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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C.
20549

FORM 10-K

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

For the fiscal year ended December 31, 2006

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

For the transition period from _________ to _________

Commission File No. **1-12134**

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

|Province ofBritishColumbia     | Not Applicable        
|------------------------------ | ----------------------
|(State or other                | (IRS Employer         
|jurisdiction of incorporation) | Identification Number)
|                               |                       
|1190 Hornby Street, Suite 1200 |                       
|Vancouver,B.C.CANADA           | V6Z 2K5               
|(Address of principal          | (Zip Code)            
|executive offices)             |                       

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

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

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

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

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

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

Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. YES
[X]   NO  [   ]

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

-1-

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contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K.[   ]

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

Large accelerated filer  [   ] 
Accelerated filer  [   ]  Non-accelerated filer
[X]

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

State the aggregate market value of the voting and non-voting
common equity held by non-affiliates computed by reference to the price at
which the common equity was last sold, or the average bid and asked price of
such common equity, as of the last business day of the registrants most
recently completed second fiscal quarter (June 25, 2006): US$ 5,516,173.

Number of Registrants common shares outstanding as of March 31,
2007, the latest practicable date for determination: 6,052,369.

-2-

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TABLE OF CONTENTS

|           |                                                                                                                    | PAGE  
|---------- | ------------------------------------------------------------------------------------------------------------------ | ------
|           |                                                                                                                    | NUMBER
|           |                                                                                                                    |       
|NOTE       | REGARDING FORWARD-LOOKING STATEMENTS                                                                               |       
|           |                                                                                                                    |       
|**PART I** |                                                                                                                    |       
|           |                                                                                                                    |       
|ITEM 1.    | BUSINESS                                                                                                           | 5     
|ITEM 1A.   | RISK FACTORS                                                                                                       | 15    
|ITEM 1B.   | UNRESOLVED STAFF COMMENTS                                                                                          | 22    
|ITEM 2.    | PROPERTIES                                                                                                         | 22    
|ITEM 3.    | LEGAL PROCEEDINGS                                                                                                  | 23    
|ITEM 4.    | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                                | 24    
|           |                                                                                                                    |       
|PART II    |                                                                                                                    |       
|           |                                                                                                                    |       
|ITEM 5.    | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER
      MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES | 25    
|ITEM 6.    | SELECTED FINANCIAL DATA                                                                                            | 29    
|ITEM 7.    | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
      AND RESULTS OF OPERATION                         | 34    
|ITEM 7A.   | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                         | 55    
|ITEM 8.    | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                                        | 56    
|ITEM 9.    | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
      AND FINANCIAL DISCLOSURE                         | 61    
|ITEM 9A.   | CONTROLS AND PROCEDURES                                                                                            | 61    
|ITEM 9B.   | OTHER INFORMATION                                                                                                  | 62    
|           |                                                                                                                    |       
|PART III   |                                                                                                                    |       
|           |                                                                                                                    |       
|ITEM 10.   | DIRECTORS,EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE                                                              | 63    
|ITEM 11.   | EXECUTIVE COMPENSATION                                                                                             | 63    
|ITEM 12.   | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
      AND RELATED STOCKHOLDER MATTERS               | 63    
|ITEM 13.   | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE                                    | 63    
|ITEM 14.   | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                                             | 63    
|           |                                                                                                                    |       
|PART IV    |                                                                                                                    |       
|           |                                                                                                                    |       
|ITEM 15.   | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES                                                                         | 64    
|           |                                                                                                                    |       
|SIGNATURES | 67                                                                                                                

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NOTE REGARDING FORWARDLOOKING STATEMENTS

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

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

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

CURRENCY AND EXCHANGE RATES

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

March
    February
    January
    December
    November
    October2007
    2007
    2007
    2006
    2006
    2006High for the month
    0.8674
    0.8632
    0.8584
    0.8759
    0.8868
    0.8965Low for the month
    0.8467
    0.8437
    0.8463
    0.8581
    0.8715
    0.8763


Exchange rates are based upon the noon buying rate in New York
City for cable transfers in foreign currencies as certified for customs purposes
by the Federal Reserve Bank of New York. The noon rate of exchange on March 30,
2007 as reported by the United States Federal Reserve Bank of New York for the
conversion of Canadian dollars into United States dollars was Cdn$1.00 =
US$0.8673.

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PART I

ITEM 1         
 BUSINESS

General

Elephant & Castle Group Inc. (was formed in 1977 and owns
and operates pub and casual dining restaurants in the United States and Canada,
and is actively engaged in restaurant franchising activities. As of the date of
this report, the Company currently owns and operates a chain of 15 full-service
casual dining restaurants and pubs, seven of which are located in Canada and
eight of which are located in the United States.

Fourteen of the Company's 15 owned restaurants are operated
under the name "Elephant & Castle," an English pub concept, eight of which
are in the United States. The 15th owned restaurant, located in Canada, operates
under the name Rosies on Robson but is regarded by management as an Elephant
& Castle location for internal financial reporting purposes.

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

2006 Results of Operations

For the 53 weeks ended December 31, 2006, the Company's sales
were US$36,312,000 compared to US$33,045,000 for the 52 weeks ended December 25,
2005 (2004: US$28,202,000), an increase of US$3,267,000 or 9.9%.The year
2006 included a 53rd week of trading, which accounted for US$603,000
of the sales growth versus 2005. The years 2005 and 2004 were both 52 weeks. On
a same store basis, and ignoring the impact of the 53rd week,
revenues for the five US owned and operated locations open throughout both
periods were US$14,872,000, an increase of 5.3% over US$14,127,000 in 2005,
while revenues for the seven Canadian corporate locations open throughout both
periods were CDN$15,811,000, an increase of 8.5% over CDN$14,578,000 in 2005. In
November 2006, the Company opened its third restaurant in Chicago, IL.

During the fiscal year ended December 31, 2006, the Company
generated a net loss of US$334,000 compared to a net loss of US$3,266,000 in
2005. (2004: Net loss US$888,000). The net loss for the year ended December 31,
2006 included a gain on foreign exchange of US$65,000 compared to a loss of
US$679,000 in 2005.

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

US$000
    
    2006
    
    
    2005
    
    
    2004Sales to unaffiliated customersCanada
    $
    14,431
    
    $
    15,149
    
    $
    13,986United States
    
    21,881
    
    
    17,896
    
    
    14,216$
    36,312
    
    $
    33,045
    
    $
    28,202Capital assets and other assetsCanada
    $
    3,168
    
    $
    3,357
    
    $
    4,038United
      States
    
    8,634
    
    
    6,745
    
    
    3,454$
    11,802
    
    $
    10,102
    
    $
    7,492


Significant Events

(1) Arrangement with RRG and Repechage

On January 22, 2007, the Company entered into a definitive
Arrangement Agreement (the Arrangement Agreement)with Repechage Restaurant
Group Ltd. (RRG), a company incorporated under the laws of Canada. RRG is a
wholly-owned subsidiary of Repechage Investments Limited (Repechage).

Repechage is a closely-held investment company incorporated
under the laws of Newfoundland and Labrador. It holds investments in the
transportation, service and real estate sectors.

Pursuant to the Arrangement Agreement and the Plan of Arrangement,
  on the Effective Date (as defined in the Arrangment Agreement):

(a) Each of the holders of the Companys Common Shares will
transfer his Common Shares to RRG for US$0.7982 for each Common Share held;

(b) Each of the holders of the Companys Preferred Shares will
transfer his Preferred Shares to RRG for US$2.3946 for each Preferred Share
held;

(c) Each of the holders of Warrants to acquire Common Shares
and Preferred Shares in the Company will transfer his Warrants to RRG at a price
equal to the amount, if any, by which the applicable per share consideration
exceeds the warrant exercise price;

(d) All options to acquire shares in the Company will be
terminated; and

(e) Lenders and Noteholders will be paid all amounts owing
under the Notes held by them, and the Notes will be discharged.

On the Effective Date of the Arrangement, the Company will be
  a direct, wholly-owned subsidiary of RRG and an indirect wholly-owned subsidiary
  of Repechage. The Company expects to close the Arrangement during the second
  quarter of 2007.

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(2) Financings with GEIPPPII and Crown

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

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

On December 17, 2004, in consideration for the surrender of US$3,900,000
  of the existing senior notes (the Senior Notes), the surrender of
  US$5,000,000 of the existing junior notes (the Junior Notes, together
  with the Senior Notes, the Notes) and the exchange of US$1,209,000
  of accrued interest on the Notes, the Company issued US$4,204,000 of new secured
  14% notes (the Secured Notes), 3,653,972 of CDN$2.00 (US$1.72) series
  A, preferred shares (see note 8(b) of the Notes to Consolidated Financial Statements)
  and a warrant to purchase 1,750,000 common shares to GEIPPPII (collectively,
  the GEIPPPII Security). The Secured Notes bear interest at 14%,
  which was deferred until payments commenced in March 2007, except in certain
  circumstances, and are fully repayable on December 18, 2009. The preferred shares
  accrue a cumulative annual dividend of 6%, payable only when the debt owing
  to Crown Capital Partners (Crown) (see Transactions with Crown
  below) and the Secured Notes are paid in full. The preferred shares are redeemable
  at the Company's option at 100% of redemption principal plus a redemption premium
  of up to 50% of the principal amount. The premium shall accrue at 10% per year
  or part thereof (see note 8(b) of the Notes to Consolidated Financial Statements).
  Unless redeemed earlier, the preferred shares are automatically convertible,
  subject to the Company achieving an EBITDA target of US$3,500,000 at the rate
  of three common shares for every preferred share. The warrants are exercisable
  for a period of ten years at a price of CDN$0.667 (US$0.572) per share. The
  Notes will be paid in full and the preferred shares redeemed pursuant to the
  Arrangement Agreement.

(b) Transactions with Crown

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

-7-

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the Company and a further warrant to purchase 350,000 common
  shares. These further warrants are exercisable for a period of ten years at
  a price of CDN$0.667 (US$0.572) per share. The loan will be discharged and the
  warrants transferred to RRG pursuant to the Arrangement Agreement.

(c) Transactions with Management

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

(d) Agreements between investors

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

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

The terms of the 8% convertible, subordinated notes of the Company
  issued in 2000 ("Delphi Financing") have been amended such that the coupon has
  been increased to 9.25%. Repayment re-commenced in March 2007 and the balance
  will be paid off pursuant to the Arrangement Agreement.

Restaurants in Operation

Elephant & Castle. At the Elephant & Castle
restaurants, the Company seeks to distinguish itself from competitive
restaurants by adistinctive British style and decor, and by featuring a
wide variety of menu items including a large number of English-style dishes. The
Company's restaurants offer a broad menu at affordable prices. The menu is
regularly updated to keep up with current trends in customers' tastes. Although
all of the Company's restaurants provide full liquor service, alcoholic
beverages are primarily served in conjunction with food.

