SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                   Form 10-K/A
                                 Amendment No. 1

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

                   For the Fiscal Year Ended December 27, 1998
                           Commission File No. 1-12134
                              Cusip No. 286199-10-4

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


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

856 Homer Street
Vancouver, B.C. CANADA                              V6B 2W5
----------------------------                        -------

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

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

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

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of Registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.[ ]
<PAGE>
Issuer's   revenues  during  the  fiscal  year  ended  December  27,  1998:  CDN
$42,630,000 (converts at applicable exchange rates to U.S. $29,532,000).

Aggregate market value of voting stock held by  non-affiliates of the Registrant
as at March 23, 1999: U.S. $3,821,000 (CDN $5,731,000).

Number of shares  outstanding of Issuer's  Common Stock as of December 27, 1998:
3,321,334.

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

         None.

Securities registered pursuant to Section 12(g) of the Act:
<TABLE>
<CAPTION>
                                            NASDAQ                Number of
      Title of Each Class                   Symbol            Shares Outstanding
----------------------------------          ------            ------------------
<S>                                         <C>               <C>         
Common Stock, $.01 par value                PUBSF             3,321,334(a)

(a)Calculated as of March 23, 1999.
</TABLE>

Forward-Looking Statements

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

a.       General

         As of the date of this report,  the Company currently  operates a chain
of 22 full-service  casual dining  restaurants and pubs, 15 of which are located
in Canada and 7 of which are located in the United States.

         The majority of the  Registrant's  restaurants  are operated  under the
name "Elephant & Castle", an English pub concept. The Elephant & Castle units in
the United States include a unit added in late 1998 in a "twinning" concept with
an Alamo  Restaurant in Franklin Mills, a mall location outside of Philadelphia,
Pennsylvania. See discussion of Alamo Restaurants below.

         The  Company  is also a  joint  venture  partner  with,  and  exclusive
licensee  of,  Rainforest  Cafe,  Inc.  (NASDAQ:  RAIN) for the  development  of
Rainforest  restaurants  in Canada  through  a joint  venture  entity,  Canadian
Rainforest  Restaurants,   Inc.  (ACRRI@).   CRRI's  first  Canadian  Rainforest
restaurant  opened  in June of 1998 in  Vancouver,  B.C.  The  second  opened in
Scarborough  (Toronto) Canada, in early 1999, and a third is expected to open at
Yorkdale, also in the Toronto, Canada vicinity,  later this year. The Company is
contractually  committed to open 5 Rainforest Cafes in Canada by March 2001. The
Company's  continuing  revenues  from its  interest in the  Canadian  Rainforest
restaurants  will  constitute a  significant  part of the  Company's  continuing
revenues.  The existing CRRI restaurants are profitable,  and are anticipated to
be profitable in the foreseeable future.  Martin O'Dowd,  formerly the President
and Chief Operating  Officer of Rainforest Cafe, Inc.,  became the President and
Chief Executive  Officer of Elephant & Castle Group Inc. in March of 1998, after
joining the Company as President of U.S. Operations in mid-1997.

         In addition,  the Company  owns and operates an "Alamo  Grill" red meat
steakhouse at the Mall of America,  Bloomington,  Minnesota.  In late 1998,  the
Company opened its first paired Elephant & Castle and Alamo  Restaurant units in
Franklin Mills,  Pennsylvania in a new "twinning"  arrangement  (side-by-side or
back-to-back). The Company intends to expand its chain of Alamo Grill steakhouse
restaurants.

         Finally,  the Elephant & Castle English Pub concept has been franchised
for the first time, in the United States,  and it is the Company's  intention in
the future to similarly  franchise Alamo Grill on a selective  basis.  There are
thus three focal  points for the current and future  operations  of the Company,
[i] owned and  operated  pub and casual  dining  restaurants  both in the United
States and Canada;  [ii] licensed owned and operated,  and possibly  sublicensed
Canadian Rainforest  restaurants;  and [iii] prospective franchising activities,
relating to both  Elephant & Castle and Alamo.  The Company also would  consider
opportunities  to manage other U.S. based brands in the Canadian  market,  while
positioning  itself to expand  Elephant & Castle and other developed or acquired
brands in United States market.
<PAGE>
         Prior to the initial  public  offering of the  Company's  securities in
June of 1993,  the  Company  operated 12 pub  restaurants,  all located in major
shopping malls and office complexes from Victoria,  B.C. to Ottawa, Ontario, and
only one of which was located in the U.S., at Bellis Fair,  Washington  near the
Canadian  border.  The  shift  of  focus  to more  U.S.  based  locations  is in
accordance with the Company's  previously  announced  intentions with respect to
restaurant  locations.  In addition,  the Company has moved its pub  restaurants
from a previous concentration in mall locations into major hotels and other high
traffic  urban  locations.  The Company  intends to continue  to  diversify  its
portfolio of multi-brand  restaurant offerings in the casual restaurant segment,
to stand-alone  urban,  hotel-based and select mall locations.  The diversity of
the  concepts as well as the  diversity of locations is intended to maximize the
Company's opportunities with the broadest band of consumers in the casual dining
segment.

         1998 Results of Operations

         During  1998,  the  Company   opened  its  first  Canadian   Rainforest
restaurant in Vancouver,  British Columbia,  and made current plans for at least
three  additional  Canadian  Rainforest  restaurants,  one of which has now been
opened  (Scarborough,  Toronto) and one of which is scheduled to open later this
year. The Company also opened its first "twin" concept restaurants, one Elephant
& Castle  and one  Alamo  Grill,  side-by-side,  with a single  kitchen,  at the
Franklin Mall, outside of Philadelphia, Pennsylvania.

         In 1998, the Company's sales  increased  24.5% to CDN $42,630,000  from
CDN  $34,231,000  for the  comparable  period in 1997.  The sales  increase  was
achieved due to the opening of the first  Canadian  Rainforest  restaurant,  the
operation for the full year of three  locations  initially  opened in the second
half of 1997, and the closing of two lower volume restaurants.  See Management's
Discussion and Analysis, Item 7 hereinafter.

         During the fiscal year ended December 27, 1998, the Company  incurred a
net  loss of CDN  $929,000  compared  to a net  loss of CDN  $1,416,000  for the
corresponding  period  in 1997.  The 1997  figure  include  expenditures  of CDN
$677,000  in  restaurant  closing  costs  and a  senior  executive's  retirement
allowance.

         1998 results of operations  therefore  reflect continued losses despite
strong  growth in income from  restaurant  operations.  Income  from  restaurant
operations,  at CDN  $3,769,000  was up over 100% from 1997,  and increased as a
percentage  of sales  from 5.5% in 1997 to 8.8% in 1998.  However,  general  and
administrative expenses increased from 7.2% of sales in 1997 to 8.5% of sales in
1998,  due in part to  additions to corporate  management  and costs  related to
expansion. The Registrant has recently instituted  administrative cost reduction
steps intended to reduce its general expense  percentage over the medium term to
below 7% as additional revenues are added from new stores. In addition, interest
on long term debt  increased to CDN $1,084,000 in 1998 from CDN $504,000 in 1997
due to increased  borrowings,  higher interest cost and  translation  adjustment
factors. Same store sales growth of 3% in Canadian stores, coupled with improved
operating and occupancy  cost ratios,  contributed  to the growth in income from
restaurant  operations.  These  were  offset  by less than  projected  operating
margins at certain of the  Company's  newer  restaurants,  significantly  higher
general and administrative costs required to support the Company's expansion and
higher interest costs on capital borrowed for that growth.
<PAGE>
         Occupancy and other operating  costs  continued to decline.  Management
believes that the Canadian Rainforest restaurant opportunity,  together with the
contemplated  disposition  of certain  older  restaurant  locations  with higher
occupancy costs, will enable the Company to continue to reduce total costs, as a
percentage of sales,  significantly.  The Company's  development  plans however,
continue to be  constrained  by capital  limitations.  In February of 1999,  the
Company   completed  a  private   placement   financing  with  Delphi  Financial
Corporation (ADelphi Financing@).

Financings

         GEIPPP II Financing. In December of 1995, the Company completed a major
financing  with a prominent  U.S.  private  limited  partnership  money manager,
General Electric  Investment  Private Placement  Partners II ("GEIPPP II"). That
financing  initially  added U.S.  $1,000,000  (CDN  $1,370,000) in equity before
issue costs and U.S.  $3,000,000 (CDN  $4,500,000) in  subordinated  convertible
notes to the Company's long term debt structure. Subsequently, in three separate
installments,   the  Company   borrowed  an  additional  U.S.   $6,000,000  (CDN
$9,000,000) from GEIPPP II, prior to the transactions  described below under the
heading Delphi financing. The Company is considering granting a security interst
on  certain  of its  assets  to GEIPPP II in  exchange  for a waiver of  certain
interest payments.

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

         The Company also has a right for optional redemption of the 99 Notes at
100% of par,  plus  accrued  and unpaid  interest,  from time to time during the
period that the '99 Notes are  outstanding if the market price for the Company's
Common  Shares equals or exceeds 150% of the  conversion  price for fifteen (15)
consecutive  trading days, under certain  circumstances.  Each of the holders of
the '99 Notes also  receive  one-year  warrants  to  purchase a equal  number of
Common  Shares.  The  Warrants  are  exercisable  at $3.00 per share.  GEIPPP II
participated in the Delphi Financing,  and purchased U.S. $2,000,000  additional
of the '99 Notes.

         The  additional  financings  described  under  GEIPPP II and the Delphi
transactions  together have a significant  dilutive effect on the existing debt,
warrant and option instruments outstanding.  For example $6,000,000 of the funds
borrowed by the Company from GEIPPP II are now convertible by it, at its option,
at $3.84 per share and  $3,000,000  of such Notes are  convertible  at $5.00 per
share.  If the '99 Notes  expire  without  conversion  and the  Warrants  expire
without exercise  thereof,  upward  adjustments  would apply with respect to the
GEIPPP  II  conversion  and  exercise  prices.   Similarly,  if  the  GEIPPP  II
instruments  expire or terminate without  conversion or exercise,  corresponding
upward  adjustments of exercise rights and number of shares  purchaseable  would
impact on other  existing  instruments.  At the present time,  GEIPPP II has the
right  through  conversion  privileges  and warrant  exercise  rights to acquire
approximately  58.8% of the Company's  Common Shares,  assuming  exercise of all
such rights and privileges.
<PAGE>
Restaurants in Operation

         Elephant  &  Castle  (Classic   Format).   At  the  Elephant  &  Castle
restaurants,   the  Company  seeks  to  distinguish   itself  from   competitive
restaurants by its distinctive British style and Tudor decor, and by featuring a
wide variety of menu items including a large number of English-style dishes. The
Company's  restaurants  offer  a broad  menu  at  popular  prices.  The  menu is
regularly  updated to keep up with  current  trends in  customers'  tastes.  The
average check per customer, including beverage, was approximately CDN $14 during
1998, a number  which has more or less been stable  since 1992.  Although all of
the Company's  restaurants provide full liquor service,  alcoholic beverages are
primarily served to complement meals.

         Mall Restaurants.  The Company's mall restaurants average approximately
5,000 square feet, with a typical  seating  capacity of 220. The restaurants are
open 7 days a week for lunch,  dinner and late-night dining.  Average unit sales
average approximately CDN $1,300,000, with a sales mix of approximately 60% food
and  approximately  40%  alcoholic  beverages.  Due to their  location  at major
downtown  and  suburban  malls  and  office  complexes,  the  Elephant  & Castle
restaurants cater to both shoppers and office workers.

         Hotel  Restaurants.  The Company has  agreements  for the  operation of
restaurants at Holiday Inn hotels in Winnipeg, Manitoba, (Canada), Philadelphia,
Pennsylvania and San Diego, California in the United States. The Winnipeg Crowne
Plaza Holiday Inn Elephant & Castle  restaurant  was opened on May 18, 1994. The
Philadelphia Holiday Inn unit was opened on February 28, 1995, and the San Diego
Holiday Inn was opened on July 1, 1996. The Boston,  Massachusetts  and Seattle,
Washington sites added in 1997 are in hotel  locations,  other than Holiday Inn.
The Company hopes to build  additional  hotel  restaurant  units at  first-class
hotels over the next several years. In the opinion of management,  the three key
ingredients  in the  selection  of hotel  based  units are:  (1) the  control of
occupancy  costs;  (2)  the  capacity  to  work  synergistically  with  a  hotel
management  seeking  to  divorce  itself  from  direct  involvement  in food and
beverage operations;  and (3) the Company's ability to control the menu, kitchen
and restaurant amenities.

         The Canadian  Rainforest Venture. As of May 1, 1997, the Company signed
agreements  with  Rainforest   Cafe,  Inc.  ("RCI")  relating  to  the  Canadian
Rainforest  Joint Venture.  The agreements  provide for the  establishment  of a
jointly-owned  Canadian  corporation,   Canadian  Rainforest  Restaurants,  Inc.
("CRRI") in which the  Registrant and RCI each have a 50% interest in the Common
Stock,  but  which  the  Registrant  effectively  controls,  as to  day  to  day
operations,  by the power to nominate  three of the five CRRI directors and by a
management agreement.

         The  Registrant  simultaneously  acquired  from RCI an  exclusive  Area
Development  Agreement for U.S.  $500,000  (CDN  $685,000),  U.S.  $250,000 (CDN
$343,000) paid in advance,  and U.S.  $50,000 (CDN $69,000) per annum thereafter
until the balance is paid. The Area  Development  Agreement has been assigned to
CRRI,  the joint venture  company.  Each  restaurant  built within the exclusive
territory  of Canada will also enter into a license  arrangement  with RCI.  The
Rainforest  restaurants,  a trademark and trade name protected concept,  provide
patrons  with  a  rainforest   environment,   which  is  both   attractive   and
entertaining,  and has been sought out by mall operators and others on favorable
terms as a destination location.
<PAGE>
         A section of the premises of each Canadian Rainforest restaurant is set
aside for the sale of rainforest related  merchandise.  The Company has slightly
modified the basic  physical  structure of each  Rainforest  restaurant.  In the
United States, Rainforest Cafe, Inc. has quickly expanded from its first unit at
Mall  of  America,  Bloomington,   Minnesota  to  a  worldwide  chain.  RCI  has
Development Agreements for foreign expansion in numerous areas. The Registrant's
interest is solely in the Rainforest restaurants located in Canada.

         Thus far,  the Company has  invested  CDN $4.0  million,  net,  through
December 27, 1998, in the joint venture entity towards the creation of the first
three  Canadian  Rainforest  restaurants.  Each such  restaurant  is expected to
contribute  substantially to the Company'  revenues and operating  margins.  The
Company will receive a 1.5%  management  fee from each  licensed  restaurant  in
addition to distributions it receives as a shareholder of CRRI.

