                                                                        
|10.9    | Member Control Agreement of BC
        Restaurants, LLC dated January 3, 2003 (8)                                                                   
|10.10   | Management Agreement dated January
        3, 2003 between E & C San Francisco, LLC and BC Restaurants, LLC (8)                                     
|10.11   | License Agreement dated January
        3, 2003 between Elephant & Castle International, Inc. and BC Restaurants,
        LLC (8)                   
|10.12   | Franchising and Development Agreement
        dated January 3, 2003 between Elephant & Castle International, Inc.
        and Battery & Clay, LLC(8)
|10.13   | Abstract of Lease Agreement of
        Elephant & Castle Group, Inc. with respect to San Francisco, California
        location (8)                 
|10.14   | Abstract of Lease Agreement of
        Elephant & Castle Group, Inc. with respect to Washington, D.C. location
        (9)                          
|10.15   | Abstract of Lease Agreement of
        Elephant & Castle Group, Inc. with respect to East Huron Street, Illinois
        location (9)               

-59-

---

|10.16 | Amended and Restated Note and Stock Purchase Agreement
        dated December 17, 2004 by and between the Company and GE Investment Private
        Placement Partners II (10)                                                                                                                                                                                                                                                                                                                                                                           
|----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.17 | Credit Agreement dated as of December 17, 2004 by and
        among the Company, Elephant and Castle Canada Inc., Elephant & Castle,
        Inc., Elephant & Castle of Pennsylvania, Inc., E&C Pub, Inc.,
        Massachusetts Elephant & Castle Group, Inc., Elephant & Castle
        International, Inc., Elephant & Castle (Chicago) Corporation, Elephant
        & Castle East Huron, LLC, E&C San Francisco, LLC and E&C Capital,
        LLC and Crown Life Insurance Company (10)                                                             
|10.18 | Investment Agreement dated December 17, 2004 by and
        among the Company, GE Investment Private Placement Partners II, Crown
        Life Insurance Company, Richard H. Bryant, Roger Sexton and Peter Laurie
        (10)                                                                                                                                                                                                                                                                                                                          
|10.19 | Inter-Creditor Agreement dated as of December 17, 2004
        by and among the Company, Elephant and Castle Canada Inc., Elephant &
        Castle, Inc., Elephant & Castle of Pennsylvania, Inc., E&C Pub,
        Inc., Massachusetts Elephant & Castle Group, Inc., Elephant &
        Castle International, Inc., Elephant & Castle (Chicago) Corporation,
        Elephant & Castle East Huron, LLC, E&C San Francisco, LLC and
        E&C Capital, LLC, GE Investment Private Placement Partners II and
        Crown Life Insurance Company (10)
|10.20 | Inter-Shareholder Agreement dated as of December 17,
        2004 by and among the Company, GE Investment Private Placement Partners
        II, Crown Life Insurance Company, Richard H. Bryant, Roger Sexton and
        Peter Laurie (10)                                                                                                                                                                                                                                                                                                             
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|21.1  | List of Subsidiaries                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|31.1  | Section 302 Certification
        of Chief Executive Officer  March 31, 2006                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|31.2  | Section 302 Certification
        of Chief Financial Officer  March 31, 2006                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|32.1  | Section 906 Certification
        of Chief Executive Officer  March 31, 2006                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|32.2  | Section 906 Certification
        of Chief Financial Officer  March 31, 2006                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

*
      Indicates management contract
          or compensatory plan or arrangement.(1)
      Incorporated by reference
          from the Exhibits filed with the Companys Registration Statement
          on Form SB-2 (Registration No. 33-60612)(2)
      Incorporated by reference
          from Registrants 10-KSB for the Fiscal Year Ended December 31,
          1993(3)
      Incorporated by reference
          from Registrants 10-KSB for the Fiscal Year Ended December 31,
          1994(4)
      Incorporated by reference
          from Registrants 10-KSB/A for the Fiscal Year Ended December 31,
          1996(5)
      Incorporated by reference
          from Registrants 10-KSB for the Fiscal Year Ended December 27,1998(6)
      Incorporated by reference
          from Registrants 10-K for the Fiscal Year Ended December 26, 1999(7)
      Incorporated by reference
          from Registrants 10-K for the Fiscal Year Ended December 31, 2000


-60-

---

|(8)  | Incorporated by reference from Registrants 10-K
        for the Fiscal Year Ended December 29, 2002    
|---- | --------------------------------------------------------------------------------------------------------
|     |                                                                                                         
|(9)  | Incorporated by reference from the Registrants
        10-K for the Fiscal Year Ended December 26, 2004
|     |                                                                                                         
|(10) | Incorporated by reference from the Registrants
        Form 8-K dated December 23, 2004                

-61-

---

SIGNATURES

Pursuant
  to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
  1934, the Registrant has duly caused this report to be signed on its behalf
  by the undersigned, thereunto duly authorized.