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

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opened its Chicago Club Quarters, West Adams Street restaurant
in April of 2001, and a second Chicago Restaurant adjacent to the Radisson
hotel, East Huron Street, in May 2005.

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

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

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

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

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

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

It is anticipated that the Arrangement Agreement will give the
Company access to further funds for expansion.

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Additional Information

a.Financial
Information about Industry Segments.

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

b.Narrative
Description of the Business.

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

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

The Company conducts many local promotions and loyalty programs
geared to the neighborhoods and market each restaurant serves, and supports
these with print and direct mail advertising. During fiscal 2006, the Companys
expenditures for advertising and promotional activities were approximately 3% of
its revenues.

iii.Status of New
Developments. The Company is always in the process of examining, evaluating
and undertaking various new restaurant opportunities. The Company opened two new
wholly-owned locations in 2005 and one in 2006, and plans to identify and open
one new wholly-owned restaurant in 2007. The Company is continually evaluating
other opportunities to add further owned or franchised stores, primarily in the
US.

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

v.Competitors and
Competitive Business Conditions. The restaurant and food service industry is
highly competitive and fragmented. There are countless restaurants and other
food and beverage service operations that compete directly and indirectly with
the Company. In addition, many restaurant chains have significantly greater
financial resources and higher sales volumes than the Company. Restaurant
revenues are affected by changing consumer tastes and discretionary spending
priorities, local economic conditions, demographic trends, traffic

-10-

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patterns, the ability of business customers to deduct
restaurant expenses, the increasing trend towards prohibition of smoking in
restaurants and the type, number and location of competing restaurants. In
addition, factors such as inflation and increased food, liquor, labour and other
employee compensation costs can adversely affect profitability. The Company
believes that its ability to compete effectively and successfully will depend
on, among other things, management's ability to offer quality food for moderate
prices, managements ability to control labour costs, and ultimately on the
executive determinations as to extensions of the brand (i.e., selection
of sites for new locations and related strategies). The Elephant & Castle
brand has successfully existed in Canada for 30 years and the United States for
16 years and, in the opinion of management, has proven that its brand concept is
durable and is capable of significant growth.

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

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

viii.Trademarks; Licenses. The
Company has registered the name "The Elephant & Castle Pub & Restaurant"
with the Canadian Trademarks Office, and with the United States Patent and
Trademark Office. In 1994, the Company acquired "The Elephant & Castle"
trademark in the United States from Elephant & Castle Inc., of Portland OR.
The Company agreed to pay US$50,000 (CDN$66,500), plus a one-time fee of
US$5,000 (CDN$6,650) per location for the first ten locations for the mark. The
Company believes its "Elephant & Castle" trademark has substantial value and
is an important factor in the marketing of its restaurants. The Company is not
aware of any infringing uses that could materially affect its business or any
prior claim to the trademarks in its business.

ix.Governmental
Licenses and Approvals. The Company is subject to various rules, regulations
and laws affecting its business. Each of the Company's restaurants is subject to
licensing and regulations by a number of governmental authorities, including
alcoholic beverage control and health, safety and fire agencies in the state,
province or municipality in which the restaurant is located. Difficulties in

-11-

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obtaining or failure to obtain the required licenses or
approvals could prevent or delay the development of a new restaurant in a new
location. Management believes the Company is in compliance in all material
respects with all relevant regulations. The Company has never experienced
unusual difficulties or delays in obtaining the required licenses or approvals
required to open a new restaurant.

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

Alcoholic beverage control regulations require each of the
Company's restaurants to apply to a state or provincial authority and, in
certain locations, county and municipal authorities, for a license and permit to
sell alcoholic beverages in the premises. Typically, licenses must be renewed
annually and may be revoked or suspended for cause at any time. The failure to
receive or retain, or a delay in obtaining, a liquor license in a particular
location could adversely affect the Company's ability to obtain such a license
elsewhere. The Company has not encountered any material problems related to
alcoholic beverage licensing to date. The Company is in the process of obtaining
consent to transfer its existing liquor licenses under the Plan of Arrangement,
but cannot guarantee that such consent will be obtained.

x. Effect of
Existing and Probable Governmental Regulations.

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

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

xi.Research and
Development. The Company places significant emphasis

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on the design and interior decor of its restaurants.

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

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

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

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

xiii.Number of Total Employees and Full-Time
Employees. As of December 31, 2006, the Company employed approximately 760
persons on a full-time and part-time basis. Eighteen of such persons serve in
administrative or executive capacities, approximately 64 serve as restaurant
management personnel and the remainder are hourly workers in the Company's
restaurant operations. The Company believes that its working conditions and
compensation packages are competitive with those offered by its competitors.
Management considers the Company's relations with its employees to be good, and
its rate of employee turnover to be low in relation to industry standards. The
Company's service personnel at the San Diego Elephant & Castle unit and
Rosie's on Robson are separately unionized.

The Company has sought to attract and retain high-quality,
knowledgeable restaurant management and staff. Each restaurant is managed by one
general manager and from one to three assistant managers, depending on volume.
Most restaurants, again depending on volume, also have one kitchen manager and
one to three assistant kitchen managers. On average, general managers have in
excess of five years' experience with the Company. The Company also employs two
regional managers. The Companys future success may depend in part on its
ability to continue to attract and train capable additional managers. Restaurant
managers, many of whom have moved up through the ranks, are required to complete
a

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training program during which they are instructed in areas
including food quality and preparation, customer service, alcohol service,
liquor liability avoidance and employee relations. The Company believes its
training programs for managers and other employees are comparable to the
training provided for managers and other employees at substantially larger
restaurant chains. Restaurant managers are also provided with operations manuals
relating to food and beverage standards and other expectations of restaurant
operations. Any new employee at all functional levels is closely supervised
after his or her on-the-job training.

Management has made a conscious commitment to provide customer
service of the highest standards. Recent evaluations by customers and other
independent testing appear to confirm customer satisfaction with the quality of
food and service at the Companys restaurant units. Efficient, attentive and
friendly service is integral to the Company's overall concept. Management
regularly solicits employee suggestions concerning operations and endeavors to
be responsive to legitimate employee concerns. The Company considers the quality
of its employee interaction with customers to be an important element of its
business strategy.

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

Available Information.The Company files
  annual and quarterly reports with the Securities and Exchange Commission (SEC).
  Its Commission file number is 1-12134. The public may read and copy any materials
  filed by the Company with the SEC at the SECs public reference room, 100
  F Street, N.E., Room 1580, Washington, DC. The public may obtain information
  on the operation of the public reference room by calling the SEC at 1-800-SEC-0330.
  The Companys internet website address is:www.elephantcastle.com

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

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ITEM
1A          RISK FACTORS

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

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

During the fiscal year ended December 31, 2006, the Company
generated a net loss of US$334,000 under Canadian generally accepted accounting
principles (Canadian GAAP). With the exception of the fiscal years ended
December 28, 2003 and December 30, 2001 in which the Company had a net income of
approximately US$228,000 and US$192,000, respectively, under Canadian GAAP, the
Company has incurred losses from operations during the last six years under
Canadian GAAP. For the period ended December 31, 2006, such loss included
interest costs of US$2,873,000 relating to the Companys funding structure.
Although the Companys income from restaurant operations has improved, the
Company continued to incur high interest costs associated with the Companys
funding structure for the year ended December 31, 2006 and the Companys
operations continue to remain subject to fluctuations in foreign currency
exchange rates, the Company may incur additional losses in the future unless its
operations generate significant revenues to offset these expense items. If the
Company continues to incur losses from operations in the future, this may
adversely affect the price of the Companys common shares.

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

The Company generates approximately Cdn$3,000,000 of operating
cash flow from its Canadian restaurants each year, with these cash flows
generated in Canadian dollars. Offsetting this revenue, the Company incurs
approximately Cdn$3,100,000 of general and administrative expenses and
approximately Cdn$600,000 in cash interest expenses. As at December 31, 2006 the
Company had Cdn$14,900,000 of long-term debt denominated in Canadian dollars.
The Companys reported earnings are, therefore, subject to exchange rate
fluctuations on the approximately Cdn$700,000 net cash outflow in Canadian
dollars each year, and on its Canadian dollar denominated debt. During the year
ended December 25, 2005, the Company incurred a loss of approximately US$679,000
as a result of fluctuations in foreign currency exchange rates due to the
weakening of the US dollar against the Canadian dollar. If the US dollar were to
weaken against the Canadian dollar, the Companys revenues in Canadian dollars
decrease and/or the Companys expenses in Canadian dollars increase, the
Companys results from operations could be adversely affected by fluctuations in
foreign currency exchange rates.

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

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

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

Although GEIPPPII disclaims beneficial ownership of certain
securities held by management and other third parties that own securities in the
Company, according to the latest amendment to the Schedule 13D filed by GEIPPPII
and related persons, GEIPPPII beneficially owns 92.0% of the Companys common
shares. As discussed elsewhere in this annual report, a significant portion of
this beneficial ownership interest was acquired by GEIPPPII through the
Companys new funding structure. See Item 1. Business  Financings. As a
result, GEIPPPII is able to control all matters requiring shareholder approval
including the election of directors and approval of significant corporate
transactions. This concentration of ownership may delay, deter or prevent
actions that would result in a change of control and might affect the market
price of the Companys common shares.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The Company may lose customers based on health concerns about
the consumption of certain foods or negative publicity concerning food quality,
illness and injury generally, such as negative publicity concerning the
accumulation of mercury or other carcinogens in

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

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

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

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

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

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

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

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

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

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

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

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

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the American Stock Exchange. Accordingly, you may have
difficulty reselling your common shares of the Company.

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

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

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

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

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

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

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

ITEM
1B          UNRESOLVED STAFF
COMMENTS

Not applicable.

ITEM
2           PROPERTIES

All of the Companys restaurants are located on leased sites.
The Company owns the furnishings, fixtures and equipment in each of its
restaurants. Existing restaurant leases have expirations ranging from 2007
through 2021 (including existing renewal options).