         Each Rainforest  Restaurant presents an equatorial  rainforest motif, a
diverse  interesting menu and high quality food which is intended to appeal to a
broad  customer  base.  The five  restaurants  planned  to date (one in  greater
Vancouver  opened June 12, 1998,  two in Toronto and one in Montreal) will range
from 17,000 to 20,000  square  feet and seat from 260 to 340 people.  Due to the
size and scope of these  facilities,  it is necessary that they be positioned in
very high traffic  areas to attract the  necessary  clientele.  The  anticipated
sales mix from the Canadian Rainforest  Restaurants is 10% retail items, and 90%
food and  beverage.  RCI has the  right  to buy out the  Company's  interest  in
Canadian Rainforest  Restaurants,  Inc. based on a formula amounting to not less
than five times  EBITDA  after  seven  years of  operations.  The Company has an
equivalent  right  to buy out  RCI's  interest  in the  venture,  which  is only
exercisable after the 15th anniversary of operations.

         The  principal  competition  to  the  Canadian  Rainforest  restaurants
appears to be the  established  "eatertainment"  restaurants,  such as Hard Rock
Cafe and Planet Hollywood.

         Alamo  Grill.  In  October of 1996,  the  Company  acquired  all of the
capital stock of Alamo Grill,  Inc.  ("Alamo"),  a one unit restaurant  business
located at the Mall of  America,  Bloomington,  Minnesota.  The  Company  issued
147,059  shares to the  shareholders  of  Alamo's  parent  company  and  assumed
U.S.$536,000  (CDN$734,000)  of  such  entity's  debt  in  connection  with  the
transaction.  The  acquisition  provides the Company  with a "red meat"  concept
restaurant  for the  expansion of its  hotel-based  properties.  The single unit
Alamo has been  successfully  and  profitably  operated by the Company since the
acquisition.  The new "Alamo Grill Restaurants" (Registrant may use such name or
variants  thereof)  will be casual  steakhouse  restaurants  with a  distinctive
southwestern  design and theme. They are intended to be located in hotels,  high
traffic  suburban malls and large box retail outlets.  The target market is blue
to grey collar families. The menu will be positioned to deliver an average spend
of U.S.  $14-16  Dollars for food at dinner.  Each  restaurant  is planned to be
6,500 square feet with a 240-seat capacity.  The Company is currently  proposing
to use the Alamo food format at other facilities.  In a concept which remains in
the development  stage, the Company has opened a dual-brand Atwin@ restaurant in
Franklin  Mills,  outside  of  Philadelphia,   Pennsylvania.  The  E&C/Alamo  is
approximately  14,000 square feet and shares a common kitchen.  The efficiencies
of  the  dual-brand  concept  intended  to  be  realized  include  facility  and
construction cost limitations, while presenting two distinct brand images to the
public. See also Franchising/Licensing.
<PAGE>
         Other  Formats.  In August of 1995, the Company opened a New York style
deli known as Rosie's.  The Company  provides all of the hotel's  room  service,
off-premise  catering,  and branded  specialty  products.  The Company's Rosie's
restaurant is  significantly  different from the  traditional  Elephant & Castle
format.  The Company  currently  does not intend to further  develop the Rosie's
brand or concept.

         Franchising/Licensing.  Management  of the  company  believes  that the
Company's  "brand"  identification  is a valuable  asset.  The Elephant & Castle
brand  label  is  licensed  at  the  new  international  terminal  at  Vancouver
International  Airport.  Future  activities  may  include  an  expansion  of the
Company's  licensing/franchising  activities.  Elephant & Castle  International,
Inc. has  commenced  franchise  activities in the United  States.  Other than an
internal arrangement completed with two existing manager in 1998, the first such
franchising arrangements were announced in early 1999.

         Future Company Growth. In addition to the Canadian  Rainforest venture,
the  Company's  strategy  for future  growth of its  Elephant & Castle and Alamo
Grill concepts  involves both  franchising  and development of company owned and
operated locations.  These will be predominantly hotel-based or in high traffic,
urban centre  locations.  The Company's  intention is to cluster  restaurants in
prime  locations  in chosen  geographic  regions.  Key points for  consideration
include the need for consistency in use and revenues resulting therefrom.

         Additional Information

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

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

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

c.       Narrative Description of the Business.

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

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

         The Company  conducts many local promotions and loyalty programs geared
to the neighborhoods and markets the restaurants  serve, and supports these with
print  and  direct  mail   advertising.   During  fiscal  1998,   the  Company's
expenditures for advertising and promotional  activities were approximately 2.5%
of its revenues.

                  iii. Status of New Developments.  The Company is constantly in
the process of examining,  evaluating  and  undertaking  various new  restaurant
opportunities.

         Relationship with Hotel Operators

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

                  iv.  Competitors  and  Competitive  Business  Conditions.  The
restaurant and food service industry is highly competitive and fragmented. There
are an  uncountable  number of restaurants  and other food and beverage  service
operations that complete directly and indirectly with the Company.  In addition,
many restaurant chains have significantly greater financial resources and higher
sales  volumes  than the Company.  Restaurant  revenues are affected by changing
consumer  tastes  and   discretionary   spending   priorities,   local  economic
conditions,  demographic  trends,  traffic  patterns,  the  ability of  business
customers to deduct  restaurant  expenses,  and the type, number and location of
competing  restaurants.  In addition,  factors such as inflation  and  increased
food, liquor,  labor and other employee  compensation costs can adversely affect
profitability.  The Company believes that its ability to compete effectively and
successfully  will  depend  on,  among  other  things,  management's  ability to
continue to offer  quality food for  moderate  prices,  management's  ability to
control  labor costs,  and  ultimately  on the  executive  determinations  as to
extensions of the brand (i.e.,  selection of sites for new locations and related
strategies).
<PAGE>
                  v. Suppliers.  Food products and related  restaurant  supplies
are purchased  both through home office  purchasing  programs and already at the
restaurant  level from  specified  food  producers,  independent  wholesale food
distributors  and  manufacturers.  This  process  enables  the Company to ensure
quality companies.  Management believes all essential food and beverage products
are available from multiple sources in all of the locations it serves,  and that
it is not  dependent  on any one of a limited  number of  suppliers.  Management
expects to be able to achieve a  declination  in the costs of food  products and
related suppliers based upon new purchasing  policies currently being adopted, a
change  in key  personnel  responsible  for  the  implementation  of  purchasing
process,  and  maximization of rebates and allowances.  During 1997, the Company
determined that it had not consistently  received the maximum  available rebates
in earlier periods. The Company instituted  procedures to safeguard and maximize
such revenues in future periods.

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

                  vii.  Trademarks;  Licenses.  The Company has registered  "The
Elephant & Castle Pub & Restaurant"  with the Canadian  Trademarks  Office,  and
with the United States Patent and Trademark  Office.  The Company  acquired "The
Elephant & Castle"  trademark in the United  States.  The Company  agreed to pay
U.S. $50,000 (CDN $75,000),  plus a one-time fee of U.S. $5,000 (CDN $7,500) per
location  for the first ten  locations  for the mark.  The  Company  regards its
"Elephant  &  Castle"  trademark  as  having  substantial  value and as being an
important factor in the marketing of its  restaurants.  The Company is not aware
of any infringing  uses that could  materially  affect its business or any prior
claim to the trademarks in its business.

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

                  Various  Canadian federal and provincial labor laws govern the
Company's  relationship  with its  employees,  including such matters as minimum
wage requirements, overtime and other working conditions. Significant additional
government-imposed  increases  in minimum  wage,  paid  leaves of  absences  and
mandated   health   benefits,   or  increased  tax  reporting  and  tax  payment
requirements  for  employees  who  receive  gratuities,  may impose  significant
burdens on the  Company.  The  Company's  restaurants  in the United  States are
subject to similar requirements.
<PAGE>
                  Alcoholic  beverage  control  regulations  require each of the
Company's  restaurants to apply to a state authority and, in certain  locations,
county and  municipal  authorities,  for a license and permit to sell  alcoholic
beverages in the premises.  Typically, licenses must be renewed annually and may
be  revoked  or  suspended  for cause at any time.  Alcoholic  beverage  control
regulations  relate to numerous aspects of the daily operations of the Company's
restaurants.  The Company has not encountered any material  problems  related to
alcoholic  beverage  licensing to date.  The failure to receive or retain,  or a
delay in obtaining a liquor  license in a particular  location  could  adversely
affect the Company's ability to obtain such a license elsewhere.

                ix.      Y2K Business operations are also affected by 
the Year 2000 readiness of customers and infrastructure  suppliers in areas such
as  utilities,  communications,  transaportation  and  other  services.  In this
environment,  there  will  likely be  instances  of  failure  that  could  cause
disruptions  in  business  processes  for the  Company pr  adversely  impact its
customers.  The likelihood and effects of failures in the infrastructure systems
and in the supply chain cannot be estimated.  However with respect to operations
under its direct control,  management does not expect,  in view of its Year 2000
program  efforts and the diversity of its  businesses,  suppliers and customers,
that occurences of Year 2000 failures will have a material adverse effect on the
the  financial  position,  results of  operations  or liquidity of E&C. See also
dicussion of Y2K under Management's Discussion and Analysis, Item __ herein.

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

                xi.   Research and Development.  The Company places  significant
emphasis on the design and  interior  decor of its  restaurants.  The Company is
employing  the  same  basic  architectural   design,   decors  and  construction
techniques for the Canadian  Rainforest  restaurants as Rainforest Cafe has used
for its  restaurants  in the U.S. The  Company's  Elephant & Castle unit designs
requires  higher  capital costs and furniture and fixtures  investment to open a
new restaurant than is typical in the industry.  Landlord contributions defray a
part or a  substantial  part of  interior  design  and  decor at a  typical  new
restaurant.  The Company believes that its design and decor features enhance the
dining experience.  Each restaurant typically features large, airy dining areas.
Two of the restaurants  offer atrium  seating,  and several offer patio seating,
which adds  substantially  to seasonal  capacity,  revenues and  profits.  Table
layouts are flexible,  permitting re-arrangement of seating to accommodate large
groups and effective utilization of maximum seating capacity.
<PAGE>
                    The Company also  believes that the location of a restaurant
is important to its success.  In general,  significant  time and  resources  are
spent in  determining  whether a  prospective  site is  acceptable.  Traditional
Elephant & Castle restaurants were located at high-profile sites at malls/office
complexes  within larger  metropolitan  areas.  In selecting  future sites,  the
Registrant 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 compliance with environmental laws.

                  xiii. Number of Total Employees and Full-Time Employees. As of
December  27,  1998,  the  Company  employed  approximately  1200  persons  on a
full-time and part-time  basis.  26 of such persons serve in  administrative  or
executive  capacities,  83  serve as  restaurant  management  personnel  and the
remainder are hourly workers in the Company's restaurant operations. The Company
believes that its working  conditions and compensation  packages are competitive
with those  offered  by its  competitors.  Management  considers  the  Company's
relations  with its  employees  to be good,  and its rate of employee  turnover,
particularly  among  management  employees,  to be low in  relation  to industry
standards.  The Company has an agreement  with the union which  represented  the
former workers at the predecessor  restaurant located at the Holiday Inn unit in
Philadelphia  which  requires the  Registrant to seek new hires first from among
the pool of  available  union  hiring  hall  personnel.  The  Company's  service
personnel  at the San Diego  Elephant  & Castle  unit and  Rosie's on Robson are
unionized. The Company has never experienced an organized work stoppage,  strike
or labor dispute.
<PAGE>
                    The Company  has sought to attract and retain  high-quality,
knowledgeable  restaurant  management and staff.  In units which the Company has
had in operation five or more years,  the Company has regularly  retained a work
force  with  a  significant  number  and  percentage  of  its  employees  having
continuous  service with the Company.  Currently,  at such units the Company has
310 employees.  13% of these  employees have been with the Company for over five
years. In supervisory  positions within the Company's restaurant  business,  the
percentage of personnel  who are  five-year  veterans with the Company is higher
than this, at 63%. 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 about five years' experience
with the Company. The Company also employs regional managers and may be required
to add additional  supervisory people as the chain expands.  As the Company adds
new  restaurants,  its  future  success  may  depend in part on its  ability  to
continue to attract and train  capable  additional  managers.  The Company  also
anticipates that the opening of additional  restaurants including at hotel sites
in the United  States will require a  commensurate  increase in  employees.  The
Company does not expect a  proportionate  increase in the number of corporate or
administrative  personnel.  Restaurant  managers,  many of whom  have  moved  up
through the ranks, are required to complete a training program during which they
are  instructed  in areas  including  food  quality and  preparations,  customer
service, alcohol service, liquor liability avoidance and employee relations. The
Company  believes its training  programs  for managers and other  employees  are
comparable  to the  training  provided  for  managers  and  other  employees  at
substantially  larger restaurant chains.  Restaurant  managers are also provided
with  operations  manuals  relating  to food and  beverage  standards  and other
expectations  of  restaurant   operations.   Management  has  made  a  conscious
commitment to provide customer service of the highest standards.  In addition to
evaluations  made by the  customers,  the Company uses a  "designated  customer"
quality  control  program  to  independently  monitor  service  and  operations.
"Designated  customers" are  independent  people who test the standards of food,
beverage  and service as customers of the  restaurant  without the  knowledge of
management or staff.  Done on a periodic  basis,  their findings are reported to
corporate management.  Efficient,  attentive and friendly service is integral to
the Company's  overall  concept.  Any new employee at all  functional  levels is
closely supervised after his or her on-the-job  training.  Management  regularly
solicits  employee  suggestions  concerning  operations,  and  endeavors  to  be
responsive to employee concerns.

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

         The Company directly,  and through its Canadian Rainforest  restaurants
affiliate (shown by *), currently operates 13 mall based restaurants,  including
the Atwin@  restaurants at Franklin Mills added in 1998. All of such  facilities
are leased properties. The following table provides opening date, square footage
and indoor seating  capacity  information with respect to each of the mall based
restaurants currently in operation:
<TABLE>
<CAPTION>
    City               Mall         Opening Date     Square Feet      Seating(a)
    ----               ----         ------------     -----------      ----------
<S>               <C>                <C>                <C>               <C>
Regina, Sask.     Cornwall Center    Aug. 1981          5,375             220
Ottawa, Ont.      Rideau Center      Mar. 1983          7,119             280
West Edm., Alb.   West Edmonton      Jul. 1988          6,500             245
Edmonton, Alb.    Eaton Center       Sep. 1988          5,939             225
Victoria, B.C.    Eaton Center       Jun. 1989          5,640             225
Bellingham, WA    Bellis Fair        May  1990          5,200             220
Saskatoon, Sask.  Midtown Plaza      Oct. 1990          5,815             225
Calgary, Alb.     Eaton Center       Dec. 1990          5,851             225
Surrey, B.C.      Guildford Town     May  1992          4,835             200
Bloomington, MN   Mall of America    Oct. 1996          6,750             280
*Vancouver, BC    Metrotown          Jun. 1998         18,000             340
Philadelphia, PA  Franklin Mills     Nov. 1998         11,400             396
*Toronto, Ont.    Scarborough        Feb. 1999         20,000             394
</TABLE>
                                                                   
(a)      Outdoor/patio  seating is available at a number of the  locations,  and
         not included herein.