(Registrant) Elephant & Castle Group Inc.

By
      /s/ Richard BryantRichard Bryant,Chairman,ChiefExecutiveOfficer and
        a DirectorDate
      March 31, 2006


Pursuant
  to the requirements of the Securities Exchange Act of 1934, 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/ Richard Bryant                    | 
|     | Richard Bryant, Chairman,             | 
|     | ChiefExecutive Officer and a Director | 
|Date | March 31, 2006                        | 
|     |                                       | 
|By   | /s/ Roger Sexton                      | 
|     | RogerSexton, Vice President, Finance  | 
|     | and ChiefFinancial Officer            | 
|Date | March 31, 2006                        | 
|     |                                       | 
|By   | /s/ Jeffrey Barnett                   | 
|     | Jeffrey Barnett, Director             | 
|Date | March 31, 2006                        | 
|     |                                       | 
|By   | /s/ George Pitman                     | 
|     | George W.Pitman, Director             | 
|Date | March 31, 2006                        | 
|     |                                       | 
|By   | /s/ David Wiederecht                  | 
|     | DavidWiederecht, Director             | 
|Date | March 31, 2006                        | 

-62-

---

|By   | /s/ Colin Stacey               | 
|---- | ------------------------------ | 
|     | ColinStacey, Director          | 
|Date | March 23, 2006                 | 
|     |                                | 
|By   | /s/ Richard Kelleher           | 
|     | Richard Kelleher, Director     | 
|Date | March 23, 2006                 | 
|     |                                | 
|By   | /s/ Thomas Chambers            | 
|     | Thomas Chambers, Director      | 
|Date | March 23, 2006                 | 
|     |                                | 
|By   | /s/ Christopher Anderson       | 
|     | Christopher Anderson, Director | 
|Date | March 23, 2006                 | 

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INDEX TO EXHIBITS

|Exhibit | **Exhibit**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|No.     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|3.1     | Certificate of Incorporation
        and Certificate of Name Change of Registrant (1)                                                                                                                                                                                                                                                                                                                                                                                                       
|
|3.2     | Articles of Association of Registrant
        (1)                                                                                                                                                                                                                                                                                                                                                                                                                                           
|3.3     | Certificate of Amalgamation,
        dated May 1, 1990 (1)                                                                                                                                                                                                                                                                                                                                                                                                                                  
|4.1     | Specimen of Common Share Certificate(1)                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|4.2     | Form of Convertible Subordinated
        Note issued in Delphi Financing(5)                                                                                                                                                                                                                                                                                                                                                                                                                 
|4.3     | Form of Warrant issued to Delphi
        Noteholders(5)                                                                                                                                                                                                                                                                                                                                                                                                                                     
|4.4     | Special Rights and
        Restrictions Attached to Preferred Shares, Series A (10)                                                                                                                                                                                                                                                                                                                                                                                                         
|
|10.1    | Letter
        Agreement dated June 26, 1991, regarding expansion of facilities at Edmonton
        Eaton Centre (1)                                                                                                                                                                                                                                                                                                                                                                        
|
|10.2    | Restaurant Lease Agreement
        with Holiday Inns of Canada, Ltd. with respect to Holiday Inn Crown Plaza
        in Winnipeg, Manitoba (2)                                                                                                                                                                                                                                                                                                                                              
|
|10.3    | Restaurant Lease Agreement
        with respect to Holiday Inn, Philadelphia, Pennsylvania location (3)                                                                                                                                                                                                                                                                                                                                                                                     
|
|10.4    | Abstract of Restaurant
        Lease Agreement with respect to Holiday Inn, San Diego location(4)                                                                                                                                                                                                                                                                                                                                                                                           
|
|10.5    | Abstract of Lease Agreement
        of Elephant & Castle Group Inc. with respect to Edmonton, Alberta
        location (5)                                                                                                                                                                                                                                                                                                                                                                  
|
|10.6    | Form of Franchise Agreement for
        Elephant & Castle Group Inc. (6)                                                                                                                                                                                                                                                                                                                                                                                                                    
|10.7    | Abstract of Lease Agreement
        of Elephant & Castle Group, Inc. with respect to Chicago, Illinois
        location (7)                                                                                                                                                                                                                                                                                                                                                                 
|
|10.8    | Operating Agreement of BC Restaurants,
        LLC dated January 3, 2003 (8)                                                                                                                                                                                                                                                                                                                                                                                                                
|10.9    | Member Control Agreement
        of BC Restaurants, LLC dated January 3, 2003 (8)                                                                                                                                                                                                                                                                                                                                                                                                           
|
|10.10   | Management Agreement
        dated January 3, 2003 between E & C San Francisco, LLC and BC Restaurants,
        LLC (8)                                                                                                                                                                                                                                                                                                                                                                     
|
|10.11   | License Agreement dated
        January 3, 2003 between Elephant & Castle International, Inc. and
        BC Restaurants, LLC (8)                                                                                                                                                                                                                                                                                                                                                           
|
|10.12   | Franchising and Development
        Agreement dated January 3, 2003 between Elephant & Castle International,
        Inc. and Battery & Clay, LLC(8)                                                                                                                                                                                                                                                                                                                                        
|
|10.13   | Abstract of Lease Agreement
        of Elephant & Castle Group, Inc. with respect to San Francisco, California
        location (8)                                                                                                                                                                                                                                                                                                                                                         
|
|10.14   | Abstract of Lease Agreement
        of Elephant & Castle Group, Inc. with respect to Washington, D.C.
        location (9)                                                                                                                                                                                                                                                                                                                                                                  
|
|10.15   | Abstract of Lease Agreement
        of Elephant & Castle Group, Inc. with respect to East Huron Street,
        Illinois location (9)                                                                                                                                                                                                                                                                                                                                                       
|
|10.16   | Amended and Restated
        Note and Stock Purchase Agreement dated December 17, 2004 by and between
        the Company and GE Investment Private Placement Partners II (10)                                                                                                                                                                                                                                                                                                              
|
|
|10.17   | Credit Agreement dated
        as of December 17, 2004 by and among the Company, Elephant and Castle
        Canada Inc., Elephant & Castle, Inc., Elephant & Castle of Pennsylvania,
        Inc., E&C Pub, Inc., Massachusetts Elephant & Castle Group, Inc.,
        Elephant & Castle International, Inc., Elephant & Castle (Chicago)
        Corporation, Elephant & Castle East Huron, LLC, E&C San Francisco,
        LLC and E&C Capital, LLC and Crown Life Insurance Company (10)
|
|
|
|
|
|
|10.18   | Investment Agreement
        dated December 17, 2004 by and among the Company, GE Investment Private
        Placement Partners II, Crown Life Insurance Company, Richard H. Bryant,
        Roger Sexton and Peter Laurie (10)                                                                                                                                                                                                                                                             
|
|