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

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

The Company's leased facilities at hotels and other non-mall
  locations are as follows:

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


Other Non-Mall Locations

Toronto King Street
    Oct. 1996
    9,200
    330Edmonton
    Nov. 1997
    5,600
    180Toronto Yonge Street
    Dec. 1999
    3,200
    160Washington, DC
    May. 2005
    7,000
    200Chicago, Wabash St.
    Nov. 2006
    6,900
    238


The Company also currently operates two mall-based restaurants,
both of which are in Canada. The following table provides opening date, square
footage and indoor seating capacity information with respect to each of the mall
based restaurants currently in operation:

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


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

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

|                          |  | Earliest        |  |  |                     | 
|------------------------- |  | --------------- |  |  | ------------------- | 
|Location                  |  | Expiration Date |  |  | Minimum Annual Rent | 
|                          |  |                 |  |  |                     | 
|San Diego, Holiday Inn    |  | 2010            |  |  | 92,000              | 
|Edmonton, Eaton Centre    |  | 2007            |  |  | 54,000              | 
|Boston, Club Quarters     |  | 2007            |  |  | 73,000              | 
|Ottawa Rideau Center      |  | 2008            |  |  | 142,000             | 
|Toronto, Yonge Street     |  | 2008            |  |  | 121,000             | 
|Philadelphia, Holiday Inn |  | 2010            |  |  | 122,000             | 
|Chicago, West Adams       |  | 2010            |  |  | 141,000             | 
|Toronto, King Street      |  | 2011            |  |  | 111,000             | 
|Edmonton, Whyte Ave       |  | 2012            |  |  | 89,000              | 
|Seattle, WestCoast Grand  |  | 2012            |  |  | 101,000             | 
|San Francisco             |  | 2013            |  |  | 0*                  | 
|Winnipeg, Delta Hotel     |  | 2014            |  |  | 51,000              | 
|Vancouver, Rosedale Hotel |  | 2015            |  |  | 137,000             | 
|Washington, DC            |  | 2015            |  |  | 203,000             | 
|Chicago, East Huron       |  | 2015            |  |  | 208,000             | 
|Chicago, Wabash Street    |  | 2021            |  |  | 245,000             | 
|                          |  |                 |  |  |                     | 
|Total:                    |  |                 |  |  | US$1,890,000        | 

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

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

ITEM
3           LEGAL PROCEEDINGS

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

The Company has been served notice of a class action launched
against it in Massachusetts in relation to the distribution of gratuities
received and paid over to staff for banquet and conference services. The Company
maintains that it has materially complied with all appropriate legislation and
that underpayment of gratuities to the staff in question amounts to no

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more than US$10,000. The class action suggests that the Company
should be denied tip-credit relief for a period of three years as a result of
this administrative oversight, which would represent a cost to the Company of
US$250,000. The Company has received legal advice that this aspect of the claim
is without merit, and accordingly the Company has not made provision against it
for the year ended December 31, 2006.

In March 2006, the Company initiated an arbitration action
against its franchisee in Springfield, NJ, B&S Limited (B&S), for
failure to pay continuing franchise fees and other costs per the parties
Franchise Agreement. At present, the amount the Company seeks to recover is
approximately US$150,000. However, due to the ongoing nature of the continuing
franchise fees, the Companys demand increases by approximately US$5,000 each
month. In November 2006, B&S responded to the arbitration demand by denying
the Companys allegations and pleading several counterclaims, seeking rescission
of the Franchise Agreement and the return of all sums paid to the Company since
2002. The Company vigorously disputes the counterclaims and filed a motion with
the arbitrator to dismiss them in December 2006. The arbitrators decision,
dismissing some, but not all of the counterclaims was received in February 2007.
The Company believes that all of B&Ss counterclaims will ultimately be
dismissed, and that the Company will prevail in full on the merits of its claim
against B&S. The binding arbitration hearing is scheduled for July 2007.

ITEM
4           SUBMISSION OF
MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

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PART II

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

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

The range of high and low bid and asked prices for the Companys common
  shares from January 1, 2005, to the end of 2006 has been:

High
    LowFirst Quarter of 2005:
    $0.50
    $0.28Second Quarter of 2005:
    $0.95
    $0.45Third Quarter of 2005:
    $0.51
    $0.40Fourth Quarter of 2005:
    $0.51
    $0.29First Quarter of 2006:
    $0.60
    $0.30Second Quarter of 2006:
    $1.00
    $0.25Third Quarter of 2006:
    $0.82
    $0.30Fourth Quarter of 2006:
    $0.79
    $0.30


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

(b) The approximate number of record holders of the Company's
common shares as of April 2, 2007 is 350. After the Effective Date of the Plan
of Arrangement, the number of shareholders will be less than 10.

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

-25-

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

Equity based compensation plans in force as at December 31,
2006:

Plan category
    Number of securities to be issued upon exercise
          of outstanding options 
          (a)
    Weighted-average exercise price of outstanding
          options
          (b)
    Number of securities remaining available for
          future issuance under equity compensation plans (excluding securities
          reflected in column (a))
          (c)Equity compensation plans approved by security
      holders
      260,000
      US $ 3.70 
        CDN $ 4.31
      550,000Equity compensation plans not approved by security
      holders
      0
      
      0Total
      260,000
      US $ 3.70 
        CDN $ 4.31
      550,000


Exchange Controls

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

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

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

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

-26-

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

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

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

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

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

Dividends

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

Capital Gains

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

-27-

---

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

Recent Sales of Unregistered Securities

None.

Purchases of Equity Securities by the Issuer and Affiliated
Purchasers

No repurchases of the Companys equity securities were made by
the Company or by an affiliated purchaser during the fourth quarter of 2006.

-28-

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

UNDER CDN GAAP
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002Sales
    $
    36,312
    
    $
    33,045
    
    $
    28,202
    
    $
    26,725
    
    $
    27,716Income fromRestaurant Operations
    
    5,321
    
    
    3,252
    
    
    2,719
    
    
    2,740
    
    
    2,640Per share
    
    0.89
    
    
    0.57
    
    
    0.52
    
    
    0.53
    
    
    0.51Earnings (loss)before Income Taxes
    
    (813
    )
    
    (3,008
    )
    
    (710
    )
    
    173
    
    
    (1,514
    )Per share
    
    (0.14
    )
    
    (0.52
    )
    
    (0.14
    )
    
    0.03
    
    
    (0.29
    )Net income (loss)
    
    (334
    )
    
    (3,266
    )
    
    (888
    )
    
    228
    
    
    (1,344
    )Earnings (loss)per share - basic
    
    ($0.06
    )
    
    ($0.57
    )
    
    ($0.17
    )
    $
    0.04
    
    
    ($0.26
    )Total assets
    
    16,968
    
    
    14,682
    
    
    15,164
    
    
    10,677
    
    
    10,656Shareholders'equity (deficit)
    
    (6,077
    )
    
    (5,795
    )
    
    (2,642
    )
    
    2,470
    
    
    1,908Long-term debt
    
    18,815
    
    
    17,347
    
    
    15,262
    
    
    4,622
    
    
    5,142Average sharesoutstanding
    
    5,982,656
    
    
    5,744,360
    
    
    5,244,507
    
    
    5,163,271
    
    
    5,163,354


-29-

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UNDER US GAAP
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002Sales
    $
    35,539
    
    $
    32,431
    
    $
    27,615
    
    $
    26,270
    
    $
    27,716Income fromRestaurant Operations
    
    5,469
    
    
    3,272
    
    
    2,744
    
    
    2,677
    
    
    2,669Per share
    
    0.91
    
    
    0.57
    
    
    0.52
    
    
    0.52
    
    
    0.52Earnings (loss)before Income Taxes
    
    (635
    )
    
    (2,981
    )
    
    (132
    )
    
    957
    
    
    (1,810
    )Per share
    
    (0.11
    )
    
    (0.52
    )
    
    (0.03
    )
    
    0.19
    
    
    (0.35
    )Net income (loss) as previously stated
    
    (154
    )
    
    (3,239
    )
    
    (1,170
    )
    
    (166
    )
    
    (1,646
    )Restatements:Gain on exchange of junior notes
    
    0
    
    
    0
    
    
    0
    
    
    201
    
    
    0Gain on translation of convertible notesusing period end rate for US GAAP
    
    0
    
    
    0
    
    
    860
    
    
    1,023
    
    
    51Amortize set up costs of junior notes
    
    0
    
    
    0
    
    
    0
    
    
    (45
    )
    
    (45
    )Net income (loss) as restated
    
    (154
    )
    
    (3,239
    )
    
    (310
    )
    
    1,013
    
    
    (1,640
    )Earnings (loss)per share
    
    ($0.03
    )
    
    ($0.56
    )
    
    ($0.06
    )
    $
    0.20
    
    
    ($0.32
    )Total assets
    
    15,049
    
    
    12,454
    
    
    12,876
    
    
    10,046
    
    
    9,886Shareholders' equity (deficit)as previously stated
    
    (6,248
    )
    
    (6,146
    )
    
    (3,020
    )
    
    (4,482
    )
    
    (3,742
    )Restatements:Gain on translation of convertible notesusing period end rate for US GAAP
    
    0
    
    
    0
    
    
    0
    
    
    (136
    )
    
    (90
    )Amortize set up costs of junior notes
    
    0
    
    
    0
    
    
    0
    
    
    657
    
    
    (365
    )Shareholders' equity (deficit)as restated
    
    (6,248
    )
    
    (6,146
    )
    
    (3,020
    )
    
    (3,961
    )
    
    (4,197
    )Long-term debt
    
    17,151
    
    
    15,510
    
    
    13,386
    
    
    10,327
    
    
    10,387Average sharesoutstanding
    
    5,982,656
    
    
    5,744,360
    
    
    5,244,507
    
    
    5,163,271
    
    
    5,163,354


-30-

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

(a)Consolidated
statement of operations items

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

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

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

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

-31-

---

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

2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002Net income (loss) Canadian GAAP
    
    ($334
    )
    
    ($3,266
    )
    
    ($888
    )
    $
    228
    
    
    ($1,344
    )Adjustments decreasing (increasing)net income (loss):Amortization of improvement costs
    
    117
    
    
    218
    
    
    6
    
    
    (2
    )
    
    (6
    )Pre-opening costs, expensed under US GAAP
    
    63
    
    
    (191
    )
    
    45
    
    
    (45
    )
    
    35Dividend on paid-in capital that would betreated as interest under US GAAP
    
    0
    
    
    0
    
    
    (333
    )
    
    (347
    )
    
    (330
    )Net (loss) US GAAP as previously stated
    
    (154
    )
    
    (3,239
    )
    
    (1,170
    )
    
    (166
    )
    
    (1,645
    )Restatements decreasing (increasing)net income (loss):Gain on exchange of junior notes
    
    0
    
    
    0
    
    
    0
    
    
    201
    
    
    0Amortize set up costs of junior notes
    
    0
    
    
    0
    
    
    0
    
    
    (45
    )
    
    (45
    )Gain on translation of convertible notesusing period end rate for US GAAP
    
    0
    
    
    0
    
    
    860
    
    
    1,023
    
    
    51Net income (loss) US GAAP as restated
    
    ($154
    )
    
    ($3,239
    )
    
    ($310
    )
    $
    1,013
    
    
    ($1,640
    )


(b)Balance sheet
items

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

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

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

For Canadian GAAP purposes, deferred
financing costs are recorded as an asset which is then amortized over the life
of the associated instrument. Under US GAAP, such costs are offset against long
term debt.