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

         The Company's hotel restaurant  leases are more typically  focused on a
percentage of restaurant sales,  against 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 typically declining.
<PAGE>
         The  Company's  facilities at Hotels and other  non-mall  locations are
occupied on the following basis:
<TABLE>
<CAPTION>
Hotel Locations      Opening Date      Square Ft.     Indoor Seating
---------------      ------------      ----------     --------------
<S>                 <C>       <C>          <C>             <C>
Winnipeg            May       1994         4,300           180
Philadelphia        February  1995         7,900           310
Rosie's/Vancouver   August    1995         5,500           200
San Diego           July      1996         7,500           300
Seattle             August    1997         7,600           230
Boston              November  1997         9,500           200
<CAPTION>                               
Other Locations                      
---------------                      
BCIT
 (Burnaby,B.C.)     September 1995         4,500           300
Toronto                                   
 Entertainment                            
 District           October   1996         9,200           330
Edmonton            November  1997         5,600           180
</TABLE>                                  
         The following table sets forth,  for all  restaurants by location,  the
earliest expiration date of the leases and the minimum annual rent:
<TABLE>
<CAPTION>
                                  Earliest
Location                       Expiration Date      Minimum Annual Rent
--------                       ---------------      -------------------
<S>                                 <C>             <C>    <C>     
Regina Cornwall Center              1999            CDN  $   38,000
BCIT, Burnaby, B.C.                 2000                    140,000
Edmonton Eaton Center               2001                    109,000
Minneapolis, Mall of America        2002                    324,000
West Edmonton Mall                  2003                    130,000
Ottawa Rideau Center                2003                    165,000
Victoria Eaton Center               2004                    157,000
Winnipeg, Holiday Inn               2004                     60,000
Saskatoon Midtown Plaza             2005                    150,000
Bellingham Bellis Fair              2005                    116,000
Rosie's, Rosedale                   2005                     60,000
Philadelphia, Holiday Inn           2005                    150,000
Calgary Eaton Center                2005                     94,000
San Diego, Holiday Inn              2006                     90,000
Surrey, Guilford                    2007                    156,000
Boston, Club Quarters               2007                     90,000
Philadelphia, Franklin Mills        2008                    413,000
Toronto (King Street)               2011                     92,000
Edmonton, White Ave                 2012                     77,000
Seattle, Cavanaughs                 2012                     77,000
Vancouver, Metrotown                2013                    585,000
Toronto, Scarborough                2014                  1,073,000
     Total:                                         CDN  $4,346,000
                                                    ===============
</TABLE>
         In earlier  years,  the Company was able to decrease the  aggregate per
unit minimum annual rental  obligations by selective  locations and  appropriate
lease provisions.  The minimum annual rental  obligations per unit are currently
increasing,  however,  with the Canadian  Rainforest  Restaurants  substantially
increased space and location needs,  which are, in turn,  providing  greater per
unit revenues and earnings from operations to the Registrant.
<PAGE>
ITEM 3   LEGAL PROCEEDINGS

         From  time to time  lawsuits  are  filed  against  the  Company  in the
ordinary  course of business.  Except as set forth  below,  the Company is not a
party to any  litigation  which  would  have a  material  adverse  effect on the
Company or its business and is not aware of any such threatened litigation.

         In  1989  and  1990,  the  Canadian   subsidiary  received  Notices  of
Reassessment from Revenue Canada and the Ministry of Revenue, Ontario, regarding
a  construction  allowance  received  in 1984 from the  landlord  for its former
Sarnia  location.  The reassessment has been under appeal since 1989. The amount
of tax  reassessed  was CDN $209,000.  Including  interest  accrued to date, the
total amount in dispute as of December 27, 1998 was approximately CDN $785,000.

Shilo Litigation

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

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

         The matters on issue are now  scheduled  for trial in the fall of 1999.
In the opinion of management,  Shilo's claims  include  speculative  and alleged
consequential  damages  assertions which make the matter not readily  resolvable
without  the  benefit  of  trial,  and the  direction  of a trial  judge.  While
management of the  Registrant is  reasonably  confident  that it will be able to
successfully  defend the  Registrant's  interests and position,  there can be no
assurance as to the outcome of matters properly submitted to the trier of facts.

ITEM 4   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

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

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

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

         The  range of high and low  sales  prices  for the  Common  Stock  from
January 1, 1997, to the end of 1998 has been:
<TABLE>
<CAPTION>
                                   High           Low
<S>                               <C>            <C>  
First Quarter of 1997:            $ 9.00         $5.75
Second Quarter of 1997:           $10.25         $7.625
Third Quarter of 1997:            $11.25         $9.625
Fourth Quarter of 1997:           $10.50         $6.75

First Quarter of 1998:            $ 7.625        $5.375
Second Quarter of 1998:           $ 6.375        $4.25
Third Quarter of 1998:            $ 6.50         $2.375
Fourth Quarter of 1998:           $ 4.125        $1.75
</TABLE>

         The approximate  number of record holders of the Company's common stock
as of a recent date is 857.

ITEM 6   SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
                                            1998              1997             1996               1995             1994
                                            ----              ----             ----               ----             ----
<S>                                     <C>               <C>               <C>                <C>              <C>       
Sales                                   $   42,630        $   34,231        $   29,284         $   25,764       $   25,414 
                                                                                                                
Income restauranat operations                3,770             1,883             1,587                791            1,892
                                                                                                                
Earnings before Interest and Taxes             156              (912)             (840)            (1,493)             280
                                                                                                                
Net Income                                    (930)           (1,416)           (1,174)            (1,578)             213
                                                                                                                
Total Assets                                30,797            24,621            16,767             15,888           10,329
                                                                                                                
Shareholders' Equity                         8,621            10,209             7,928              7,318            7,577
                                                                                                                
Long Term Debt                          $   16,605        $   10,279        $    5,337         $    5,384       $      201
                                                                                                                
Corporate Restaurant information         3,197,000         2,947,000         2,683,000          2,503,000        2,441,000
                                                                                                                
Earnings per share                      $    (0.29)       $    (0.48)       $    (0.44)        $    (0.63)      $     0.09  
</TABLE>
<PAGE>
ITEM 7   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL         
         CONDITION AND RESULTS OF OPERATIONS

Fifty Two Weeks ended  December 27, 1998 vs.  Twelve  Months ended  December 31,
1997

Net Income

         For the year ended  December 27, 1998,  the  Company's net loss was CDN
($929,000)  compared  to a net loss of CDN  ($1,416,000)  for the  corresponding
period in 1997. Income from restaurant operations increased to CDN $3,769,000 in
1998  from CDN  $1,883,000  in  1997.  Overall,  loss per  share in 1998 was CDN
($0.29) compared to CDN ($0.48) in 1997.

         The Company reports its results in accordance  with Canadian  Generally
Accepted Accounting Principles (CDN GAAP). See below, and Note XX to the audited
financial  statements  for discussion  and  reconciliation  between CDN GAAP and
United States Generally Accepted Accounting Principles (US GAAP).

Income from Restaurant Operations

         Income from restaurant operations, at CDN $3,769,000 was up 100.2% over
1997 and, as a percentage of sales, increased to 8.8% in 1998 from 5.5% in 1997.
There are four principal reasons for this improvement.  Firstly,  the opening of
higher volume stores and closing of two lower volume locations  enhanced overall
operating  margins.   Secondly,   food  and  beverage  cost  percentages  showed
improvement throughout the year. Thirdly, labor cost percentages were lower than
the  previous  year.  Fourthly,  the 1997 figure  included CDN $200,000 in costs
relating  to the  closure of two  restaurants  during the year and CDN  $130,000
related to a lease guarantee on a former location.
<PAGE>
Sales

         Sales increased 24.5% during the 1998 year to CDN $42,630,000  from CDN
$34,231,000  in 1997.  The  Company's  joint venture with  Rainforest  Cafe Inc.
opened its first  location  during 1998, in Vancouver  (June 12th ). The Company
also entered a franchise agreement for its corporately owned location in London,
Ontario on September 28, 1998.  The Company  opened three  locations in 1997, in
Seattle (August 28th),  Boston  (November 4th) and Edmonton  (November 20th). It
also closed two low volume  locations in 1997 (Vancouver in February and Thunder
Bay in August) as their  leases  expired.  The result of opening  higher  volume
stores and closing  lower  volume  locations  has seen the average  weekly sales
volume per unit in 1998 increase by 13.2% over the 1997 figure.

         For the twelve  Canadian  locations open  throughout  both years,  1998
sales  totaled  CDN  $19,274,000  and were up 2.5% from 1997.  For the four U.S.
locations open  throughout  both years,  sales decreased 2.5% from 1997. A 20.4%
decrease  at the  Bellingham,  WA  location  accounted  for the  majority of the
decrease. The mall in which this restaurant is located is
largely dependent on Canadian cross border shoppers and the relative decrease in
value of the  Canadian  dollar  versus the US dollar has caused mall  traffic to
decline.  The year on year  impact of this is expected to be much less severe in
1999.

         The Company's  Rainforest Cafe joint venture opened its first location,
in  Vancouver,  BC, in June,  1998.  Its second unit opened in Metro  Toronto in
February, 1999. Sales continue to be in line with management's expectations.

Costs and Expenses
         Food and Beverage Costs
         Overall,  food and beverage costs, as a percentage of sales,  decreased
to 28.1% for the twelve months ended December 27, 1998 compared to 29.1% for the
corresponding  period in 1997.  The Company  implemented  a number of purchasing
programs in 1998 that  decreased  the food and  beverage  percentage  during the
year, and generated recovery of certain rebates and credits from prior years.

         Labor and Benefits Costs

         Labor and benefits costs decreased from 33.0% of sales in 1997 to 32.3%
for the 1998 period.  The Company is  continuing  to review labor  schedules and
believes further labor efficiencies are deliverable.

         Occupancy and Other Costs

         Occupancy and other  operating costs decreased as a percentage of sales
from  25.7% in 1997 to  24.8%  in 1998.  This is  primarily  the  result  of the
Company's  strategy of focusing new developments in high traffic urban locations
and moving away from its traditional suburban mall locations.  This is resulting
in lower occupancy percentages at the newer locations and is driving the overall
rate down.

         Depreciation and Amortization

         Depreciation and amortization costs increased slightly to 5.9% of sales
for  1998  compared  to 5.7% in  1997.  Higher  development  costs  and  shorter
amortization  periods  at  new  locations,   compared  to  older  suburban  mall
locations,  plus amortization of higher  pre-opening costs, are the cause of the
increase in the percentage.
<PAGE>
         Restaurant Closing Costs

         During 1997 the Company  closed two mall locations on the expiration of
their  respective   leases.  The  costs  associated  with  these  closings  were
approximately  CDN  $200,000.  The Company also  incurred  costs of CDN $130,000
related to a lease guarantee on a former property. The Company did not close any
locations during 1998,  although it did enter into a franchise agreement for its
London, Ontario location. There was no net cost to the Company.

         General and Administrative Costs

         General and  administrative  expenses  increased  from 7.2% of sales in
1997 to 8.5% in 1998.  The 1998  figure  contains  full year costs for three new
executives  hired  in the  second  half of 1997,  causing  the  overall  rate to
increase. Hiring these executives was a necessary step in the development of the
infrastructure   needed  to  allow  the   Company   to  expand   and  return  to
profitability.  Mr. Martin  O'Dowd,  former  President of Rainforest  Cafe Inc.,
joined the Company in August,  1997 as President of the U.S. operations with the
mandate to expand the Company's U.S.  presence and to oversee the development of
Rainforest Cafes in Canada.  In March,  1998 Mr. O'Dowd was appointed  President
and Chief Executive Officer of the Company.  Mr. Colin Stacey,  former President
of Keg Restaurants,  also joined the Company in August, 1997, as Chief Operating
Officer  responsible  for  Canadian  operations.  In  March,  1998 he was  given
responsibility  for all Canadian  and US Elephant & Castle and Alamo  locations.
Mr. Richard Bryant, formerly Chief Financial Officer of Keg Restaurants,  joined
the Company in November,  1997 as Chief  Financial  Officer.  While the costs of
these  executives,  plus other additions to corporate  management caused general
and  administrative  costs to rise over the near term, the Company  believes its
long term general and expense  percentage  will be brought down to under 7.0% as
new stores are added without incurring proportionate additional costs.

         Retiring Allowances and Other Costs

         In December, 1997 one of the founders of the Company, Mr. Peter Barnett
retired from his position as Executive  Vice  President.  Under the terms of his
employment contract Mr. Barnett was paid a retiring allowance on his retirement.
Other costs arose from  settlement of two labor  matters with former  employees.
There were no such items in 1998.

         Interest on Long Term Debt

         Interest on long term debt increased to CDN $1,084,858 in 1998 from CDN
$503,715 in 1997. There are three main reasons for the increase. Firstly, during
1998 the Company  completed  two US $2,000,000  (for a total of CDN  $5,740,000)
financings.  The  first  was a  convertible  debenture  financing  with  General
Electric Private Placement Partners, II (GEIPPP II) as part of a 1995 agreement.
The second,  also with GEIPPP II, was part of a convertible  debenture financing
that  saw an  additional  US  $1,105,000  (CDN  $1,657,500)  raised  from  other
investors in February,  1999.  Secondly,  during 1997 the Company also completed
two  US  $2,000,000  (CDN  $3,000,000  each,  for a  total  of  CDN  $6,000,000)
convertible  subordinated  debenture  financings  with  GEIPPP II under the 1995
agreement. The 1998 year includes a full year's interest on the 1997 financings.
Thirdly,  the decline in the relative value of the Canadian dollar versus the US
dollar during 1998 resulted in a translation  adjustment of CDN $1,170,000,  CDN
$130,000 of which is included in interest expense for the 1998 year. The balance
of the translation  adjustment will be charged to interest expense over the life
of the related debt. As a result of these factors,  , interest on long term debt
in 1998 was substantially higher than 1997, and will be higher again in 1999.
<PAGE>
(Loss) before Taxes

         The Company  incurred a loss before  income taxes of CDN  ($929,000) in
1998 compared to a loss of CDN  ($1,416,000) in 1997. The 1997 figure includes a
total of CDN $677,000 in restaurant closing costs, retiring allowances and other
costs.  There were no such costs in 1998.  The 1997 loss before  these items was
CDN ($739,000).  During 1998, income from restaurant operations increased by CDN
$1,886,000.  This was offset by an  increase  of CDN  $1,165,000  in general and
administrative expenses and CDN $581,000 in interest costs.

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

Income Taxes

         The Company  incurred losses in each of 1998 and 1997 and therefore has
no tax liability. The Company also has loss carry-forwards which will reduce its
effective tax rate in future years.