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|10.19 | Inter-Creditor Agreement dated as of December 17, 2004
        by and among the Company, Elephant and Castle Canada Inc., Elephant &
        Castle, Inc., Elephant & Castle of Pennsylvania, Inc., E&C Pub,
        Inc., Massachusetts Elephant & Castle Group, Inc., Elephant &
        Castle International, Inc., Elephant & Castle (Chicago) Corporation,
        Elephant & Castle East Huron, LLC, E&C San Francisco, LLC and
        E&C Capital, LLC, GE Investment Private Placement Partners II and
        Crown Life Insurance Company (10)
|----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|10.20 | Inter-Shareholder Agreement dated as of December 17,
        2004 by and among the Company, GE Investment Private Placement Partners
        II, Crown Life Insurance Company, Richard H. Bryant, Roger Sexton and
        Peter Laurie (10)                                                                                                                                                                                                                                                                                                             
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|21.1  | List of Subsidiaries                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|31.1  | Section 302 Certification
        of Chief Executive Officer  March 31, 2006                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|31.2  | Section 302 Certification
        of Chief Financial Officer  March 31, 2006                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|32.1  | Section 906 Certification
        of Chief Executive Officer  March 31, 2006                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|32.2  | Section 906 Certification
        of Chief Financial Officer  March 31, 2006                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

*
      Indicates management contract or compensatory
        plan or arrangement.(1)
      Incorporated by reference
          from the Exhibits filed with the Companys Registration Statement
          on Form SB-2 (Registration No. 33-60612)(2)
      Incorporated by reference
          from Registrants 10-KSB for the Fiscal Year Ended December 31,
          1993(3)
      Incorporated by reference
          from Registrants 10-KSB for the Fiscal Year Ended December 31,
          1994(4)
      Incorporated by reference
          from Registrants 10-KSB/A for the Fiscal Year Ended December 31,
          1996(5)
      Incorporated by reference
          from Registrants 10-KSB for the Fiscal Year Ended December 27,1998(6)
      Incorporated by reference
          from Registrants 10-K for the Fiscal Year Ended December 26, 1999(7)
      Incorporated by reference
          from Registrants 10-K for the Fiscal Year Ended December 31, 2000(8)
      Incorporated by reference
          from Registrants 10-K for the Fiscal Year Ended December 29, 2002(9)
      Incorporated by reference
          from the Registrants 10-K for the Fiscal Year Ended December 26,
          2004(10)
      Incorporated by
          reference from the Registrants Form 8-K dated December 23, 2004


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