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

-32-

---

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

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

2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002Shareholders' equity (deficit) Canadian
      GAAP
    
    ($6,077
    )
    
    ($5,795
    )
    
    ($2,642
    )
    $
    2,470
    
    $
    1,908Adjustments decreasing (increasing)shareholders' equity (deficit):Amortization of improvement costs
    
    (42
    )
    
    (160
    )
    
    (378
    )
    
    (384
    )
    
    (382
    )Pre-opening costs, expensed under US GAAP
    
    (129
    )
    
    (191
    )
    
    0
    
    
    (45
    )
    
    (1
    )GEIPPPII Junior Notestreated as liability under US GAAP
    
    0
    
    
    0
    
    
    0
    
    
    (6,524
    )
    
    (5,267
    )Equity (deficit) US GAAP as previously stated
    
    (6,248
    )
    
    (6,146
    )
    
    (3,020
    )
    
    (4,483
    )
    
    (3,742
    )Restatements decreasing (increasing)shareholders' equity (deficit):Gain on exchange of junior notesAmortize set up costs of junior notes
    
    0
    
    
    0
    
    
    0
    
    
    (135
    )
    
    (90
    )Gain on translation of convertible notesusing period end rate for US GAAP
    
    0
    
    
    0
    
    
    0
    
    
    657
    
    
    (365
    )Equity (deficit) US GAAP as restated
    
    ($6,248
    )
    
    ($6,146
    )
    
    ($3,020
    )
    
    ($3,961
    )
    
    ($4,197
    )


-33-

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

Overview

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

Revenues are generated from two main sources:

-
      Food and beverage sales from Company owned and operated
      (Corporate) stores; and-
      Franchise fees and other franchise income.


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

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

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

-34-

---

Fifty-three weeks ended December 31, 2006 vs. Fifty-two
weeks ended December 25, 2005

It should be noted that the year ended December 31, 2006 was a
fifty-three week year, whereas 2005 and 2004 were fifty-two week years.

During the fifty-three weeks ended December 31, 2006, the
Company saw strong comparable store sales and profit growth from both US and
Canadian operations, reflecting improved operational standards and continuing
favorable economic conditions in both markets. Comparisons with available market
data suggest that the Companys growth in comparable US store sales has exceeded
the average for the casual dining sector by approximately 4.9% for the twelve
months ended December 31, 2006. (Source: KnappTrack).

The Company promoted itself as a venue for watching the FIFA
World Cup 2006 and benefited from this event. The return of the NHL Playoffs in
the second quarter of 2006 had a positive impact compared to the second quarter
of 2005.

During the fifty-three weeks ended December 31, 2006, the
Company generated Earnings Before Interest, Tax, Depreciation, Amortization and
Loss/(Gain) on Foreign Exchange (EBITDAFE) of US$3,853,000 which represents a
62% increase on the prior year when EBITDAFE was US$2,384,000. EBITDAFE is a
non-GAAP term, but the Company believes it to be a good measure of underlying
business performance. Loss/(Gain) on Foreign Exchange has been excluded since
these losses/(gains) largely relate to the translation of the Companys Canadian
dollar denominated debt, rather than to trading activities, and are also
extremely sensitive to relatively small movements in period end exchange rates.
Impairment of long-lived assets has been excluded since it represents
accelerated depreciation. The following table provides a reconciliation between
Net Income (Loss) and EBITDAFE:

|US$000                            |  | 2006  |   |  | 2005   |   |  | 2004  |  
|--------------------------------- |  | ----- | - |  | ------ | - |  | ----- | -
|                                  |  |       |   |  |        |   |  |       |  
|Income (Loss) Before Income Taxes |  | (813  | ) |  | (3,008 | ) |  | (710  | )
|Add back:                         |  |       |   |  |        |   |  |       |  
|Interest on Long-Term Debt        |  | 2,873 |   |  | 2,605  |   |  | 558   |  
|(Gain) Loss on Foreign Exchange   |  | (65   | ) |  | 679    |   |  | 28    |  
|Amotization                       |  | 1,858 |   |  | 1,872  |   |  | 1,559 |  
|Restaurant Closing Costs          |  | 0     |   |  | 55     |   |  | 0     |  
|Impairment of Long-Lived Assets   |  | 0     |   |  | 181    |   |  | 199   |  
|                                  |  |       |   |  |        |   |  |       |  
|EBITDAFE                          |  | 3,853 |   |  | 2,384  |   |  | 1,634 |  

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

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

-35-

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**Sales**

Sales increased during the fifty-three weeks ended December 31,
2006 to $36,312,000 from $33,045,000 in 2005. The year on year increase in sales
of $3,267,000 is comprised of:

|                                                         |  | US$        |  
|-------------------------------------------------------- |  | ---------- | -
|Increase in sales from same US stores
      (+5.3%)      |  | 745,000    |  
|Increase in sales from same Canadian stores (+8.5%)      |  | 1,086,000  |  
|Impact of closed Canadian stores                         |  | (2,850,000 | )
|Consolidation of Canadian sales at higher exchange rate  |  | 905,000    |  
|Share of sales from San Francisco joint
      venture    |  | 147,000    |  
|Impact of 2005 new stores (Chicago-Huron and Washington) |  | 2,540,000  |  
|Impact of 2006 new store (Chicago-Wabash)                |  | 231,000    |  
|Changes in other income                                  |  | (140,000   | )
|Impact of 53rd week in 2006                              |  | 603,000    |  
|                                                         |  |            |  
|Total change in sales versus 2005                        |  | 3,267,000  |  

The year ended December 31, 2006 was a 53 week year (2005 and
2004 = 52 weeks), resulting in an additional weeks sales of $603,000 in 2006.

For the five US Corporate locations open throughout both years,
sales for the 2006 period, excluding the 53rd week, were $14,873,000,
which represents an increase of 5.3% compared to the prior year. Two of five US
same corporate stores showed year on year growth: Chicago Adams Street, +13.8%;
Seattle, +11.6% . Sales at the other three US same corporate stores were broadly
flat. The Boston store showed good growth for most of the year, but was closed
for 3 weeks in the Summer for refurbishment, and further impacted by a basement
flood in October which resulted in further closures.

For the seven Canadian corporate locations fully open
throughout both periods, sales for the 2006 period, excluding the
53rd week, totaled CDN$15,811,000 and increased 8.5% compared to the
fifty-two weeks ended December 25, 2005. Six of the seven stores (Edmonton Whyte
Avenue +20.9%; Toronto - King Street +17.9%; Edmonton Eaton Centre +12.1%;
Ottawa +7.7%; Winnipeg +4.5%; Rosies on Robson +2.4%) showed year on year sales
increases. The return of NHL Hockey in the fourth quarter of 2005 had a positive
impact on the Edmonton Whyte Avenue and Rosies on Robson locations. Edmonton
Whyte Avenue benefited from the Edmonton Oilers making it to the NHL playoff
finals resulting in a positive second quarter of 2006. Toronto  King Street has
experienced increased sales following the refurbishment of its Office Bar,
completed in early 2006.

-36-

---

Net Loss

For the fifty-three weeks ended December 31, 2006, the Company
generated a net loss of $334,000 compared to a net loss of $3,266,000 for the
fifty-two week period in 2005. The current year loss includes a gain on foreign
exchange of $65,000 (2005 - $679,000 loss), and interest costs of $2,873,000
(2005 - $2,605,000) reflecting the Companys funding structure. Losses per
common share for the current period were $0.06, versus a loss per common share
of $0.57 in 2005. The weighted average number of common shares outstanding
increased from 5,744,360 in 2005 to 5,982,656 in 2006, reflecting the purchase
of common shares by Management in accordance with the Companys funding
agreements and the issuance of 12,000 common shares to directors.

Income from Restaurant Operations

The Company generated incomefrom restaurant operations
of $5,321,000 for the fifty-three weeks ended December 31, 2006 compared to
$3,252,000 for the same period in 2005. The increase versus 2005 of $2,069,000
is comprised of:

|                                                               |  | US$       |  
|-------------------------------------------------------------- |  | --------- | -
|                                                               |  |           |  
|Increase in income from same US stores                         |  | 486,000   |  
|Increase in income from same Canadian stores                   |  | 565,000   |  
|Impact of closed Canadian stores                               |  | 123,000   |  
|Asset impairment charge for closed Canadian stores             |  | 181,000   |  
|Impact of foreign exchange                                     |  | 121,000   |  
|Income from San Francisco store                                |  | 153,000   |  
|Impact of 2005 new stores (Chicago-Huron
      and Washington) |  | 566,000   |  
|Impact of 2006 new store (Chicago-Wabash)                      |  | 29,000    |  
|Changes in other income                                        |  | (155,000  | )
|                                                               |  |           |  
|Total change in income versus 2005                             |  | 2,069,000 |  

The Company opened two new corporate stores in May 2005, a
first store in Washington, DC, and a second store in Chicago, IL (East Huron
Street). These new stores generated income of $224,000 in the first three
quarters of 2006, versus a loss of $341,000 in the same period of 2005. A third
corporate store located in Chicago, IL (North Wabash Street) opened in December
2006 generated $29,000 in its first month of operation.

The Company estimates that the additional 53rd week
in 2006 added approximately $200,000 to restaurant income.

-37-

---

Same Store Performance

The following tables show same store sales and profit
performance for US and Canadian stores for the fifty-three weeks ended December
31, 2006 versus the fifty-two weeks ended December 25, 2005 (in local currency):

US same stores (US$000)

|                                    |  | 53 Wks |  |  | % of  |  |  | 52 Wks |  |  | % of  | 
|----------------------------------- |  | ------ |  |  | ----- |  |  | ------ |  |  | ----- | 
|                                    |  | 2006   |  |  | sales |  |  | 2005   |  |  | sales | 
|                                    |  |        |  |  |       |  |  |        |  |  |       | 
|SALES                               |  | 15,128 |  |  |       |  |  | 14,127 |  |  |       | 
|                                    |  |        |  |  |       |  |  |        |  |  |       | 
|RESTAURANT EXPENSES                 |  |        |  |  |       |  |  |        |  |  |       | 
|Food and Beverage Costs             |  | 3,644  |  |  | 24.1% |  |  | 3,471  |  |  | 24.6% | 
|Restaurant Operating
      Expenses |  |        |  |  |       |  |  |        |  |  |       | 
|Labor                               |  | 4,677  |  |  | 30.9% |  |  | 4,518  |  |  | 32.0% | 
|Occupancy and Other                 |  | 3,560  |  |  | 23.5% |  |  | 3,350  |  |  | 23.7% | 
|Amortization                        |  | 717    |  |  | 4.7%  |  |  | 735    |  |  | 5.2%  | 
|Loss on Asset Disposal              |  | 10     |  |  | 0.1%  |  |  | 19     |  |  | 0.1%  | 
|                                    |  |        |  |  |       |  |  |        |  |  |       | 
|                                    |  | 12,608 |  |  | 83.3% |  |  | 12,093 |  |  | 85.6% | 
|                                    |  |        |  |  |       |  |  |        |  |  |       | 
|INCOME FROM
      RESTAURANT        |  |        |  |  |       |  |  |        |  |  |       | 
|OPERATIONS                          |  | 2,520  |  |  | 16.7% |  |  | 2,034  |  |  | 14.4% | 