         Differences  Between  Canadian  and United  States  Generally  Accepted
         Accounting Principles (Canadian and U.S. GAAP)

         The Company  prepares  its  financial  statements  in  accordance  with
Canadian GAAP. (The reader is referred to Note 17 of the Consolidated  Financial
Statements for the year ended December 27, 1998 for additional explanation.) The
financial  statements,  if  prepared  in  accordance  with U.S.  GAAP would have
differed as follows:

         Net loss for the year ended December 27, 1998 would be decreased by CDN
         $280,000  comprised of recognition of non-capital  loss carry forwards,
         offset by  dividends  on  paid-in  capital  that  would be  treated  as
         interest under U.S. GAAP, and by  amortization  expense  resulting from
         exclusion of the first option period in calculating the amortization of
         certain leasehold improvements.  The impact of this adjustment would be
         to decrease the net loss per share from CDN ($0.29) under Canadian GAAP
         to CDN ($0.20) under US GAAP.

         Net loss for the year ended December 31, 1997 would have been increased
         by CDN $186,000 also comprised of amortization  expense  resulting from
         the   exclusion  of  the  first  option  period  in   calculating   the
         amortization of certain leasehold  improvements.  On a per share basis,
         net loss would have been increased from CDN ($0.48) under Canadian GAAP
         to CDN ($0.54) under US GAAP.

         Shareholders' Equity at December 27, 1998 under US GAAP would
be CDN  $6,760,000  compared to CDN  $8,261,000  under Canadian GAAP, due to the
cumulative effect of reconciliation adjustments.

         Shareholders' Equity at December 31, 1997 under US GAAP would have been
CDN $6,850,000 compared to CDN $10,209,000 under Canadian GAAP.
<PAGE>
Liquidity and Capital Resources

         The  Company's  cash  balances  at the end of the 1998  period were CDN
$2,468,505.  This compares to cash balances of CDN  $4,096,808 at the end of the
1997 period.

         Capital expenditures were CDN $8,682,458 for the 1998 period, primarily
for  construction of new  Philadelphia  Elephant & Castle/Alamo  locations,  and
Vancouver and Toronto Rainforest locations.

         Changes in non-cash  working  capital items resulted in a net source of
funds of CDN  $1,774,770  for the year ended  December 27, 1998  compared to CDN
$602,547 in 1997.

         The Company  completed a US  $2,000,000  (CDN  $2,740,000)  convertible
subordinated  debenture  financing  with  General  Electric  Investment  Private
Placement Partners, II (GEIPPP II), a US based limited partnership with which it
had previously arranged similar US $7,000,000 (CDN $9,590,000)  financings.  The
Company also completed a US $2,000,000 (CDN  $3,000,000)  with GEIPPP II as part
of a debenture offering that raised an additional US $1,265,000 (CDN $1,897,500)
from other investors in February, 1999. A portion of these funds was used to pay
for  construction of the new Philadelphia  Elephant & Castle/Alamo  location and
the first two Rainforest  locations in Vancouver and Toronto. The balance of the
funds will be used the Company's 1999 development plans.

         During 1997 the Company  entered into a joint  venture  agreement  with
Rainforest Cafe Inc. to develop at least five Rainforest  restaurants in Canada.
The first restaurant  opened in Vancouver in mid-1998.  The second one opened in
Toronto in February, 1999. The third is expected to open in the third quarter of
1999. It will also be located in the Metro Toronto area.

         The  Company is also  planning  to build a new  Elephant  and Castle in
Toronto during 1999. The Company does not anticipate it will need any additional
funding to complete these projects.

         Year 2000. The Company continues to address its state of readiness with
regards  to the Year  2000  (Y2K)  problem.  It does not  foresee  any  material
negative  impacts related to Y2K. The Company is following these steps to ensure
a smooth transition.

          o $All new computer hardware and software being purchased is certified
            at Y2K compliant.  This includes a new financial  accounting package
            purchased and installed in 1998, plus all new Point of Sale systems.
          o $Point  of  Sale  equipment  has  been  assessed.  The  Company  has
            identified two locations  where  systems,  which were already marked
            for replacement,  need to be replaced. New systems are planned to be
            installed in the second  quarter of 1999, at a cost estimated not to
            exceed  CDN  $50,000  in total.  Several  other  systems  need minor
            upgrades  (at  costs  ranging  from a low of less than CDN $500 to a
            high of CDN $3,000). Some systems have been made compliant.  Work is
            proceeding on the others,  with the work scheduled to be complete in
            the second quarter.
          o $Payroll service providers have certified Y2K compliance.
          o $Banks and other  service  providers  have given  assurances  of Y2K
            readiness.
          o $Key  suppliers  have  been  asked  to  provide  assurances  of  Y2K
            readiness.
<PAGE>
         The  Company  does not  foresee  any  extraordinary  disruption  to its
business  related  to  Y2K.  The  Company  envisions  that  certain   suppliers'
distribution and inventory  management systems may not operate efficiently for a
period of time after Y2K. Management  believes that alternative  suppliers exist
in all locations and could be utilized, to the extent required by disruptions at
existing suppliers.

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

Net Income

         For the year ended  December 31, 1997,  the  Company's net loss was CDN
($1,435,339)  compared to a net loss of CDN $(1,173,918)  for the  corresponding
period in 1996.  The 1997 figure  includes  CDN $677,250 in  restaurant  closing
costs and a senior  executive  retiring  allowance.  There were no such items in
1996. Income from restaurant operations increased to CDN $1,883,000 in 1997 from
CDN $1,587,000 in 1996. Overall, loss per share in 1997 was CDN ($0.48) compared
to CDN ($0.44) in 1996. See reconciliation for differences  between Canadian and
United States Generally Accepted Accounting Principles (CDN GAAP and US GAAP).

Income from Restaurant Operations

         Income from restaurant operations,  at CDN $1,883,000 was up 18.7% over
1996 and, as a percentage of sales, increased to 5.5% in 1997 from 5.4% in 1996.
There are two principal  reasons for this improvement.  Firstly,  the opening of
higher volume stores and closing of two lower volume locations  enhances overall
operating  margins.   Secondly,   food  and  beverage  cost  percentages  showed
improvement   throughout  the  year.  The  Company  is  actively  reviewing  its
purchasing  procedures and believes  additional  improvements can be achieved in
this area.

Sales

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

         For the twelve  Canadian  locations open  throughout  both years,  1997
sales  totaled  CDN  $17,597,000  and were down 4.5% from 1996.  Four  locations
suffered  decreases ranging from 9.6% to 21.5% and were the cause of the overall
decrease. Specific action plans for each of these four locations are in place or
in the planning stage.
<PAGE>
         For the two U.S.  locations open throughout both years, sales decreased
3.1% from 1996.  Sales are expected to decrease at one of these locations for at
least  the  first  half of 1998  due to  decreased  traffic  counts  at its mall
location.

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

Costs and Expenses

         Food and Beverage Costs

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

         Labor and Benefits Costs

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

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

         Depreciation and Amortization

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

         General and Administrative Costs

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

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

         Restaurant Closing Costs

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

         Interest on Long Term Debt

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

         The Company also completed a US $2,000,000 (CDN $2,740,000) convertible
debenture financing with subsidiaries and affiliates of a French bank. Under CDN
GAAP this  financing  was  comprised  of an  equity  component  and a  liability
component.  The liability component was approximately CDN $400,000 (US $291,971)
and carries an interest rate of 6%. This also contributed to the higher interest
cost in 1997.

(Loss) before Taxes

         The Company  incurred a loss before income taxes of CDN ($1,416,384) in
1997 compared to a loss of CDN  ($1,173,918) in 1996. The 1997 figure includes a
total of CDN $677,250 in restaurant closing costs, retiring allowances and other
costs.  There were no such costs in 1996.  The 1997 loss before  these items was
CDN $739,134,  representing  an improvement of  approximately  CDN $435,000 on a
comparable  basis over 1996.  This is attributable to the positive impact of the
new locations  opened over the past two year, plus some general  improvements in
food and beverage cost  percentages,  offset  somewhat by higher  interest costs
related to increased levels of long term debt.

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

         Income Taxes

         The Company  incurred losses in each of 1997 and 1996 and therefore has
no tax liability. The Company also has loss carry-forwards which will reduce its
effective tax rate in future years.

         Differences  Between  Canadian  and United  States  Generally  Accepted
Accounting Principles (Canadian and U.S. GAAP)
<PAGE>
         The Company  prepares  its  financial  statements  in  accordance  with
Canadian GAAP. (The reader is referred to Note 17 of the Consolidated  Financial
Statements for the year ended December 31, 1997 for additional explanation.) The
financial  statements,  if  prepared  in  accordance  with U.S.  GAAP would have
differed as follows:

         Net loss for the year ended December 31, 1997 would be increased by CDN
         $186,080 comprised of amortization  expense resulting from exclusion of
         the first option  period in  calculating  the  amortization  of certain
         leasehold  improvements.  The  impact  of this  adjustment  would be to
         increase the net loss per share from CDN ($0.48) under Canadian GAAP to
         CDN ($0.54) under US GAAP.

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

         Shareholders'  Equity at  December  31, 1997 under US GAAP would be CDN
$6,850,417  compared  to  CDN  $10,209,207  under  Canadian  GAAP,  due  to  the
cumulative effect of reconciliation adjustments.

         Shareholders' Equity at December 31, 1996 under US GAAP would have been
CDN $7,176,881 compared to CDN $7,928,098 under Canadian GAAP.

ITEM 7A  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


         Intentionally omitted.


ITEM 8   FINANCIAL STATEMENTS

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

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

         None.  Not applicable.

<PAGE>
   
                                    PART III


ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

            The  following  persons  are  all of  the  directors  and  executive
officers of the Registrant and the persons nominated to serve as such:
 
      Name                      Age                 Principal Occupation
      ----                      ---                 --------------------

Jeffrey M. Barnett(a)(b)         60         Chairman of the Board and Founder

Martin O'Dowd(a)(b)              51         President and Chief Executive
                                            Officer of the Company/Director

Colin Stacey                     59         Vice President and Chief Operating
                                            Officer of the Company/Director(c)

George W. Pitman                 57         Vice President of Design and
                                            Development/Director

William L. McEwen(a)(b)          74         Independent Entrepreneur, Real
                                            Estate and Telecommunications/
                                            Director

David Wiederecht(a)              43         Vice President, Alternative Invest-
                                            ments, GE Investment Corporation/
                                            Director

Anthony Mariani(b)               34         Vice President, Private Equities,
                                            GE Investment Corporation/Director

Rick Bryant                      45         Vice President and Chief Financial
                                            Officer of the Company/Interim
                                            Director(c)

Daniel DeBou                     48         Chief Accounting Officer of the
                                            Company

Paul Tilbury                     36         Vice President, Canadian Rainforest
                                            Restaurants, Inc.

---------------------
(a)  Audit Committee
(b)  Compensation Committee
(c)  For certain technical reasons, Mr. Stacey has taken a leave of absence from
     service  upon the Board and Mr. Bryant is serving as a director  during Mr.
     Stacey's leave. See Board Composition below.
<PAGE>
Board Composition

            The  Company  is  incorporated  under  the laws of the  Province  of
British  Columbia,  Canada.  Such laws require that a majority of the members of
the Board be Canadian.  Currently, the elected Board consists of three Canadians
(Messrs. Barnett, Pitman & McEwen) and four others (Messrs. O'Dowd,  Wiederecht,
Mariani and Colin Stacey,  the Company's  Chief Operating  Officer).  To address
this issue,  Mr. Stacey took a temporary  leave of absence from service upon the
Board.  Mr. Rick  Bryant,  the  Company's  Chief  Financial  Officer,  who holds
Canadian citizenship,  was elected initially by the remaining directors,  and in
1998 by the  shareholders  of the  Company  to fill  the  interim  vacancy.  The
intention  of the Board,  as a whole,  is to add one or two  additional  outside
directors  and  to  specifically  seek  Canadians  for  such  positions,  and to
otherwise comply with all applicable laws.


Executive Officers and Directors

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

            Martin  O'Dowd was first  elected to the Board of  Directors  of the
Company in June of 1995,  initially  serving solely as an outside  director.  In
August of 1997,  Mr.  O'Dowd was  elected to serve as  President  of  Elephant &
Castle International,  Inc., a wholly-owned Minneapolis,  MN based subsidiary of
the  Company  engaged in managing  the  Company's  U.S.  based  restaurants  and
exploring franchising  opportunities.  On March 19, 1998, Mr. O'Dowd was elected
President and Chief  Executive  Officer of the Company.  Mr.  O'Dowd was,  until
April 28, 1997,  President and Chief Operating Officer of Rainforest Cafe, Inc.,
Minneapolis,  MN. The Company has a substantial  joint  venture with  Rainforest
Cafe Inc. ("RCI") relating to the operation of Canadian Rainforest  Restaurants,
Inc. Mr. O'Dowd has no interest, other than as a director, officer, employee and
shareholder of the Company, in Canadian Rainforest Restaurant,  Inc. although he
is a shareholder of RCI dating back to his prior service with such entity.  From
July 1987 to May 1995,  Mr. O'Dowd was  Corporate  Director of Food and Beverage
Services for Holiday Inn Worldwide.  Previously, he served as Vice President and
General Operations Manager for the Hard Rock Cafe Organization.

            Colin  Stacey is the Chief  Operating  Officer of the Company  since
June of 1997.  Prior to joining the Company,  Mr. Stacey was President and Chief
Executive Officer of Keg Restaurants,  a North American  subsidiary of Whitbread
PLC, from 1992 to June of 1997.  Prior to this  assignment  Mr. Stacey  occupied
senior  management   positions  within   Whitbread's   restaurants  and  leisure
businesses in the United Kingdom and Australia.

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

            William L. McEwen,  an  independent  director of the Company,  is an
entrepreneur who is the  owner/manager of residential and commercial  properties
in Ottawa, Ontario, and Vancouver, B.C.
<PAGE>
            David Wiederecht is Vice President of Alternative Investments for GE
Investment  Corporation since January 1994. Prior to his current assignment,  he
served GE  Investments  in various senior  financial  management  assignments in
GEIC's real estate and finance  organization  since 1988. Prior to joining GEIC,
Mr.  Wiederecht worked at various  assignments  within General Electric Company,
including corporate  headquarters and GE's audit staff. Mr. Wiederecht was first
elected to the Board of Directors of the Company in January, 1996.

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

            Richard Hugh Bryant,  Vice President and Chief Financial  Officer of
the Company since November of 1997. Prior to joining the Company, Mr. Bryant was
Chief Financial  Officer of Keg Restaurants  Limited,  a subsidiary of Whitbread
PLC from August of 1993 to June of 1997.  Prior thereto,  he served as financial
controller of the Whitbread Beer Company, a division of Whitbread PLC, from June
of 1990 until August of 1993.

            Daniel DeBou,  Chartered  Accountant,  has been the Chief Accounting
Officer of the Company since January 1, 1993. Prior to joining the Company,  Mr.
DeBou  was  employed  from 1978 to 1992 in  various  financial  capacities  with
Woodward Stores Limited,  a  publicly-owned  company traded on the Toronto Stock
Exchange and engaged in the operation of department and specialty stores.

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


Meetings, Attendance, Committees

            The  Board of  Directors  of the  Company  held  eight  (8)  regular
meetings in 1998. The Board maintains two standing committees:  the Compensation
Committee and the Audit Committee. Each incumbent director attended at least 75%
of the  aggregate  of: (1) the total  number of Board  meetings  held during the
period he was a  director;  and (2) the total  number  of  meetings  held by all
Committees of the Board on which he served during such period.

            It is the  function  of the  Compensation  Committee  to review  the
Company's  remuneration  policies  and  practices,  administer  certain  of  the
Company's  incentive  compensation  and stock option  plans,  and  establish the
salaries of the executive officers of the Company.  Messrs.  Jeffrey M. Barnett,
William McEwen,  Martin O'Dowd and Anthony Mariani have heretofore served as the
Compensation  Committee. It is the function of the Audit Committee to review the
external audit programs of the Company and to make  recommendations to the Board
of Directors of the Company concerning its appointment of independent  auditors,
the conduct of the audit and related matters.  Messrs. Jeffrey Barnett,  William
McEwen,  Martin  O'Dowd  and  David  Wiederecht  currently  serve  as the  Audit
Committee.  The  Committees  meet  separately  from,  but on the  same  days as,
regularly  scheduled Board meetings.  The Company does not maintain a nominating
committee or one performing a similar function.

            Compliance  with  Section  16(a) of the Exchange  Act.  Based upon a
review of Forms 3 & 4 and  amendments  thereto  filed by each person who, at any
time during the fiscal year,  was a director,  officer,  or beneficial  owner of
more than ten percent of any class of equity  securities of the Registrant,  all
such persons have timely filed all reports  required by Section 16(a) during the
most recent fiscal year.
<PAGE>
ITEM 11 EXECUTIVE COMPENSATION

Summary Compensation Table

            The following table sets forth a summary of the  compensation of the
Chief  Executive  Officer of the  Company  and the four other most  highly  paid
executive  officers  of the  Company  serving  as such as of the end of the last
fiscal year for their services  rendered during fiscal years 1998, 1997 and 1996
All figures are in Canadian  dollars.  The relative value of the Canadian dollar
compared  to the U.S.  dollar  fluctuates  from  time to time.  During  1998 the
average value was each CDN $1.00 equals U.S. $1.44.
<TABLE>
<CAPTION>

                                  Base                              All Other
                                 Salary            Bonuses       Compensation(1)
                                 ------            -------       ---------------
<S>                           <C>                  <C>                <C>        
Jeffrey M. Barnett,
Chairman

            12/27/1998        CDN $167,178            -0-             45,398     
            12/31/1997             164,373            -0-             45,398     
            12/31/1996             152,361            -0-             25,026     
                                                                                 
                                                                                 
Martin O'Dowd,                                                                   
Chief Executive Officer                                                          
  and President                                                                  
                                                                                 
            12/27/1998        CDN $247,801         72,000                -0-     
            12/31/1997              59,278            -0-                -0-     
            12/31/1996                 N/A                                       
                                                                                 
                                                                                 
Richard Bryant,                                                                  
Chief Financial Officer                                                          
                                                                                 
            12/27/1998       CDN $132,125             -0-               -0-      
            12/31/1997             20,833             -0-               -0-      
            12/31/96                 ----             -0-               -0-      
</TABLE>                                                           

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

                                  Base                              All Other
                                 Salary            Bonuses       Compensation(1)
                                 ------            -------       ---------------
<S>                           <C>                  <C>                <C>        
George W. Pitman
Vice President,
Design and Development

            12/27/1998        CDN $102,590             -0-             ------
            12/31/1997              99,750             -0-             ------
            12/31/1996              99,750             -0-             ------

Paul Tilbury
Vice President
Canadian Rainforest

            12/27/1998        CDN $ 86,359             -0-            $4,094
            12/31/1997              58,052             -0-            ------
            12/31/1996              58,052             -0-            ------

</TABLE>

            The Company  currently does not maintain,  and none of its executive
officers are eligible  for,  deferred  compensation,  long-term  incentive  plan
payouts, restricted stock awards, or other similar compensatory arrangements.


Employment Agreements

            During  1993,  the  Company   entered  into   five-year   employment
agreements,  subsequently  extended  for one  year,  with the  personal  service
corporations of Messrs.  Jeffrey M. Barnett and George W. Pitman. The agreements
initially  provided Mr.  Jeffrey M.  Barnett and Mr.  George P. Pitman with base
salaries of CDN  $135,000 and CDN $95,000,  respectively,  with certain  defined
cost of living increases. Under their agreements,  which expire in June of 1999,
Messrs.  Jeffrey M. Barnett and Pitman are entitled to other specified  benefits
such as an automobile allowance, reimbursement of business expenses, and health,
life and disability insurance.


Founders Retention Plan

            In 1993, the Board of Directors and the  shareholders of the Company
adopted a plan  pursuant to which  Jeffrey M.  Barnett and George W. Pitman were
granted  options to purchase an aggregate of 56,250 Common Shares of the Company
(43,750  as to Mr.  Barnett  and  12,500  as to Mr.  Pitman).  The  options  are
exercisable  at U.S.  $6.60 per share as to 20% of the shares  pursuant  to each
Option Grant as of the 5th,  6th, 7th, 8th and 9th annual  anniversaries  of the
grant date subject to the Optionee's continued employment by the Company on such
dates.
<PAGE>
Employee Stock Option, and Stock Compensation Plans.

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

            Under the 1993  Stock  Option  Plan,  options  may be granted to key
salaried management and administration  employees.  Messrs.  Jeffrey M. Barnett,
Peter J.  Barnett and George W. Pitman are not  eligible  for grants  under this
Plan.  100,000 shares were  initially set aside for grants  pursuant to the 1993
Plan.  400,000  shares were set aside  pursuant  to the 1997 Stock  Compensation
Plan. Options granted pursuant to both Plans vest 1/3 after 18 months; 2/3 after
30 months;  and as to the balance,  after 42 months.  All options  expire on the
fifth annual  anniversary of the date of grant.  105,000 options were granted to
employees  during 1998 pursuant to the 1997 Plan. No employee stock options were
exercised under either Plan during the most recent year.

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

            No persons who are officers or directors  either received any grants
or exercised any options under either Plan during fiscal 1998.


Non-Plan Options

            During 1998,  options for 945,000 Common Shares were granted to five
key executives, four of whom commenced employment with the Company in 1997. None
have been exercised and 20,000 of these options were canceled  through  December
27, 1998.

Total Options/Weighted Average Exercise Price

            Including the 925,000 remaining non-plan options granted in 1998, as
of the current date, there are an aggregate of 1,312,584 options  outstanding at
December  27,1998  exercisable at various prices at a weighted  average exercise
price of U.S. $6.45 per share.


Compensation of Directors

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

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

ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
        MANAGEMENT

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

            As of the close of business on March 31, 1999, 3,392,797 Shares were
issued  and  outstanding.  The  following  table  sets  forth,  as of such date,
information  relating to the beneficial ownership of the Company's Common Shares
by each person  known to the Company to be  beneficial  owner of more than 5% of
the Common Shares, by each director, by each of the named executive officers and
by all directors and executive officers as a group:
<PAGE>
<TABLE>
<CAPTION>
                                                             Approximate
                                                             Percentage of
    Name and Address                   Number of Shares    Outstanding Shares(4)
    ----------------                   ----------------    ---------------------
<S>                                          <C>                   <C>  
Jeffrey M. Barnett(1)(2)                     562,375               16.6%

Peter J. Barnett(3)                          550,375               16.2%

George W. Pitman(1)(2)                       129,250                3.8%

William C. McEwen(1)(4)                        7,100                  *

Martin O'Dowd(1)(4)                           23,960                  *

David Wiederecht(1)(5)                          ---                   *

Anthony Mariani(1)(5)                           ---                   *

Colin Stacey                                    ---                   *

Richard Bryant                                  ---                   *

Daniel DeBou(4)                               33,200                  *

Paul Tilbury(4)                               42,000                1.2%

General Electric
  Investment Private
  Placement Partners II(6)                   299,721                8.8%

All Directors and Executive
Officers as a Group
</TABLE>
---------------
*           = less than one percent.
(1)         Each person is a director.
(2)         Excludes  an  aggregate  of 56,250  shares  subject  to  conditional
            options  issued to the  founders of the Company  prior to the public
            offering pursuant to a Founders Retention Plan.
(3)         Includes  50,000  shares  transferred  by Mr.  Peter  Barnett to his
            children.
(4)         Includes all vested options granted to such persons  pursuant to the
            1993 Employee  Stock Option Plan and/or the 1997 Stock  Compensation
            Plan, and otherwise  than pursuant to such plans.  Excludes all such
            options which have not yet vested.
(5)         Messrs.  Wiederecht and Mariani are employed by a fund, the holdings
            of which are separately stated herein.
(6)         Excludes up to 4,508,000  additional  Shares subject to Warrants and
            conversion of Subordinated  Convertible Debentures currently held by
            the Fund.
<PAGE>
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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

As  a  result  of  this  inquiry,  which  concluded  during  1998,  the  company
renegotiated  certain purchase contracts,  and modified its purchasing practices
with the objective of preventing further such occurrences.  The Company employed
independent  counsel to resolve  possible  claims relating to the subject vendor
rebates and table game income by a settlement  which  provides for a recovery to
the Company of $350,000, no part of which has been received to date.
    
<PAGE>


                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
                  FORM 8-K

         (a)  See Index to Exhibits, attached.
         (b) During the last quarter of the period  covered by this report,  the
         Registrant filed reports on Form 8-K as follows:

         Report dated  December 22, 1998  relating to  $2,000,000  Exchange Note
Agreement with GEIPPP II.





<PAGE>

                                   SIGNATURES

            In  accordance  with  Section 13 or 15(d) of the  Exchange  Act, the
Registrant  caused  this report on Form 10-K-A to be signed on its behalf by the
undersigned, thereunto duly authorized.

(Registrant)  Elephant & Castle Group Inc.

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

Date  May 6, 1999

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

Date  May 3, 1999

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

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

Date  May 5, 1999

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

Date  May 5, 1999

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

Date  May 6, 1999

By   /s/William McEwen
     -----------------
     William McEwen, Director

Date  May 6, 1999

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

Date  May 6, 1999

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

Date  May 6, 1999
<PAGE>
ELEPHANT & CASTLE GROUP INC.


Consolidated Financial Statements
December 27, 1998
(Canadian Dollars)


<TABLE>
<CAPTION>
         INDEX                                                          Page
         ----                                                          ----
                                                                   
<S>                                                                       <C>
         Auditors' Report to the Shareholders                             1
                                                                   
         Consolidated Financial Statements                         
                                                                   
         Consolidated Balance Sheets                                      2
                                                                   
         Consolidated Statements of Operations                            3
                                                                   
         Consolidated Statements of Shareholders' Equity                  4
                                                                   
         Consolidated Statements of Cash Flows                            5
                                                                   
         Notes to Consolidated Financial Statements                     6-20
</TABLE>
                                                            

<PAGE>
AUDITORS' REPORT TO THE SHAREHOLDERS


We have audited the consolidated  balance sheets of Elephant & Castle Group Inc.
as at December 27, 1998 and December 31, 1997 and the consolidated statements of
operations, shareholders' equity and cash flows for the years ended December 27,
1998 and  December  31,  1997  and  1996.  These  financial  statements  are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing standards
in Canada which do not differ in any material  respects from auditing  standards
generally  accepted in the United States.  Those standards  require that we plan
and  perform  an audit to obtain  reasonable  assurance  whether  the  financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial statement presentation.

In our opinion,  these consolidated  financial statements present fairly, in all
material respects,  the financial position of Elephant & Castle Group Inc. as at
December 27, 1998 and December  31, 1997 and the results of its  operations  and
its cash flows for the years ended  December  27, 1998 and December 31, 1997 and
1996 in  accordance  with  generally  accepted  accounting  principles in Canada
applied on a  consistent  basis.  Accounting  principles  generally  accepted in
Canada  differ  in  certain  significant  respects  from  accounting  principles
generally  accepted  in the United  States and are  discussed  in Note 18 to the
consolidated financial statements.


"Pannell Kerr Forster"

Chartered Accountants

Vancouver, Canada
March 16, 1999
<PAGE>
ELEPHANT & CASTLE GROUP INC.
Consolidated Balance Sheets
(Canadian Dollars)
(In Thousands of Dollars)
<TABLE>
<CAPTION>
                                                                                                    December 27,        December 31,
                                                                                                       1998                1997
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                                     <C>                  <C>   
Assets (note 6)

Current
  Cash and term deposits                                                                                $2,468               $4,097
  Accounts receivable                                                                                      557                  672
  Inventory                                                                                                808                  683
  Deposits and prepaid expenses                                                                            517                  376
  Pre-opening costs                                                                                        891                  361
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                         5,241                6,189
Fixed (note 3)                                                                                          21,291               14,691
Goodwill (note 8)                                                                                        2,053                2,120
Other (note 4)                                                                                           2,212                1,621
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                       $30,797              $24,621
------------------------------------------------------------------------------------------------------------------------------------
Liabilities

Current
  Accounts payable and accrued liabilities (note 5)                                                     $5,931               $4,133
  Current portion of long-term debt (note 6)                                                               105                  444
                                                                                                         6,036                4,577
Long-Term Debt (note 6)                                                                                 16,500                9,835
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                        22,536               14,412
------------------------------------------------------------------------------------------------------------------------------------
Shareholders' Equity

Capital Stock (note 7)
  Authorized
               20,000,000      Common shares without par value
  Issued
                 3,321,334 (1997 - 3,002,183) Common shares                                             12,982               11,228
Other Paid-In Capital (note 7(a))                                                                          844                2,421
Currency Translation Adjustment                                                                        (1,051)                    0
Deficit                                                                                                (4,514)              (3,440)
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                         8,261               10,209
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                       $30,797              $24,621
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Contingencies and Commitments (notes 10 and 11)
Approved on behalf of the Board:

"J.M. Barnett"                      "M.J. O'Dowd"
 ...................................Director ....................................
J.M. Barnett                         M.J. O'Dowd
<PAGE>
ELEPHANT & CASTLE GROUP INC.
Consolidated  Statements of Operations  Years Ended December 27, 1998,  December
31, 1997 and 1996 (Canadian  Dollars) (In Thousands of Dollars,  except loss per
share)
<TABLE>
-------------------------------------------------------------------------------------------------------------------------------
                                                                            1998               1997               1996
-------------------------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>                <C>                <C>  