CDN same stores (CDN$000)

|                                    |  | 53 Wks |  |  | % of  |  |  | 52 Wks |  |  | % of  | 
|----------------------------------- |  | ------ |  |  | ----- |  |  | ------ |  |  | ----- | 
|                                    |  | 2006   |  |  | sales |  |  | 2005   |  |  | sales | 
|                                    |  |        |  |  |       |  |  |        |  |  |       | 
|SALES                               |  | 16,053 |  |  |       |  |  | 14,578 |  |  |       | 
|                                    |  |        |  |  |       |  |  |        |  |  |       | 
|RESTAURANT EXPENSES                 |  |        |  |  |       |  |  |        |  |  |       | 
|Food and Beverage Costs             |  | 4,656  |  |  | 29.0% |  |  | 4,275  |  |  | 29.3% | 
|Restaurant Operating
      Expenses |  |        |  |  |       |  |  |        |  |  |       | 
|Labor                               |  | 4,932  |  |  | 30.7% |  |  | 4,475  |  |  | 30.7% | 
|Occupancy and Other                 |  | 3,741  |  |  | 23.3% |  |  | 3,674  |  |  | 25.2% | 
|Amortization                        |  | 567    |  |  | 3.5%  |  |  | 644    |  |  | 4.4%  | 
|Loss on Asset Disposal              |  | 9      |  |  | 0.1%  |  |  | 2      |  |  | 0.0%  | 
|                                    |  |        |  |  |       |  |  |        |  |  |       | 
|                                    |  | 13,905 |  |  | 86.6% |  |  | 13,070 |  |  | 89.7% | 
|                                    |  |        |  |  |       |  |  |        |  |  |       | 
|INCOME FROM
      RESTAURANT        |  |        |  |  |       |  |  |        |  |  |       | 
|OPERATIONS                          |  | 2,148  |  |  | 13.4% |  |  | 1,508  |  |  | 10.3% | 

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

-38-

---

Food and Beverage Costs

Overall, food and beverage costs, as a percentage of sales,
decreased to 25.7% for the fifty-three weeks ended December 31, 2006, compared
to 26.4% for the fifty-two weeks ended December 25, 2005.

Food costs improved, despite some pressure on commodity
pricing, reflecting continuing efforts in training kitchen personnel and
management.

Labor and Benefits Costs

Labor and benefits decreased from 31.7% of sales in 2005 to
30.3% in the current period.

Same store percentage was below last year for the US reflecting
higher sales volumes and good cost control. In Canada, same store percentage of
sales was broadly flat versus the prior year, with volume efficiencies offset by
minimum wage increases in Ontario and Manitoba which impacted four of the seven
Canadian stores.

Occupancy and Other Operating Costs

Occupancy and other operating expenses as a percentage of sales
decreased to 23.8% from 25.7% in the same period last year. The closure of three
smaller, less profitable stores in Canada contributed to this improvement.

In same stores, costs as a percent of sales were lower in both
markets, reflecting largely fixed costs and higher sales volumes.

Impairment of Long-Lived Assets

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

The Company recorded a $181,000 charge for the impairment of
long-lived assets in the third quarter of 2005, which related to the three
Canadian stores which closed in the fourth quarter of 2005.

As at December 31, 2006, the Company has concluded that no
provisions for the impairment of long-lived assets are required.

Amortization Expense

Amortization costs were 5.7% of sales in 2005 and 5.1% in 2006.
Amortization expense decreased from $1,872,000 to $1,858,000.

The decrease in amortization can be attributed improved
operating performance and to expiry of long-lived assets.

-39-

---

**General and Administrative Costs**

General and administrative costs were 9.1% of sales for 2006,
an increase of 0.1% versus 9.0% of sales for 2005. Costs increased from
$2,976,000 in 2005 to $3,326,000 in the current period. This reflects conversion
of the mainly Canadian dollar costs into US dollars at a higher exchange rate
than that used in the prior year. Underlying costs were $209,000 higher than the
prior year, reflecting $55,000 of extra cost due to the 53rd week in
2006 and higher management bonuses for above budget profit performance. The
$350,000 increase versus 2005 is comprised of:

|                                                |  | US$      |  
|----------------------------------------------- |  | -------- | -
|Increase in costs of Vancouver office           |  | (209,000 | )
|Exchange rate applied to Vancouver office costs |  | (141,000 | )
|Total increase in G&A costs versus 2005         |  | (350,000 | )

Gain/Loss on Foreign Exchange

For the fifty-three weeks ended December 31, 2006, the Company
recorded a gain on foreign exchange of $65,000 (2005  $679,000 loss). This
reflects the conversion into US dollars of the Companys CDN$14,900,000 of
Canadian dollar denominated debt, including preferred shares, at a broadly
similar rate to year end 2005.

Interest on Long-Term Debt

Interest on long-term debt was $2,873,000 for the fifty-three
weeks ended December 31, 2006, compared to $2,605,000 in 2005. The increase is
attributable to interest costs on Canadian dollar denominated debt being
converted at a higher exchange rate than that used in the prior year.

Loss Before Taxes

The Company generated a loss before income taxes of $813,000
for the fifty-three weeks ended December 31, 2006 compared to a loss of
$3,008,000 for 2005. The current year loss includes a gain on foreign exchange
of $65,000 (2005  $679,000 loss) and interest costs of $2,873,000 (2005 
$2,605,000).

Income Taxes

The Company recorded income taxes of $146,000 for the
fifty-three weeks ended December 31, 2006 (2005 - $88,000), representing state
taxes which are payable in the US.

The Company also recorded an increase in its future income tax
balance of $625,000 for the fifty-three weeks ended December 31, 2006 (2005 
decrease of $170,000).

-40-

---

**Net Loss**

For the fifty-three weeks ended December 31, 2006, the Company
generated a net loss of $334,000 compared to a net loss of $3,266,000 for the
fifty-two week period ended December 25, 2005. The current year loss includes a
gain on foreign exchange of $65,000 (2005  $679,000 loss), and interest costs
of $2,873,000 (2005  $2,605,000). Losses per common share for the current
period were $0.06, versus a loss per common share of $0.57 in 2005. The weighted
average number of common shares outstanding increased from 5,744,360 in 2005 to
5,982,656 in 2006 for the current year, reflecting the purchase of common shares
by Management in accordance with the Companys funding agreements and the
issuance of 12,000 common shares to directors.

Market Risk  Foreign Exchange

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

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

Also, as noted above, the Companys reported earnings include
gains/losses on foreign exchange, which largely reflect revaluation of the
Companys approximately CDN$14,900,000 of long-term debt.

Seasonality

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

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

-41-

---

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

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

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

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

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

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

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

-42-

---

Sales

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

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

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

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

Net Income/Loss

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

-43-

---

Income from Restaurant Operations

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

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

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

-44-

---

**Same Store Performance**

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

US same stores (US$000)

|                                  |  |        |  |  | % of  |  |  |        |  |  | % of  | 
|--------------------------------- |  | ------ |  |  | ----- |  |  | ------ |  |  | ----- | 
|                                  |  | 2005   |  |  | sales |  |  | 2004   |  |  | sales | 
|                                  |  |        |  |  |       |  |  |        |  |  |       | 
|SALES                             |  | 14,127 |  |  |       |  |  | 13,338 |  |  |       | 
|                                  |  |        |  |  |       |  |  |        |  |  |       | 
|RESTAURANT EXPENSES               |  |        |  |  |       |  |  |        |  |  |       | 
|Food and Beverage Costs           |  | 3,471  |  |  | 24.6% |  |  | 3,366  |  |  | 25.2% | 
|Restaurant Operating Expenses     |  |        |  |  |       |  |  |        |  |  |       | 
|Labour                            |  | 4,518  |  |  | 32.0% |  |  | 4,349  |  |  | 32.6% | 
|Occupancy and Other               |  | 3,349  |  |  | 23.7% |  |  | 3,259  |  |  | 24.4% | 
|Amortization                      |  | 735    |  |  | 5.2%  |  |  | 899    |  |  | 6.7%  | 
|Loss on Asset Disposal            |  | 20     |  |  | 0.1%  |  |  | 0      |  |  | 0.0%  | 
|                                  |  |        |  |  |       |  |  |        |  |  |       | 
|                                  |  | 12,093 |  |  | 85.6% |  |  | 11,873 |  |  | 89.0% | 
|                                  |  |        |  |  |       |  |  |        |  |  |       | 
|INCOME FROM RESTAURANT OPERATIONS |  | 2,034  |  |  | 14.4% |  |  | 1,465  |  |  | 11.0% | 

|CDN same stores (CDN$000)         |  |        |  |  |       |  |  |        |  |  |       | 
|--------------------------------- |  | ------ |  |  | ----- |  |  | ------ |  |  | ----- | 
|                                  |  |        |  |  | % of  |  |  |        |  |  | % of  | 
|                                  |  | 2005   |  |  | sales |  |  | 2004   |  |  | sales | 
|                                  |  |        |  |  |       |  |  |        |  |  |       | 
|SALES                             |  | 14,578 |  |  |       |  |  | 13,863 |  |  |       | 
|                                  |  |        |  |  |       |  |  |        |  |  |       | 
|RESTAURANT EXPENSES               |  |        |  |  |       |  |  |        |  |  |       | 
|Food and Beverage Costs           |  | 4,275  |  |  | 29.3% |  |  | 4,215  |  |  | 30.4% | 
|Restaurant Operating Expenses     |  |        |  |  |       |  |  |        |  |  |       | 
|Labour                            |  | 4,475  |  |  | 30.7% |  |  | 4,342  |  |  | 31.3% | 
|Occupancy and Other               |  | 3,674  |  |  | 25.2% |  |  | 3,494  |  |  | 25.2% | 
|Amortization                      |  | 644    |  |  | 4.4%  |  |  | 724    |  |  | 5.2%  | 
|Loss on Asset Disposal            |  | 2      |  |  | 0.0%  |  |  | 9      |  |  | 0.1%  | 
|                                  |  |        |  |  |       |  |  |        |  |  |       | 
|                                  |  | 13,070 |  |  | 89.7% |  |  | 12,784 |  |  | 92.2% | 
|                                  |  |        |  |  |       |  |  |        |  |  |       | 
|INCOME FROM RESTAURANT OPERATIONS |  | 1,508  |  |  | 10.3% |  |  | 1,079  |  |  | 7.8%  | 

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

-45-

---

**Food and Beverage Costs**

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

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

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

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

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

Labour and Benefits Costs

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

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

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

Occupancy and Other Operating Costs

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

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

Impairment of Long-Lived Assets

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

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

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

In 2004, the Company agreed to an extension for the lease of
its

-46-

---

restaurant in Victoria, BC. The extension was for 5 years, but
with a landlords option to terminate on December 31, 2005, provided that notice
was given before June 30, 2005.