Sales                                                                            $42,630            $34,231            $29,284
-------------------------------------------------------------------------------------------------------------------------------
Restaurant Expenses
  Food and beverage                                                               11,990              9,946              8,853
  Operating
      Labour                                                                      13,764             11,305              9,611
      Occupancy and other                                                         10,581              8,802              7,680
  Restaurant closing costs (note 12)                                                   0                330                  0
  Depreciation and amortization                                                    2,525              1,965              1,553
-------------------------------------------------------------------------------------------------------------------------------
                                                                                  38,860             32,348             27,697
-------------------------------------------------------------------------------------------------------------------------------
Income from Restaurant Operations                                                  3,770              1,883              1,587
-------------------------------------------------------------------------------------------------------------------------------
General and Administrative Expenses                                                3,614              2,448              2,427
Retiring Allowance and Other Costs (note 12)                                           0                347                  0
Interest on Long-Term Debt                                                         1,085                504                334
                                                                                   4,699              3,299              2,761
-------------------------------------------------------------------------------------------------------------------------------
Net Loss for Year (note 13)                                                       $(929)           $(1,416)           $(1,174)
-------------------------------------------------------------------------------------------------------------------------------
Net Loss Per Common Share                                                       $ (0.29)           $ (0.48)           $ (0.44)
-------------------------------------------------------------------------------------------------------------------------------
Weighted Average Number of Shares Outstanding                                  3,197,000          2,947,000          2,683,000
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
ELEPHANT & CASTLE GROUP INC.
Consolidated Statements of Shareholders' Equity
Years Ended December 27, 1998, December 31, 1997 and 1996
(Canadian Dollars)
(In Thousands of Dollars)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                        Other                         Currency           Total
                                          Common Shares                Paid-In                       Translation      Shareholders'
                                     Number          Amount            Capital        (Deficit)       Adjustment         Equity
------------------------------------------------------------------------------------------------------------------------------------
<S>                                 <C>               <C>                <C>           <C>               <C>              <C>   
Balance, December 31, 1995          2,604,611         $8,092             $0            $(774)            $0               $7,318
  Issue of shares                                                                                                        
    For interest (note 6)              70,555            414              0                0              0                  414
    For acquisition of                                                                                                   
      subsidiary (note 8)             147,059          1,370              0                0              0                1,370
   Net loss                                 0              0              0           (1,174)             0               (1,174)
------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996          2,822,225          9,876              0           (1,948)             0                7,928
  Issue of other paid-in                                                                                                 
    capital (note 7(a))                     0              0          2,548                0              0                2,548
  Issue of shares                                                                                                        
    For interest (note 6)              70,555            472              0                0              0                  472
    For services                        2,000             21              0                0              0                   21
    On exercise of options             17,833            129              0                0              0                  129
    On exercise of                                                                                                       
      warrants                         75,000            599              0                0              0                  599
    On conversion of other                                                                                               
      paid-in capital                                                                                                   
      (note 7(a))                      14,570            131           (127)              (4)             0                    0
    Dividend on other paid-in                                                                                            
      capital                               0              0              0              (72)             0                  (72)
  Net loss                                  0              0              0           (1,416)             0               (1,416)
------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997          3,002,183         11,228          2,421           (3,440)             0               10,209
  Issue of shares                                                                                                        
    For interest                       15,000             29              0                0              0                   29
    For services                        1,000              3              0                0              0                    3
  On conversion of other                                                                                                 
    paid-in capital (note 7(a))       303,151          1,722        (1,633)              (89)             0                    0
  Dividend on other paid-in                                                                                              
    capital                                 0              0             56              (56)             0                    0
  Currency translation                                                                                                   
    adjustment                              0              0              0                0         (1,051)              (1,051)
  Net loss                                  0              0              0             (929)             0                 (929)
------------------------------------------------------------------------------------------------------------------------------------
Balance, December 27, 1998          3,321,334        $12,982           $844          $(4,514)       $(1,051)              $8,261
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
ELEPHANT & CASTLE GROUP INC.                
Consolidated Statements of Cash Flows                           
Years Ended December 27, 1998, December 31, 1997 and 1996
(Canadian Dollars)
(In Thousands of Dollars)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                  1998              1997              1996
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>              <C>               <C>     
Cash Provided By Operating Activities
  Net loss                                                                       $ (929)          $(1,416)          $(1,174)
  Operating items not using cash                                                  2,502             2,317             1,739
------------------------------------------------------------------------------------------------------------------------------------
                                                                                  1,573               901               565
------------------------------------------------------------------------------------------------------------------------------------
Changes in Non-Cash Working Capital
  Accounts receivable                                                               115              (195)             (122)
  Inventory                                                                        (125)              (33)             (148)
  Deposits and prepaid expenses                                                     140               (33)             (252)
  Accounts payable and accrued liabilities                                        1,645               864               391
------------------------------------------------------------------------------------------------------------------------------------
                                                                                  1,775               603              (131)
------------------------------------------------------------------------------------------------------------------------------------
                                                                                  3,348             1,504              434
------------------------------------------------------------------------------------------------------------------------------------
Investing Activities
  Acquisition of fixed assets                                                    (8,682)           (5,306)           (3,292)
  Goodwill, net of non-cash consideration                                             0                 0              (647)
  Acquisition of other assets                                                    (1,326)             (870)             (608)
  Cash surrender value of life insurance                                              0                 0                45
  Acquisition of trademark                                                          (17)              (14)               (7)
------------------------------------------------------------------------------------------------------------------------------------
                                                                                (10,025)           (6,190)           (4,509)
------------------------------------------------------------------------------------------------------------------------------------
Financing Activities
  Deferred finance charges                                                         (108)             (216)              (34)
  Obligation under capital leases                                                     0               (21)              (74)
  Proceeds from long-term debt                                                    5,740             5,480                 0
  Repayment of long-term debt                                                      (584)             (538)              (48)
  Issuance of shares for cash                                                         0               728                 0
  Issuance of convertible debentures (note 7(a))                                      0             2,549                 0
------------------------------------------------------------------------------------------------------------------------------------
                                                                                  5,048             7,982              (156)
------------------------------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Cash                                                      (1,629)            3,296            (4,231)
Cash and Term Deposits, Beginning of Year                                         4,097               801             5,032
------------------------------------------------------------------------------------------------------------------------------------
Cash and Term Deposits, End of Year                                              $2,468            $4,097              $801
------------------------------------------------------------------------------------------------------------------------------------
Supplemental Disclosure of Cash Flow Information
  Cash paid during the year for
    Interest                                                                       $723              $388              $152
    Income taxes                                                                      0                 0                 0
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
ELEPHANT & CASTLE GROUP INC.
Notes to Consolidated Financial Statements
Years Ended December 27, 1998, December 31, 1997 and 1996
(Canadian Dollars)
(In Thousand of Dollars)

1.       BASIS OF PRESENTATION
         These  financial  statements  include the accounts of Elephant & Castle
         Group Inc.  ("the  Company"),  its  wholly-owned  subsidiaries  and its
         proportionate  share (50%) of jointly  owned  assets,  liabilities  and
         restaurant operations:

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

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

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

         (d)      Elephant & Castle  International,  Inc. incorporated in Texas,
                  September  4,  1997  to   franchise   the  Elephant  &  Castle
                  British-style  pub and restaurant  and Alamo Grill  steakhouse
                  concept.

         (e)      Canadian   Rainforest    Restaurants,    Inc.   ("CRRI")   was
                  incorporated  during 1997 and is jointly owned with Rainforest
                  Cafe,  Inc. for the purpose of undertaking  the development of
                  rainforest theme restaurants within Canada. Under the terms of
                  the agreement  Rainforest  Cafe,  Inc. will have the option to
                  purchase  the  Company's  interest  in CRRI  after  six  years
                  operations  based on a predetermined  formula of cash flow and
                  investment.

         All significant inter-company balances and transactions are eliminated.

         These consolidated financial statements are prepared in accordance with
         Canadian generally accepted  accounting  principles and all figures are
         in  Canadian  dollars  unless  otherwise  stated.   Canadian  generally
         accepted   accounting   principles  differ  in  certain  respects  from
         accounting  principles  generally  accepted in the United  States.  The
         significant  differences  and the  approximate  related  effect  on the
         consolidated financial statements are set forth in Note 18.

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
         (a)      Comparative figures

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

         (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.
<PAGE>
ELEPHANT & CASTLE GROUP INC.
Notes to Consolidated Financial Statements
Years Ended December 27, 1998, December 31, 1997 and 1996
(Canadian Dollars)
(In Thousands of Dollars)

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

         (c)      Fixed assets

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

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

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

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

         (d)      Goodwill

                  Goodwill is recorded at cost and  amortization is  calculated 
                  on a  straight-line  basis over periods from 10 to 40 years.

         (e)      Pre-opening costs

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

         (f)      Other assets

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

                  Deferred finance costs              -   Term of the related 
                                                          financial instruments
                  Restaurant development rights       -   5 Years
                  Deferred franchise costs            -   5 Years
                  Trademark                           -   10 Years


<PAGE>

         (g)      Foreign currency translation

                  Amounts  recorded  in  foreign  currency  are  translated into
                  Canadian dollars as follows
 
                  (i)      Monetary  assets  and  liabilities  at  the  rate  of
                           exchange in effect at the balance sheet date;

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

                  (iii)    Revenues and  expenses  (excluding  depreciation  and
                           amortization which are translated at the same rate as
                           the related  asset),  at the average rate of exchange
                           for the year.
<PAGE>
ELEPHANT & CASTLE GROUP INC.
Notes to Consolidated Financial Statements
Years Ended December 27, 1998, December 31, 1997 and 1996
(Canadian Dollars)
(In Thousands of Dollars)

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

                  Gains and  losses  arising  from this  translation  of foreign
                  currency  are  included  in net income  except for  unrealized
                  gains and losses on long-term monetary assets and liabilities,
                  which  are  deferred  and  amortized  over the  lives of those
                  items.  The unrealized  gains and losses will be recognized as
                  amounts are  received  or paid and are  included as a separate
                  component of shareholders' equity.

         (h)      Net loss per share

                  Net loss per  share  computations  are  based on the  weighted
                  average number of common shares  outstanding  during the year.
                  There is no  dilutive  effect  on net loss per  share in 1998,
                  1997 or 1996  after the  assumed  exercise  of stock  options,
                  warrants or convertible debentures.

3.       FIXED ASSETS
<TABLE>
<CAPTION>
         ------------------------------------------------------------------------------------------------------------------
                                                                                                  1998
         ------------------------------------------------------------------------------------------------------------------
                                                                                               Accumulated
                                                                                               Depreciation
                                                                                                   and
                                                                               Cost            Amortization         Net
         ------------------------------------------------------------------------------------------------------------------
<S>                                                                           <C>                  <C>             <C>    
         Leasehold improvements                                               $20,429              $4,759          $15,670
         Furniture and fixtures                                                 9,041               4,362            4,679
         China, glassware and cutlery                                             508                   0              508
         Computer equipment                                                       598                 164              434
         ------------------------------------------------------------------------------------------------------------------
                                                                              $30,576              $9,285          $21,291
         -------------------------------------------------------------------------------------------------------------------
<CAPTION>
         ------------------------------------------------------------------------------------------------------------------
                                                                                                  1997
         ------------------------------------------------------------------------------------------------------------------
                                                                                               Accumulated
                                                                                               Depreciation
                                                                                                   and
                                                                               Cost            Amortization         Net
         -------------------------------------------------------------------------------------------------------------------
<S>                                                                           <C>                  <C>              <C>    
         Leasehold improvements                                               $14,393              $3,602           $10,791
         Furniture and fixtures                                                 6,962               3,529             3,433
         China, glassware and cutlery                                             467                   0               467
         Computer equipment                                                        72                  72                 0
         -------------------------------------------------------------------------------------------------------------------
                                                                              $21,894              $7,203           $14,691
         -------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
ELEPHANT & CASTLE GROUP INC.
Notes to Consolidated Financial Statements
Years Ended December 27, 1998, December 31, 1997 and 1996
(Canadian Dollars)
(In Thousands of Dollars)
4.       OTHER ASSETS
<TABLE>
<CAPTION>
         -------------------------------------------------------------------------------------------------------------------
                                                                                                        1998           1997
         -------------------------------------------------------------------------------------------------------------------
<S>                                                                                                     <C>            <C> 
         Deferred finance costs                                                                         $481           $338
         Rainforest Restaurant developments rights                                                       408            342
         Note receivable June 1, 2000 (note 14(c))                                                       350              0
         Prepaid interest (additional consideration for below market
           interest rate)                                                                                375            566
         Deferred franchise costs                                                                        273            216
         Trademark                                                                                       123            110
         Other                                                                                           202             49
         -------------------------------------------------------------------------------------------------------------------
                                                                                                      $2,212         $1,621
         -------------------------------------------------------------------------------------------------------------------
</TABLE>
5.       ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
<TABLE>
<CAPTION>
         -------------------------------------------------------------------------------------------------------------------
                                                                                                        1998           1997
         -------------------------------------------------------------------------------------------------------------------
<S>                                                                                                    <C>           <C>   
         Trade payables                                                                                $2,251        $1,589
         Occupancy costs                                                                                  216           245
         Accrued salaries, wages and related taxes                                                        819           519
         Sales taxes                                                                                      311           264
         Construction, closing costs and other                                                          2,334         1,516
         -------------------------------------------------------------------------------------------------------------------
                                                                                                       $5,931        $4,133
         -------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
ELEPHANT & CASTLE GROUP INC.
Notes to Consolidated Financial Statements
Years Ended December 27, 1998, December 31, 1997 and 1996
(Canadian Dollars)
(In Thousands of Dollars)

6.       LONG-TERM DEBT
<TABLE>
<CAPTION>
         -------------------------------------------------------------------------------------------------------------------
                                                                                                   1998               1997
         -------------------------------------------------------------------------------------------------------------------
<S>                                                                                              <C>                 <C>   
           General  Electric  Investment  Private  Placement  Partners II, a limited             $13,500             $9,590
           partnership,   $9,000  U.S.   (CDN  $13,500)   convertible   subordinated
           debentures,  interest only at 5% per annum to November 1997, 6% per annum
           to  November  1998,  7% per  annum  to  November  1999  and 8% per  annum
           thereafter,  repayable in equal semi-annual  instalments of one eighth of
           the  principal   amount   outstanding   commencing   November   2001.  In
           consideration   for  the  below  market  interest  rates,  the  agreement
           provides for the issuance to the lender of 70,555  common  shares in each
           of 1996 and 1997 and 15,000 common  shares in each of 1998 and 1999.  The
           lender may exercise its conversion  privilege at any time on the basis of
           one share for each $5 U.S. of principal

           General  Electric  Investment  Private  Placement  Partners  II a limited               3,000                  0
           partnership  $2,000  U.S.  (CDN.  $3,000).  Bridge  loan due in June 2000
           (note 17)