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

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

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

Restaurant Closing Costs

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

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

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

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

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

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

Amortization Expense

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

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

General and Administrative Costs

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

-47-

---

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

Gain (loss) on Foreign Exchange

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

Interest on Long-Term Debt

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

Income/Loss Before Taxes

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

Income Taxes

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

Net Income/Loss

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

-48-

---

Critical accounting policies

(1) Impairment of Long-Lived Assets

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

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

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

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

(2) Future income taxes

The Company has calculated, as at December 31, 2006, the
following values for future income tax benefits:

(a) Non-capital loss carry forwards -

US $000
    
      
      
      
      FIT
      
      
      Valuation
      
      
      
      
      
      FITLosses
      
      
      Benefit
      
      
      Allowance
      
      
      
      
      
      AssetUS operations
    
    6,943
    
    
    2,646
    
    
    (661
    )
    
    25%
    
    
    1,985CDN operations
    
    829
    
    
    282
    
    
    (141
    )
    
    50%
    
    
    141Group functions
    
    365
    
    
    124
    
    
    (124
    )
    
    100%
    
    
    08,137
    
    
    3,052
    
    
    (926
    )
    
    
    
    
    2,126


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

| | US $000         |  | FIT     |  |  | Valuation |   |  |      |  |  | FIT   | 
| | --------------- |  | ------- |  |  | --------- | - |  | ---- |  |  | ----- | 
| |                 |  | Benefit |  |  | Allowance |   |  |      |  |  | Asset | 
| | US operations   |  | 540     |  |  | (135      | ) |  | 25%  |  |  | 405   | 
| | CDN operations  |  | 380     |  |  | (190      | ) |  | 50%  |  |  | 190   | 
| | Group functions |  | 29      |  |  | (29       | ) |  | 100% |  |  | 0     | 
| |                 |  |         |  |  |           |   |  |      |  |  |       | 
| |                 |  | 949     |  |  | (354      | ) |  |      |  |  | 595   | 

The Company has applied 25% valuation allowances against its US
operations and a 50% valuation allowance against its Canadian operations. The
Company considers these valuation allowances to be appropriate. The Company has
applied a 100% valuation allowance against its group function, since at current
business volumes this entity does to generate taxable profits.

In addition, the Company has US$3,401,000 of net capital
losses, against

-49-

---

which a 100% valuation allowance has been applied.

Summary of future income tax asset as at December 31, 2006 -

|US $000                                                            |  | FIT     |  |  | Valuation |   |  | FIT   | 
|------------------------------------------------------------------ |  | ------- |  |  | --------- | - |  | ----- | 
|                                                                   |  | Benefit |  |  | Allowance |   |  | Asset | 
|Tax benefit of non-capital loss carry
      forwards               |  | 3,052   |  |  | (926      | ) |  | 2,126 | 
|Tax benefit of capital loss carry forwards                         |  | 1,160   |  |  | (1,160    | ) |  | 0     | 
|Fixed asset values for tax purposes in
      excess of book values |  | 949     |  |  | (354      | ) |  | 595   | 
|                                                                   |  |         |  |  |           |   |  |       | 
|                                                                   |  | 5,161   |  |  | (2,440    | ) |  | 2,721 | 

(3) Franchise fees

The Company recognizes initial fees from the sale of franchises
as revenue once the Company has fully complied with its obligations to the new
franchisee in providing operational support and training regarding the opening
of the restaurant. For the year ended December 31, 2006 such fees were $nil
(2005 - $25,000, 2004 - $15,000).

Continuing franchise royalties are recognized as revenue as
they are earned.

Total revenue from franchises is disclosed as a separate line
item within total sales on the Companys Consolidated Statements of Operations.

The Company has no obligated costs in connection with
continuing franchise royalties, but provides ongoing operational support and
advice to franchisees. This support is provided by the same operational
management team that supports the Companys corporately owned restaurants, and
as such cannot be separately identified and reported. These costs are included
within the Companys general and administrative expenses, as are the costs
associated with marketing and selling new franchises.

Income from restaurant operations derived from franchise
operations is therefore equal to total revenue from franchises.

(4) Foreign Currency Translation

Amounts recorded in foreign currency are remeasured into US
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 amortization, which is
translated at the same rate as the related asset), at the average rate of
exchange for the year.

-50-

---

Gains and losses arising from this remeasurement of foreign currency
  are included in net income.

Liquidity and Capital Resources

On January 22, 2007, the Company entered into a definitive
Arrangement Agreement (the Arrangement Agreement)with Repechage Restaurant
Group Ltd. (RRG), a company incorporated under the laws of Canada. RRG is a
wholly-owned subsidiary of Repechage Investments Limited (Repechage).

Repechage is a closely-held investment company incorporated
under the laws of Newfoundland and Labrador. It holds investments in the
transportation, service and real estate sectors.

Pursuant to the Arrangement Agreement and the Plan of Arrangement,
  on the Effective Date:

(a) Each of the holders of the Companys Common Shares will
transfer his Common Shares to RRG for US$0.7982 for each Common Share held;

(b) Each of the holders of the Companys Preferred Shares will
transfer his Preferred Shares to RRG for US$2.3946 for each Preferred Share
held;

(c) Each of the holders of Warrants to acquire Common Shares
and Preferred Shares in the Company will transfer his Warrants to RRG at a price
equal to the amount, if any, by which the applicable per share consideration
exceeds the warrant exercise price;

(d) All options to acquire shares in the Company will be
terminated; and

(e) Lenders and Noteholders will be paid all amounts owing
under the Notes held by them, and the Notes will be discharged.

On the Effective Date of the Arrangement, the Company will be
  a direct, wholly-owned subsidiary of RRG and an indirect wholly-owned subsidiary
  of Repechage. The Company expects to close the Arrangement during the second
  quarter of 2007.

The Plan of Arrangement provides that holders of Common Shares
in the Company will be granted a right of dissent in accordance with the dissent
provisions of the British Columbia Act.

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

During 2005, the Company invested US$4,685,000 in the building
of its second restaurant in Chicago, IL and its first restaurant in Washington,
DC, both of which opened in the spring of 2005.

As at December 31, 2006, the Company had invested US$2,500,000
  in the building of its third restaurant in Chicago, IL which opened at the end
  of November 2006.

The Companys remaining cash balance as at December 31, 2006
was

-51-

---

US$507,000. This balance will allow the Company to continue its
planned refurbishment and to maintain current operations. The Company expects to
generate sufficient cash from its existing and new stores to be able to continue
its expansion program in 2007.

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

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

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

(b) Transactions with Crown

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

(c) Transactions with Management

The Company has entered into an
agreement with the three senior managers of the Company ("Management"), whereby
Management has

-52-

---

committed to purchase for CDN$265,000
  (US$227,000), over a period of 18 months, 699,534 Common Shares and 487,196
  Preferred Shares, representing 10% of the outstanding shares of both classes
  of shares. Management has made an initial payment of CDN$115,000 (US$99,000).
  In connection with this purchase, Management have also been issued a warrant
  for the purchase of an additional 5% of both classes of shares for CDN$133,000
  (US$114,000), which will be transferred to RRG pursuant to the Arrangement Agreement.

(d) Agreements between investors

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

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

The terms of the 8% convertible, subordinated
  notes of the Company issued in 2000 ("Delphi Financing") have been amended such
  that the coupon has been increased to 9.25% Repayment re-commenced in March
  2007 and the balance will be paid off pursuant to the Arrangement Agreement.

(e) Accounting treatment of Preferred
Shares

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

(f) Prior years accounting treatment
of Junior Notes

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

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

-53-

---

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

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

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

The Company prepares its financial statements in accordance
with Canadian GAAP. (The reader is referred to note 16 of the Notes to
Consolidated Financial Statements for the year ended December 31, 2006 for
additional explanation.) The financial statements, if prepared in accordance
with US GAAP, would have differed as follows:

Net loss for the year ended December 31, 2006 would have been
reduced by US$180,000, comprised of pre-opening costs which would have been
expensed in 2005 under US GAAP, and of leasehold depreciation previously
accelerated under US GAAP.

Net loss for the year ended December 25, 2005 would have been
reduced by US$27,000, comprised primarily of pre-opening costs which would have
been expensed in 2005 under US GAAP, offset by the closure of three Canadian
stores and the consequent write-back for US GAAP of leasehold depreciation
previously accelerated under US GAAP. Net loss for the year ended December 26,
2004 would have decreased by US$578,000, comprised primarily of dividends on
convertible subordinated debentures that would have been treated as interest
expense under US GAAP, offset by pre-opening costs which would have been
expensed in 2003 under US GAAP, and a gain on translation of convertible notes
using period end rates for US GAAP. The impact of these adjustments would reduce
the net loss per share for 2006 from US$0.06 under Canadian GAAP to a net loss
of US$0.02 under US GAAP. The net loss per share in 2005 would be unchanged at
$0.57 but the net loss per share would increase in 2004 from US$0.17 under
Canadian GAAP to a loss of US$0.22 under US GAAP.

Shareholders deficit at December 31, 2006 would increase by
US$171,000 from a deficit of US$6,077,000 under Canadian GAAP to a deficit of
US$6,248,000 under US GAAP. Shareholders deficit at December 25, 2005 would
increase by US$351,000 from a deficit of US$5,795,000 under Canadian GAAP to a
deficit of US$6,146,000 under US GAAP.

-54-

---

**Off-Balance Sheet Arrangements**

At December 31, 2006, the Company did not have any off-balance
sheet arrangements.

Tabular Disclosure of Contractual Obligations

Payments due by period:Total
    
    
    Less than
    
    
    1 to 3
    
    
    3 to 5
    
    
    More thanUS$000
    
    Outstanding
    
    
    1 year
    
    
    years
    
    
    years
    
    
    5 yearsLong-term debt obligations
    
    18,814
    
    
    582
    
    
    18,232
    
    
    0
    
    
    0Capital lease obligations
    
    1
    
    
    1
    
    
    0
    
    
    0
    
    
    0Operating lease obligations
    
    13,411
    
    
    1,980
    
    
    3,407
    
    
    2,678
    
    
    5,346Purchase obligations
    
    124
    
    
    124
    
    
    0
    
    
    0
    
    
    0Other long-term obligations
    
    57
    
    
    57
    
    
    0
    
    
    0
    
    
    0Total contractual obligations
    
    32,407
    
    
    2,744
    
    
    21,639
    
    
    2,678
    
    
    5,346


Recent Accounting Pronouncements

Not Applicable.

ITEM 7A        
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

Market Risk  Foreign Exchange

The Companys functional and reporting currency is US dollars.
The Company generates approximately CDN$3,000,000 of operating cash flow from
its Canadian restaurants each year. These cash flows are generated in Canadian
dollars. Offsetting this, the Company incurs approximately CDN$3,100,000 of
general and administrative expenses, and approximately CDN$600,000 interest on
long-term debt in Canadian dollars.

The Companys reported earnings are, therefore, subject to
exchange rate fluctuations on the approximately CDN$700,000 net cash outflow in
Canadian dollars each year.

Also, the Companys reported earnings include gains/losses on
foreign exchange, which largely reflect revaluation of the Companys
approximately CDN$14,900,000 of long-term debt.