           Toronto-Dominion  Bank  term  loans  repayable  over 3 years  in  monthly                  72                622
           instalments  of  $24  principal,  plus  interest at prime plus 0.75%, due
           March  1999, secured by a general  security agreement  with a first fixed
           and  floating  charge  over  all  the  Canadian  subsidiary's  assets, an 
           assignment of the  Canadian  subsidiary's accounts  receivable, inventory
           and certain leasehold improvements

           Camdev  Properties  Inc.  -  repayable  in  monthly   instalments  of  $3                  33                 57
           including  interest  at 13%,  due August 1, 1999,  secured by a charge on
           certain leasehold improvements
           
           Viking  Rideau  Corporation  - without  interest,  repayable  in  monthly                   0                 10
           instalments  of $1,  due  October,  1998,  secured by a charge on certain
           leasehold improvements

                                                                                                  16,605             10,279
         -------------------------------------------------------------------------------------------------------------------
           Less:  Current portion                                                                    105                444
         -------------------------------------------------------------------------------------------------------------------
                                                                                                 $16,500             $9,835
         -------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
ELEPHANT & CASTLE GROUP INC.
Notes to Consolidated Financial Statements
Years Ended December 27, 1998, December 31, 1997 and 1996
(Canadian Dollars)
(In Thousands of Dollars, except share prices)

 
6.       LONG-TERM DEBT (Continued)
<TABLE>
<CAPTION>

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

           <S>                                            <C>    
           1999                                           $   105
           2000                                             3,000
           2001                                             1,688
           2002                                             3,375
           2003                                             3,375
           Thereafter                                       5,062
        -------------------------------------------------------------------------------------------------------------------
                                                          $16,605
</TABLE>

<PAGE>
7.       CAPITAL STOCK

         (a)      In July 1997, the Company  issued $2,000 U.S.  ($2,740 CDN) of
                  6% convertible  subordinated  debentures.  The net proceeds of
                  $1,860 U.S.  ($2,548 CDN) have been recorded as "other paid-in
                  capital".  The  debentures  are  automatically  converted into
                  common  shares on July 31, 2000 if they have not already  been
                  converted at that time.  The Company has filed a  registration
                  statement  with the  Securities  and Exchange  Commission  for
                  296,296  shares of common stock in respect to the shares to be
                  issued upon  conversion  under the conversion  formula.  As at
                  December  27,  1998,  $1,384  U.S.  principal  amount  of  the
                  debentures  plus  accrued  interest  to that  date  have  been
                  converted  by the  holder  into  317,721  common  shares.  The
                  Company may redeem the  debentures  at any time at 115% of the
                  principal amount being redeemed.

                  Subsequent  to  December  27,  1998,  the  Company  reached an
                  agreement  to  settle  the  balance  of  its  6%   convertible
                  subordinated  debenture.  The terms for repayment will be $240
                  U.S.  ($360 CDN.)  repayable  in 1999,  $320 U.S.  ($480 CDN.)
                  repayable  in the year 2000 and the  balance  in 2001.  At any
                  time the lender may convert the loan balance  outstanding into
                  shares of the Company at a conversion  price of $2.00 U.S. per
                  share.

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

                  (i)     The  1993  Founders'  option  plan set  aside  100,000
                          common  shares.  Options on the entire  100,000 shares
                          have been granted at $6.60 U.S.  ($9.04  CDN.).  These
                          options  become  exercisable  on the 5th  through  9th
                          anniversary date of granting.  43,750 of these options
                          were cancelled through December 27, 1998.

                  (ii)    The 1993 employee option plan set aside 100,000 common
                          shares.  Options have been  granted for  approximately
                          90,000   shares.   All  options   expire  on  the  5th
                          anniversary  date of the grant.  17,833 of the options
                          have been  exercised  through  December  27,  1998 and
                          38,833 of the options were cancelled  through December
                          27, 1998.

                  (iii)   The 1997 employee option plan set aside 400,000 common
                          shares.  Options have been granted for 278,000 shares.
                          All options expire on the 5th anniversary  date of the
                          grant.  None have been exercised  through December 27,
                          1998 and 41, 000 of the options were cancelled through
                          December 27, 1998.

                  (iv)    The  1993  directors'  option  plan set  aside  20,000
                          common  shares.  All have been  granted  and none have
                          been exercised through December 27, 1998.
<PAGE>
ELEPHANT & CASTLE GROUP INC.
Notes to Consolidated Financial Statements
Years Ended December 27, 1998, December 31, 1997 and 1996
(Canadian Dollars)
(In Thousands of Dollars, except share prices)

7.       CAPITAL STOCK (Continued)

                  There are  1,312,584  (including  the  925,000  options in (c)
                  below) options outstanding at December 27, 1998 exercisable at
                  various prices detailed in note 18(e).

         (c)      During 1998, options for 945,000 common shares were granted to
                  five key  executives,  four of whom commenced  employment with
                  the Company in 1997.  None have been  exercised  and 20,000 of
                  these options were cancelled through December 27, 1998.

         (d)      During 1994,  63,500 shares were issued to a director at $4.75
                  U.S. per share. At December 27, 1998, $300 U.S. ($411 CDN.) of
                  these  proceeds were unpaid.  The amount unpaid was charged to
                  shareholders' equity in the 1994 fiscal year.

         (e) At December  27,  1998,  warrants to  purchase  common  shares were
outstanding as follows:
<TABLE>
<CAPTION>
               -------------------------------------------------------------------------------------------------------
                                                                                     Exercise
               Expiry Date                                                             Price                   Number
               -------------------------------------------------------------------------------------------------------
               <S>                                                          <C>      <C>                     <C>    
               2000                                                         $ 4.75 - $ 5.25 U.S.               144,500
               2001                                                                  $ 8.16 U.S.                 6,125
               2002                                                                  $ 3.00 U.S.                20,000
               2002                                                                  $ 4.91 U.S.               977,597
               2002                                                                  $ 3.84 U.S.               703,125
               -------------------------------------------------------------------------------------------------------
                                                                                                             1,851,347
               --------------------------------------------------------------------------------------------------------
</TABLE>
                  These  warrants  are  subject to an  anti-dilution  provision,
                  which provides for an adjustment to the exercise price to take
                  into  consideration  the issue of other shares,  or securities
                  convertible into shares, at prices below the existing exercise
                  price. In addition the number of shares issued on exercise may
                  increase such that the total dollar amount paid on exercise of
                  these warrants will be the same at all times regardless of the
                  exercise price.
<PAGE>
ELEPHANT & CASTLE GROUP INC.
Notes to Consolidated Financial Statements
Years Ended December 27, 1998, December 31, 1997 and 1996
(Canadian Dollars)
(In Thousands of Dollars)

8.       BUSINESS ACQUISITION

         Effective  October 9, 1996,  the  Company  acquired  all the issued and
         outstanding  shares of Alamo Grill,  Inc.  ("Alamo")  for $734 cash and
         147,059  shares.  The  acquisition  was  accounted  for by the purchase
         method. The following pro-forma condensed consolidated income statement
         for the year ended  December 31,  1996,  which is  unaudited,  has been
         prepared   giving  effect  to  the  acquisition  of  Alamo  as  if  the
         transaction had taken place at January 1, 1996. Actual figures for 1998
         and 1997 are included for comparative purposes.
<TABLE>
<CAPTION>
                                                                                1998                1997                1996
           -----------------------------------------------------------------------------------------------------------------
           Sales                                                            $42,630             $34,231             $31,851
<S>                                                                         <C>                 <C>                 <C>   
           Restaurant  expenses  (including   depreciation  and             38,860              32,018              29,826
           amortization  of $2,525 in 1998;  $1,965 in 1997 and
           $1,641 in 1996)

           General,  administrative  expenses  and other  costs              4,699               3,629               3,262
           (including  interest on long-term  debt of $1,085 in
           1998, $504 in 1997 and $462 in 1996)

           Net loss                                                        $  (929)            $(1,416)            $(1,237)
           -----------------------------------------------------------------------------------------------------------------
           Net loss per common share                                       $ (0.29)            $ (0.48)            $ (0.44)
</TABLE>
9.       FINANCIAL INSTRUMENTS

         (a)      Fair value

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

                  The carrying value of the term loan from Toronto-Dominion Bank
                  approximates  its fair value because  interest is based on the
                  prime rate.

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

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

         (b)      Credit risk

                  The Company's financial assets that are exposed to credit risk
                  consist  primarily  of cash and  term  deposits  and  accounts
                  receivable.  Cash and term  deposits  are  placed  with  major
                  financial  institutions  rated in the two  highest  grades  by
                  nationally  recognized  rating  agencies.   Credit  risk  from
                  customer  exposure  is  nominal  due  to  the  nature  of  the
                  business.
<PAGE>
ELEPHANT & CASTLE GROUP INC.
Notes to Consolidated Financial Statements
Years Ended December 27, 1998, December 31, 1997 and 1996
(Canadian Dollars)
(In Thousands of Dollars)

9.       FINANCIAL INSTRUMENTS (Continued)

         (c)      Interest rate risk

                  The Company is not exposed to  significant  interest rate risk
                  due to the short-term  maturity of its monetary current assets
                  and current  liabilities  and the  relatively  small amount of
                  long-term debt subject to interest rate changes.

         (d)      Translation risk

                  The Company  translates  the results of U.S.  operations  into
                  Canadian  currency  using  rates   approximating  the  average
                  exchange  rate for the year.  The exchange  rate may vary from
                  time to  time.  This  risk is  minimized  to the  extent  U.S.
                  capital  expansions  are  financed  through  borrowing in U.S.
                  dollars and all non-Canadian  source revenues and expenses are
                  in U.S. dollars.

10.      CONTINGENCIES

         (a)      The Company was a party to two ten year lease  agreements with
                  Shilo Hotels ("Shilo") relating to facilities located at Yuma,
                  Arizona  and  Pomona,  California  respectively.  The  Company
                  asserted  certain  claims against Shilo by reason of the lease
                  agreements.  Shilo,  in  turn,  asserted  claims  against  the
                  Company  and  commenced  litigation,  still  pending,  in  the
                  Superior  Court,  State of  Arizona,  County  of Yuma.  In the
                  action,  Shilo seeks general and special damages  amounting to
                  approximately  $2,560 U.S. ($3,486 CDN.) for alleged breach of
                  the  lease  agreements  at Yuma and  Pomona.  In  management's
                  opinion,   the  Company  has  potential   valid  defenses  and
                  mitigation  of  damage  claims  against  Shilo,   as  well  as
                  potential  counterclaims.  A provision  of $647 Cdn.  has been
                  made for  potential  damages from this action along with legal
                  and closing costs.  Should any recovery or further loss result
                  from the resolution of this claim,  such loss or recovery will
                  be recognized in that period in which it becomes both probable
                  and estimable.

         (b)      In 1989 and 1990, the Canadian  subsidiary received Notices of
                  Reassessment  from Revenue Canada and the Ontario  Ministry of
                  Revenue  regarding a construction  allowance  received in 1984
                  from the landlord for its former Sarnia, Ontario location. The
                  reassessment  has been under appeal since 1989.  The amount of
                  tax   reassessed   was  $209.   Including   interest   accrued
                  retroactively   since  1984,  the  total  amount  disputed  at
                  December 27, 1998 approximates $785.

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

                  When the outcome of the appeal is resolved, the tax liability,
                  if any,  will be  recorded  as an  element  of the  income tax
                  expense for the year it is settled.
<PAGE>
ELEPHANT & CASTLE GROUP INC.
Notes to Consolidated Financial Statements
Years Ended December 27, 1998, December 31, 1997 and 1996
(Canadian Dollars)
(In Thousands of Dollars)

11.      COMMITMENTS

         (a)      The  subsidiaries  are committed to leases on their restaurant
                  locations  extending into the 2014 fiscal year. Minimum annual
                  rentals for the  restaurants  excluding  realty taxes,  common
                  area maintenance and other charges are as follows:
<TABLE>
<CAPTION>
                    --------------------------------------------------------------------------------------------------------
                    <S>                                                                                              <C>   
                    1999                                                                                             $3,769
                    2000                                                                                              4,663
                    2001                                                                                              4,625
                    2002                                                                                              4,379
                    2003                                                                                              4,132
                    2004 to 2014 inclusive                                                                           26,283
                                                                                                                    $47,851
                    --------------------------------------------------------------------------------------------------------
</TABLE>
                  Each of the  aforementioned  leases provide for the payment of
                  additional  rent based on  percentages of gross annual revenue
                  in  excess  of  minimum  rents,  or other  graduated  formulae
                  derived from gross revenue as defined in the particular  lease
                  agreements. The percentages range from 6% to 11%.

         (b)      The Company has committed, through its joint venture agreement
                  with  Rainforest Cafe Inc., to open a minimum of five Canadian
                  Rainforest  restaurants  by  March,  2001.  In 1998 the  first
                  restaurant  opened  in  Vancouver,  B.C.  at a  total  cost of
                  approximately  $6 million,  the second  restaurant  located in
                  Scarborough,  Ontario opened  subsequent to the year-end.  The
                  total cost  incurred to  December  27,  1998  approximates  $3
                  million  and at  December  27,  1998  the  joint  venture  was
                  committed   under   the   construction   contract   to   spend
                  approximately   an   additional   $2.5   million  to  complete
                  construction  (50% of this  commitment is  attributable to the
                  Company).   Leases  have  been   signed  for  two   additional
                  locations.

12.      RESTAURANT CLOSING COSTS, RETIRING ALLOWANCE AND OTHER COSTS
<TABLE>
<CAPTION>
                                                                                    1998            1997            1996
         -----------------------------------------------------------------------------------------------------------------
<S>                                                                                   <C>           <C>                <C>
         Restaurant Closing Costs
                    Disposal of assets and demolition costs relating                  $0            $330               $0
                    to   restaurant lease not renewed
         -----------------------------------------------------------------------------------------------------------------
         Retiring Allowance and Other Costs
           Senior executive retirement allowance                                      $0            $261               $0
           Other former employee costs                                                 0              86                0
                                                                                      $0            $347               $0
         -----------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
ELEPHANT & CASTLE GROUP INC.
Notes to Consolidated Financial Statements
Years Ended December 27, 1998, December 31, 1997 and 1996
(Canadian Dollars)
(In Thousands of Dollars)

13.      INCOME TAX

         The Company has the  following  available  tax losses,  the benefits of
         which have not been recorded in these financial statements

         (i)      Non-capital  losses  of  approximately  $5,960  which  can  be
                  applied  against future income for Canadian tax purposes up to
                  and including 2005.

         (ii)     Net capital losses of approximately  $400 which can be applied
                  against  future capital gains income for Canadian tax purposes
                  indefinitely.

         (iii)    Operating  losses of  approximately  $823 U.S.  ($1,240  CDN.)
                  which may be carried  forward to apply  against  future years'
                  income for United  States  income tax purposes  expiring up to
                  2013.

14.      RELATED PARTY TRANSACTIONS

         (a)      Two  officers  of  the  Company   utilize   personal   service
                  corporations to receive the income from their  employment with
                  the Company.  Payments to these corporations as well as direct
                  payments to these officers totalled $256 (1997 - $247) (1996 -
                  $258).

         (b)      A shareholder  and a former  director of the Company  provides
                  legal and consulting  services to the Company.  Fees for these
                  services totalled $103 (1997 - $80) (1996 - $90).

         (c)      The Company holds a non-interest  bearing  promissory note for
                  $350 from a  director  and  officer  of the  Company.  100,000
                  shares in the  capital  stock of the  Company  are  pledged as
                  security for payment of the note.

         (d)      Accounts  receivable at December 31, 1997 included $18,000 due
                  from  directors  of the Company and $48,000 due from a company
                  related to a director.
<PAGE>
15.      GEOGRAPHIC SEGMENTED DATA
<TABLE>
<CAPTION>
          ------------------------------------------------------------------------------------------------------------------
                                                                                 1998              1997              1996
          ------------------------------------------------------------------------------------------------------------------
          Sales to unaffiliated customers
          ------------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>                <C>               <C>    
            Canada                                                             $23,647            $21,227           $21,775
            United States                                                       18,983             13,004             7,509
          ------------------------------------------------------------------------------------------------------------------
                                                                               $42,630            $34,231           $29,284
          Income from restaurant operations
            Canada                                                              $2,224             $1,437            $1,419
            United States                                                        1,546                776               168
          ------------------------------------------------------------------------------------------------------------------
                                                                                 3,770              2,213             1,587
          Other charges                                                          4,699              3,629             2,761
          Net loss for year                                                     $(929)           $(1,416)          $(1,174)
          ------------------------------------------------------------------------------------------------------------------
          Identifiable assets
            Canada                                                             $14,072            $11,345            $8,930
            United States                                                       14,101             11,155             5,820
          ------------------------------------------------------------------------------------------------------------------
                                                                               $28,173            $22,500           $14,750
          ------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
ELEPHANT & CASTLE GROUP INC.
Notes to Consolidated Financial Statements
Years Ended December 27, 1998, December 31, 1997 and 1996
(Canadian Dollars)
(In Thousands of Dollars)

16.      UNCERTAINTY DUE TO THE YEAR 2000 ISSUE

         The Year 2000 Issue arises  because many  computerized  systems use two
         digits rather than four to identify a year. Date sensitive  systems may
         recognize the year 2000 as 1900 or some other date, resulting in errors
         when  information  using year 2000  dates is  processed.  In  addition,
         similar  problems may arise in some systems  which use certain dates in
         1999 to represent  something other than a date. The effects of the Year
         2000 Issue may be experienced before, on, or after January 1, 2000 and,
         if not addressed,  the impact on operations and financial reporting may
         range from minor  errors to  significant  systems  failure  which could
         affect an entity's ability to conduct normal business operations. While
         the  Company  has a plan to  address  the Year  2000  Issue,  it is not
         possible  to be certain  that all  aspects of the issue  affecting  the
         Company,   including   those  related  to  the  efforts  of  customers,
         suppliers, or other third parties, will be fully resolved.

17.      SUBSEQUENT EVENTS

         Subsequent to December 27, 1998 the $2,000 U.S.  (Cdn.  $3,000)  bridge
         loan disclosed in note 6 was converted into a convertible  subordinated
         debenture after  additional  financing of $1,265 U.S. ($1,898 CDN.) was
         obtained.  This convertible debenture is interest only at 8% per annum,
         payable  in  shares  only,  in  quarterly  instalments,  principal  due
         December 31, 2003. The lender may exercise its conversion  privilege at
         any time based on the average  market  price of the previous 10 working
         days.


<PAGE>
18.      DIFFERENCES  BETWEEN  CANADIAN  AND  UNITED  STATES  GENERALLY ACCEPTED
         ACCOUNTING PRINCIPLES (CANADIAN GAAP AND U.S. GAAP)

         (a)      Recent accounting pronouncements

                  (i)      Earnings per share

                           In February 1997, the Financial  Accounting Standards
                           Board   ("FASB")   issued   Statement   of  Financial
                           Accounting  Standards ("SFAS") No. 128, "Earnings per
                           Share".  The  statement  is effective  for  financial
                           statements  for periods  ending  after  December  15,
                           1997,  and changes the method in which  earnings  per
                           share will be determined.  The Company's  adoption of
                           FASB  128  for  U.S.  GAAP  purposes  results  in  no
                           difference in net income (loss) disclosure.

                  (ii)     Income tax

                           Under Canadian GAAP, the future tax benefits  related
                           to the non-capital  loss carry forwards have not been
                           recorded in the accounts.  Under U.S. GAAP, companies
                           must  follow  the   requirements   of   Statement  of
                           Financial  Accounting  Standards  No.  109 (SFAS 109)
                           which requires the use of the asset/liability  method
                           for measurement of tax liabilities,  wherein deferred
                           tax assets are  recognized  as well as  deferred  tax
                           liabilities.

                           The  Company   has   significant   non-capital   loss
                           carryforwards  (note 13).  SFAS 109 would require the
                           recognition  of a long-term  tax asset for the future
                           benefit   expected  from  the  application  of  these
                           carryforwards  to future  profitable  years. If it is
                           expected that the entire amount of  non-capital  loss
                           carryforwards will not be utilized,  then a valuation
                           allowance is applied to the asset to reasonably state
                           the  asset at its  expected  value.  Under  SFAS 109,
                           disclosure of the amount of the  valuation  allowance
                           is required.  As of December  27, 1998 the  valuation
                           allowance  is equal to 100% of the  deferred  tax net
                           except  for the amount  recognized  in income in note
                           18(b) for $486.  Changes in the value of the deferred
                           tax asset  are  recognized  each  year as income  tax
                           expense.
<PAGE>
ELEPHANT & CASTLE GROUP INC.
Notes to Consolidated Financial Statements
Years Ended December 27, 1998, December 31, 1997 and 1996
(Canadian Dollars)
(In Thousands of Dollars)

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

                  (iii)    SFAS 130, "Reporting  Comprehensive  Income" and SFAS
                           131, "Disclosures About Segments of an Enterprise and
                           Related  Information" were also issued in 1997. These
                           standards,  which became effective in 1998, expand or
                           modify  disclosures  and,  accordingly,  will have no
                           effect on the  Corporation's  consolidated  financial
                           position,  results of operations or cash flows. Under
                           U.S.   GAAP,   the   Company   would  have   reported
                           comprehensive loss of $1,980.

                  (iv)     In April 1998,  the  American  Institute of Certified
                           Public   Accountants   (AICPA)  issued  Statement  of
                           Position No. 98-5 (SOP 98-5), "Reporting on the Costs
                           of Start-Up Activities".  SOP 98-5 generally requires
                           costs of start-up  activities to be expensed  instead
                           of being capitalized and amortized and is required to
                           be adopted no later than January 1, 1999.  Under U.S.
                           GAAP in fiscal 1999 the Company  would be required to
                           write-off pre-opening costs which amounted to $891 at
                           December 27, 1998.


<PAGE>
         (b)      Reconciliation   of  earnings   reported  in  accordance  with
                  Canadian GAAP and U.S. GAAP
<TABLE>
<CAPTION>
                  -----------------------------------------------------------------------------------------------------------
                                                                      1998                 1997                 1996
                  -----------------------------------------------------------------------------------------------------------
<S>                                                                          <C>                <C>                 <C>     
                  Net loss - Canadian GAAP                                   $(929)             $(1,416)            $(1,174)
                  Adjustments increasing net loss

                  Amortization of improvement costs *                          (61)                (110)               (116)
                  Dividend  on paid-in  capital  that would be                (145)                 (76)                   0
                  treated as  interest  under U.S.  GAAP (note
                  7(a))

                  Income tax effect of adjustments                                0                    0                   0

                  Recognition   of   non-capital   loss  carry                  486                    0                   0
                  forwards **
                  -----------------------------------------------------------------------------------------------------------
                  Net loss U.S. GAAP                                         $(649)             $(1,602)            $(1,290)
                  -----------------------------------------------------------------------------------------------------------
                  Net loss per common share
                    Canadian GAAP                                          $ (0.29)             $ (0.48)            $ (0.44)
                  -----------------------------------------------------------------------------------------------------------
                    U.S. GAAP                                              $ (0.20)             $ (0.54)            $ (0.48)
                  -----------------------------------------------------------------------------------------------------------
                  Weighted average number of
                    shares outstanding                                    3,197,000            2,947,000           2,683,000
                  -----------------------------------------------------------------------------------------------------------
                  *        Under U.S.  GAAP,  amortization  of leasehold  improvement  costs would be  restricted to the term of the
                           lease.
                  **       Carry forward loss that would be recorded as a deferred tax asset under U.S. GAAP.
</TABLE>
<PAGE>
ELEPHANT & CASTLE GROUP INC.
Notes to Consolidated Financial Statements
Years Ended December 27, 1998, December 31, 1997 and 1996
(Canadian Dollars)
(In Thousands of Dollars)

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

         (c)      Statements of Cash Flows

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

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

                  Under U.S. GAAP,  financing and investing  activities  that do
                  not result in cash flow would be excluded  from the  statement
                  and disclosed separately.  The following items included in the
                  Statements of Cash Flows would be disclosed  separately  under
                  U.S. GAAP
<TABLE>
<CAPTION>
                                                                               1998               1997              1996
                    ------------------------------------------------------------------------------------------------------
<S>                                                                         <C>                <C>               <C>    

                    Cash surrender value of life insurance                  $     0            $   15            $   45
                    ------------------------------------------------------------------------------------------------------
         (d)      Reconciliation of shareholders' equity reported in accordance with Canadian GAAP and U.S. GAAP
<CAPTION>

                                                                               1998               1997              1996
                    ------------------------------------------------------------------------------------------------------
<S>                                                                         <C>                <C>               <C>    
                    Shareholders'   equity,  end  of  year  under           $ 8,261            $10,209           $ 7,928
                    Canadian GAAP

                    Cumulative  increase  in  net  loss  reported            (3,093)            (3,093)           (3,187)
                    under  Canadian  GAAP to net loss  under U.S.
                    GAAP

                    Other  paid-in  capital  under  Canadian GAAP              (844)            (2,421)                 0
                    (note 9(a))  treated as debt  obligation  for
                    U.S. GAAP

                    Beneficial  conversion feature of convertible              2,436              2,436             2,436
                    subordinated    debentures   (notes   7   and
                    18(d)(i))
                    ------------------------------------------------------------------------------------------------------
                    Shareholders'  equity, end of year under U.S.           $ 6,760            $ 7,131           $ 7,177
                    GAAP
                    ------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
                  (i)      The  beneficial  conversion  feature  of  convertible
                           subordinated   debentures  is  accounted  for  as  an
                           interest   expense  at  the  date  of  issue  of  the
                           security.  This policy conforms to the accounting for
                           these  transactions  announced  by the SEC  staff  in
                           March, 1997.

                           The  reconciliation of shareholders'  equity reported
                           in  accordance  with  Canadian GAAP and U.S. GAAP has
                           been  adjusted by $2,436 Cdn. to reflect  this charge
                           to income and increase in capital in 1995.
<PAGE>
ELEPHANT & CASTLE GROUP INC.
Notes to Consolidated Financial Statements
Years Ended December 27, 1998, December 31, 1997 and 1996
(Canadian Dollars)
(In Thousands of Dollars, except share prices)


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

         (e)      Stock options

                  The  Company  has  granted  founders,  directors  and  certain
                  employees  stock options.  Stock option activity is summarized
                  as follows:
<TABLE>
<CAPTION>
                                                                                    Number              Exercise Price
                                                                                   of Shares        (U.S.$)         (Cdn.$)
                  ----------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>            <C>              <C>   
                  Balance outstanding, December 31, 1995                             173,800        $ 6.06 *         $ 8.30
                  1996 - Granted                                                      22,000            7.02           9.86
                  ----------------------------------------------------------------------------------------------------------
                  Balance outstanding, December 31, 1996                             195,800          6.19 *           8.47
                  1997 - Granted                                                     224,000            6.00           8.22
                  1997 - Exercised                                                  (17,833)          5.28 *           7.23
                  ----------------------------------------------------------------------------------------------------------
                  Balance outstanding, December 31, 1997                             796,967          6.11 *           8.37
                  1998 - Granted                                                   1,050,000            6.52           9.79
                  1998 - Cancelled                                                 (139,383)            6.04           9.07
                  ----------------------------------------------------------------------------------------------------------
                  Balance outstanding, December 27, 1998                           1,312,584       $ 6.45  *           9.67
                  ----------------------------------------------------------------------------------------------------------
</TABLE>

                  *        Weighted average exercise price.

                  In  1995  the  FASB  issued  SFAS  No.  123   "Accounting  for
                  Stock-Based  Compensation",  which contains a fair value-based
                  method for valuing stock-based  compensation that entities may
                  use. This measures  compensation  cost at the grant date based
                  on  the  fair  value  of  the  award.   Compensation  is  then
                  recognized  over the  service  period,  which is  usually  the
                  vesting period. For U.S. GAAP purposes management accounts for
                  options  under APB Opinion No. 25. As option  exercise  prices
                  approximated   market   price  on  the   dates  of  grants  no
                  compensation  expense has been recognized.  If the alternative
                  accounting-related provisions of SFAS No. 123 had been adopted
                  as of the beginning of 1995, the effect on 1998, 1997 and 1996
                  U.S. GAAP net loss per share would have been immaterial.




<PAGE>

                                INDEX TO EXHIBITS



Exhibits


3.1      Certificate of Incorporation and                                *
         Certificate of Name Change of
         Registrant

3.2      Articles of Association of Registrant                           *

3.3      Certificate of Amalgamation, dated                              *
         May 1, 1990, The Elephant and Castle
         Canada Inc.

4.1      Form of certificate evidencing shares                           *
         of Common Stock

4.2      Form of Underwriter's Warrant Agreement                         *
         between Registrant and the Underwriter

4.3      Form of Subordinated Convertible Note
         issued in Delphi Financing                                      X

4.4      Form of Noteholders Warrant issued in
         Delphi Financing                                                X

10.1     Bank Loan Agreement, dated September 13,                        *
         1990, with Toronto Dominion Bank

10.2     Letter Agreement dated June 26, 1991,                           *
         regarding expansion of facilities at
         Edmonton Eaton Centre food court relocation

10.3     Retailer Application dated May 23, 1992,                        *
         and Specimen Agreement for Alberta Lotteries
         and Alberta Gaming Control

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

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

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

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

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

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

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

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

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

21       List of Subsidiaries                                            ****

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

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

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

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

----------------------
X Filed with the Company's 1998 10-K.



<PAGE>



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

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

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

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