-55-

---

As of December 31, 2006, the potential reduction in future
reported earnings from a hypothetical instantaneous 10% change in quoted foreign
currency exchange rates applied to our foreign currency sensitive contracts and
assets would be approximately US$1,066,000. The sensitivity model does not
include the inherent risks associated with anticipated future transactions
denominated in foreign currencies or future forward contracts entered into for
hedging purposes.

To minimize the risk associated with the effects of certain
foreign currency exposures, we occasionally use foreign currency forward
exchange contracts. We do not use forward contracts for trading or speculative
purposes. From time to time we may also purchase Canadian dollars in the open
market and hold these funds in order to satisfy forecasted operating needs in
Canadian dollars. At December 31, 2006 and December 25, 2005, we had no
outstanding currency forward exchange contracts and during the 12 months ended
December 31, 2006 and December 25, 2005, we did not enter into any forward
exchange contracts. We therefore did not record any gain or loss as a result of
these contracts for these periods.

ITEM 8          
  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

-56-

---

ELEPHANT & CASTLE GROUP INC.

Consolidated Financial StatementsDecember 31, 2006, December 25, 2005 and December 26, 2004 
  (US Dollars)

|INDEX                                                     | Page  
|--------------------------------------------------------- | ------
|                                                          |       
|Management Report                                         | F-1   
|                                                          |       
|Report of Independent Registered Public Accounting Firm   | F-2   
|                                                          |       
|Consolidated Financial Statements                         |       
|                                                          |       
|Consolidated Balance Sheets                               | F-3   
|                                                          |       
|Consolidated Statements of Operations                     | F-4   
|                                                          |       
|Consolidated Statements of Shareholders' Equity (Deficit) | F-5   
|                                                          |       
|Consolidated Statements of Cash Flows                     | F-6   
|                                                          |       
|Notes to Consolidated Financial Statements                | F-7-34

---

MANAGEMENT REPORT

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

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

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

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





President and Chief Executive Officer 
  April 16, 2007

F-1

---

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
  FIRM



TO THE SHAREHOLDERS OF ELEPHANT & CASTLE GROUP INC.

We have audited the consolidated balance sheets of Elephant &
  Castle Group Inc. as at December 31, 2006 and December 25, 2005 and the consolidated
  statements of operations, shareholders equity (deficit) and cash flows
  for the 53-week period ended December 31, 2006 and the 52-week periods ended
  December 25, 2005 and December 26, 2004. These financial statements are the
  responsibility of the Companys management. Our responsibility is to express
  an opinion on these financial statements based on our audits.

We conducted our audits in accordance generally accepted auditing
  standards in Canada and in accordance with the standards of the Public Company
  Accounting Oversight Board (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 31, 2006 and December 25, 2005 and the results of
  its operations and its cash flows for the 53-week period ended December 31,
  2006 and the 52-week periods ended December 25, 2005 and December 26, 2004 in
  accordance with Canadian generally accepted accounting principles.



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

Chartered Accountants

Vancouver, Canada 
  February 14, 2007

F-2

---

ELEPHANT & CASTLE GROUP INC.Consolidated Balance SheetsAt December 31, 2006 and December 25, 2005 
  (US Dollars) 
  (In Thousands of Dollars)

|                                                        |   | 2006    |   |   | 2005    |  
|------------------------------------------------------- | - | ------- | - | - | ------- | -
|Assets(note 6)                                          |   |         |   |   |         |  
|Current                                                 |   |         |   |   |         |  
|Cash                                                    | $ | 507     |   | $ | 956     |  
|Accounts receivable                                     |   | 1,044   |   |   | 558     |  
|Inventory                                               |   | 412     |   |   | 380     |  
|Deposits and prepaid expenses                           |   | 353     |   |   | 396     |  
|Pre-opening costs                                       |   | 129     |   |   | 191     |  
|Total Current Assets                                    |   | 2,445   |   |   | 2,481   |  
|Property, Plant and Equipment(note
      3)             |   | 10,050  |   |   | 8,187   |  
|Future Income Tax Benefits(note 13)                     |   | 2,721   |   |   | 2,099   |  
|Other(note 4)                                           |   | 1,752   |   |   | 1,915   |  
|Total Assets                                            | $ | 16,968  |   | $ | 14,682  |  
|                                                        |   |         |   |   |         |  
|Liabilities                                             |   |         |   |   |         |  
|Current                                                 |   |         |   |   |         |  
|Accounts payable and accrued liabilities (note
      5) | $ | 3,391   |   | $ | 2,713   |  
|Current portion of long-term debt (notes 6
      and 7) |   | 583     |   |   | 41      |  
|Total Current Liabilities                               |   | 3,974   |   |   | 2,754   |  
|Long-Term Debt(notes 6, 7 and 8(b))                     |   | 18,232  |   |   | 17,306  |  
|Other Liabilities                                       |   | 839     |   |   | 417     |  
|Total Liabilities                                       |   | 23,045  |   |   | 20,477  |  
|                                                        |   |         |   |   |         |  
|Shareholders' Equity (Deficit)                          |   |         |   |   |         |  
|                                                        |   |         |   |   |         |  
|Common Shares(note 8(a))                                |   | 13,164  |   |   | 13,112  |  
|Contributed Surplus(note 8(c))                          |   | 1,282   |   |   | 1,282   |  
|Cumulative Translation Adjustment(note
      8(e))      |   | (880    | ) |   | (880    | )
|Deficit                                                 |   | (19,643 | ) |   | (19,309 | )
|Total Shareholders Equity (Deficit)                    |   | (6,077  | ) |   | (5,795  | )
|                                                        |   |         |   |   |         |  
|Total Liabilities and Shareholders Equity (Deficit)    | $ | 16,968  |   | $ | 14,682  |  
|                                                        |   |         |   |   |         |  
|                                                        |   |         |   |   |         |  
|                                                        |   |         |   |   |         |  
|Contingencies and Commitments (notes 10 and
      11)   |   |         |   |   |         |  
|Subsequent Event (note 17)                              |   |         |   |   |         |  
|Approved on behalf of the Board:                        |   |         |   |   |         |  

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

See notes to consolidated financial statements

F-3

---

ELEPHANT & CASTLE GROUP INC.Consolidated Statements of Operations53 Weeks Ended December 31, 2006, and 52 Weeks Ended December 25, 2005
  and December 26, 2004
  (US Dollars)
  (In Thousands of Dollars, except net income (loss) per share)

|                                                             |   | 2006      |   |   | 2005      |   |   | 2004      |  
|------------------------------------------------------------ | - | --------- | - | - | --------- | - | - | --------- | -
|                                                             |   |           |   |   |           |   |   |           |  
|Sales                                                        |   |           |   |   |           |   |   |           |  
|Corporate locations                                          | $ | 35,874    |   | $ | 32,542    |   | $ | 27,719    |  
|Revenue from Franchises                                      |   | 438       |   |   | 503       |   |   | 483       |  
|Total Sales                                                  |   | 36,312    |   |   | 33,045    |   |   | 28,202    |  
|                                                             |   |           |   |   |           |   |   |           |  
|Restaurant Expenses                                          |   |           |   |   |           |   |   |           |  
|Food and beverage                                            |   | 9,373     |   |   | 8,731     |   |   | 7,682     |  
|Operating                                                    |   |           |   |   |           |   |   |           |  
|Labour                                                       |   | 11,070    |   |   | 10,466    |   |   | 8,862     |  
|Occupancy and other                                          |   | 8,690     |   |   | 8,488     |   |   | 7,181     |  
|Impairment of Long Lived Assets (notes
      12 (a) and (b)) |   | 0         |   |   | 181       |   |   | 199       |  
|Restaurant closing costs (notes 12 (c) and (d))              |   | 0         |   |   | 55        |   |   | 0         |  
|Amortization                                                 |   | 1,858     |   |   | 1,872     |   |   | 1,559     |  
|                                                             |   | 30,991    |   |   | 29,793    |   |   | 25,483    |  
|Income from Restaurant Operations                            |   | 5,321     |   |   | 3,252     |   |   | 2,719     |  
|                                                             |   |           |   |   |           |   |   |           |  
|General and Administrative Expenses                          |   | 3,326     |   |   | 2,976     |   |   | 2,843     |  
|(Gain) Loss on Foreign Exchange(note 2 (h))                  |   | (65       | ) |   | 679       |   |   | 28        |  
|Interest on Long-Term Debt                                   |   | 2,873     |   |   | 2,605     |   |   | 558       |  
|                                                             |   | 6,134     |   |   | 6,260     |   |   | 3,429     |  
|                                                             |   |           |   |   |           |   |   |           |  
|Loss Before Income Taxes                                     |   | (813      | ) |   | (3,008    | ) |   | (710      | )
|Income Taxes(note 13)                                        |   | (146      | ) |   | (88       | ) |   | (52       | )
|Future Income Tax
      (Charge) Recovery(note 13)           |   | 625       |   |   | (170      | ) |   | (126      | )
|                                                             |   |           |   |   |           |   |   |           |  
|Net Loss for Year                                            |   | ($334     | ) |   | ($3,266   | ) |   | ($888     | )
|                                                             |   |           |   |   |           |   |   |           |  
|Loss Per Common
      Share(note 2(i))                       |   | ($0.06    | ) |   | ($0.57    | ) |   | ($0.17    | )
|                                                             |   |           |   |   |           |   |   |           |  
|Weighted Average Number of                                   |   |           |   |   |           |   |   |           |  
|Common Shares Outstanding                                    |   | 5,982,656 |   |   | 5,744,360 |   |   | 5,244,507 |  

See notes to consolidated financial statements.

F-4

---

ELEPHANT & CASTLE GROUP INC.Consolidated Statements of Shareholders' Equity (Deficit)53 Weeks Ended December 31, 2006, and 52 Weeks Ended December 25, 2005
  and December 26, 2004 
  (US Dollars) 
  (In Thousands of Dollars)

|                                             |   | 2006      |   |   | 2005      |   |   | 2004      |  
|-------------------------------------------- | - | --------- | - | - | --------- | - | - | --------- | -
|                                             |   | (53 wk)   |   |   |           |   |   |           |  
|Number of Common Shares Issued               |   |           |   |   |           |   |   |           |  
|Beginning balance                            |   | 5,872,087 |   |   | 5,629,411 |   |   | 5,146,604 |  
|Issue of shares                              |   |           |   |   |           |   |   |           |  
|On renegotiation of debenture interest       |   | 0         |   |   | 0         |   |   | 161,235   |  
|For services                                 |   | 12,000    |   |   | 15,000    |   |   | 18,000    |  
|Purchased
      by Management                |   | 168,282   |   |   | 227,676   |   |   | 303,572   |  
|Ending Balance                               |   | 6,052,369 |   |   | 5,872,087 |   |   | 5,629,411 |  
|Common Shares Issued                         |   |           |   |   |           |   |   |           |  
|Beginning balance                            | $ | 13,112    |   | $ | 12,998    |   | $ | 12,829    |  
|Issue of shares                              |   |           |   |   |           |   |   |           |  
|On renegotiation of debenture
      interest |   | 0         |   |   | 0         |   |   | 59        |  
|For services                                 |   | 4         |   |   | 6         |   |   | 5         |  
|Purchased by Management                      |   | 48        |   |   | 108       |   |   | 106       |  
|Ending balance                               | $ | 13,164    |   | $ | 13,112    |   | $ | 12,998    |  
|Contributed Surplus                          |   |           |   |   |           |   |   |           |  
|Beginning balance                            | $ | 1,282     |   | $ | 1,282     |   | $ | 0         |  
|Issue of shares                              |   |           |   |   |           |   |   |           |  
|On cancellation of Junior Notes and          |   |           |   |   |           |   |   |           |  
|issuance
      of Preferred Shares           |   | 0         |   |   | 0         |   |   | 201       |  
|For
      issue of warrants                  |   | 0         |   |   | 0         |   |   | 1,081     |  
|Ending balance                               | $ | 1,282     |   | $ | 1,282     |   | $ | 1,282     |  
|Other Paid-In Capital                        |   |           |   |   |           |   |   |           |  
|Beginning balance                            | $ | 0         |   | $ | 0         |   | $ | 5,343     |  
|On cancellation
      of Junior Notes        |   | 0         |   |   | 0         |   |   | (5,343    | )
|Ending balance                               | $ | 0         |   | $ | 0         |   | $ | 0         |  
|Currency Translation Adjustment              |   |           |   |   |           |   |   |           |  
|Beginning balance                            |   | ($880     | ) |   | ($880     | ) |   | ($880     | )
|Deferred gain
      incurred during year     |   | 0         |   |   | 0         |   |   | 0         |  
|Ending balance                               |   | ($880     | ) |   | ($880     | ) |   | ($880     | )
|Deficit                                      |   |           |   |   |           |   |   |           |  
|Beginning balance                            |   | ($19,309  | ) |   | ($16,043  | ) |   | ($14,822  | )
|Dividends on other paid-in capital           |   | 0         |   |   | 0         |   |   | (333      | )
|Net loss                                     |   | (334      | ) |   | (3,266    | ) |   | (888      | )
|Ending balance                               |   | ($19,643  | ) |   | ($19,309  | ) |   | ($16,043  | )
|Total Shareholders' Equity (Deficit)         |   | ($6,077   | ) |   | ($5,795   | ) |   | ($2,643   | )

See notes to consolidated financial statements.

F-5

---

ELEPHANT & CASTLE GROUP INC.Consolidated Statements of Cash Flows53 Weeks Ended December 31, 2006, and 52 Weeks Ended December 25, 2005
  and December 26, 2004 
  (US Dollars) 
  (In Thousands of Dollars)

|                                                      |   | 2006   |   |   | 2005    |   |   | 2004   |  
|----------------------------------------------------- | - | ------ | - | - | ------- | - | - | ------ | -
|                                                      |   |        |   |   |         |   |   |        |  
|                                                      |   |        |   |   |         |   |   |        |  
|Operating Activities                                  |   |        |   |   |         |   |   |        |  
|Net loss                                              |   | ($334  | ) |   | ($3,266 | ) |   | ($888  | )
|Operating items not using cash                        |   |        |   |   |         |   |   |        |  
|Amortization                                          |   | 1,858  |   |   | 1,872   |   |   | 1,559  |  
|Loss (Gain) on Foreign
      Exchange                 |   | (65    | ) |   | 679     |   |   | 28     |  
|Impairment of Long-Lived Assets                       |   | 0      |   |   | 181     |   |   | 199    |  
|Non-Cash Interest                                     |   | 2,275  |   |   | 1,998   |   |   | 317    |  
|Future Income Tax                                     |   | (625   | ) |   | 170     |   |   | 126    |  
|Other                                                 |   | 75     |   |   | (569    | ) |   | 992    |  
|                                                      |   |        |   |   |         |   |   |        |  
|Operating Cash Flow                                   |   | 3,184  |   |   | 1,065   |   |   | 2,333  |  
|                                                      |   |        |   |   |         |   |   |        |  
|Changes in Non-Cash Working Capital                   |   |        |   |   |         |   |   |        |  
|Accounts receivable                                   |   | (486   | ) |   | (135    | ) |   | (75    | )
|Inventory                                             |   | (32    | ) |   | (26     | ) |   | (49    | )
|Deposits and prepaid expenses                         |   | 43     |   |   | 268     |   |   | (442   | )
|Accounts payable and accrued liabilities              |   | 676    |   |   | 178     |   |   | (1,045 | )
|                                                      |   |        |   |   |         |   |   |        |  
|                                                      |   | 201    |   |   | 285     |   |   | (1,611 | )
|                                                      |   |        |   |   |         |   |   |        |  
|Cash Provided by Operating Activities                 |   | 3,385  |   |   | 1,350   |   |   | 722    |  
|                                                      |   |        |   |   |         |   |   |        |  
|Investing Activities                                  |   |        |   |   |         |   |   |        |  
|Acquisition of property, plant and equipment          |   | (3,570 | ) |   | (4,495  | ) |   | (560   | )
|Acquisition of other assets and pre-opening costs     |   | (140   | ) |   | (521    | ) |   | 0      |  
|                                                      |   |        |   |   |         |   |   |        |  
|Cash Used in Investing Activities                     |   | (3,710 | ) |   | (5,016  | ) |   | (560   | )
|                                                      |   |        |   |   |         |   |   |        |  
|Financing Activities                                  |   |        |   |   |         |   |   |        |  
|Deferred finance charges                              |   | (138   | ) |   | 601     |   |   | (372   | )
|Repurchase of shares                                  |   | 0      |   |   | 0       |   |   | 0      |  
|Proceeds from long-term debt                          |   | 0      |   |   | 0       |   |   | 3,842  |  
|Proceeds from sale of shares                          |   | 56     |   |   | 71      |   |   | 93     |  
|Repayment of
      long-term debt                     |   | (42    | ) |   | (31     | ) |   | (154   | )
|                                                      |   |        |   |   |         |   |   |        |  
|Cash Provided by
      (Used in) Financing Activities |   | (124   | ) |   | 641     |   |   | 3,409  |  
|                                                      |   |        |   |   |         |   |   |        |  
|Inflow (Outflow) of Cash                              |   | (449   | ) |   | (3,025  | ) |   | 3,571  |  
|Cash, Beginning of Period                             |   | 956    |   |   | 3,981   |   |   | 410    |  
|                                                      |   |        |   |   |         |   |   |        |  
|Cash, End of Period                                   | $ | 507    |   | $ | 956     |   | $ | 3,981  |  
|                                                      |   |        |   |   |         |   |   |        |  
|Supplemental Disclosure of Cash Flow Information      |   |        |   |   |         |   |   |        |  
|Cash paid during the year for                         |   |        |   |   |         |   |   |        |  
|Interest                                              | $ | 598    |   | $ | 608     |   | $ | 86     |  
|Income
      taxes                                    | $ | 291    |   | $ | 126     |   | $ | 45     |  

See notes to consolidated financial statements.

F-6

---

|ELEPHANT & CASTLE GROUP INC.                                                                      
|--------------------------------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                                        
|53 Weeks Ended December 31, 2006, and 52 Weeks Ended December
      25, 2005 and December 26, 2004
|(US Dollars)                                                                                      
|(In Thousand of
      Dollars, Except Share Prices)                                               

|1. | BASIS OF PRESENTATION                                                                                                                                                                                                                             
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                   
|   | These financial statements include the accounts
        of Elephant & Castle Group Inc. ("the Company") and its wholly-owned
        subsidiaries described below. All significant inter-company balances and
        transactions are eliminated.
|   |                                                                                                                                                                                                                                                   
|   | (a)                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                   
|   | (b)                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                   
|   | (c)                                                                                                                                                                                                                                               

For comparative purposes, in line with
  the recommendations of the Canadian Institute of Chartered Accountants (CICA)
  handbook and of the Financial Accounting Standards Board (FASB)
  as set out in FAS 52, the Company has translated its prior years consolidated
  financial statements, as reported in Canadian dollars, into US dollars using
  the current method of translation.

These consolidated financial statements
  have been prepared assuming the Company will continue as a going concern, realizing
  its assets and discharging its liabilities in the normal course of business.

These consolidated financial statements
  are prepared in accordance with Canadian generally accepted accounting principles
  and all figures are in US dollars unless otherwise stated. Canadian generally
  accepted accounting principles differ in certain respects from accounting principles
  generally accepted in the United States of America. (note 16).

F-7

---

|ELEPHANT & CASTLE GROUP INC.                                                                      
|--------------------------------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                                        
|53 Weeks Ended December 31, 2006, and 52 Weeks Ended December
      25, 2005 and December 26, 2004
|(US Dollars)                                                                                      
|(In Thousand of
      Dollars, Except Share Prices)                                               

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

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


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

F-8

---

|ELEPHANT & CASTLE GROUP INC.                                                                      
|--------------------------------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                                        
|53 Weeks Ended December 31, 2006, and 52 Weeks Ended December
      25, 2005 and December 26, 2004
|(US Dollars)                                                                                      
|(In Thousand of
      Dollars, Except Share Prices)                                               

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

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


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

F-9

---

|ELEPHANT & CASTLE GROUP INC.                                                                      
|--------------------------------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                                        
|53 Weeks Ended December 31, 2006, and 52 Weeks Ended December
      25, 2005 and December 26, 2004
|(US Dollars)                                                                                      
|(In Thousand of
      Dollars, Except Share Prices)                                               

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

F-10

---

|ELEPHANT & CASTLE GROUP INC.                                                                      
|--------------------------------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                                        
|53 Weeks Ended December 31, 2006, and 52 Weeks Ended December
      25, 2005 and December 26, 2004
|(US Dollars)                                                                                      
|(In Thousand of
      Dollars, Except Share Prices)                                               

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

| |                              |   |        |  |   | 2006         |  |   |        | 
| | ---------------------------- | - | ------ |  | - | ------------ |  | - | ------ | 
| |                              |   |        |  |   | Accumulated  |  |   |        | 
| |                              |   | Cost   |  |   | Amortization |  |   | Net    | 
| |                              |   |        |  |   |              |  |   |        | 
| |                              |   |        |  |   |              |  |   |        | 
| | Leasehold improvements       | $ | 15,805 |  | $ | 8,773        |  | $ | 7,032  | 
| | Furniture and fixtures       |   | 5,829  |  |   | 3,595        |  |   | 2,234  | 
| | China, glassware and cutlery |   | 383    |  |   | 0            |  |   | 383    | 
| | Computer equipment           |   | 821    |  |   | 420          |  |   | 401    | 
| |                              | $ | 22,838 |  | $ | 12,788       |  | $ | 10,050 | 

| |                              |   |        |  |   | 2005         |  |   |       | 
| | ---------------------------- | - | ------ |  | - | ------------ |  | - | ----- | 
| |                              |   |        |  |   | Accumulated  |  |   |       | 
| |                              |   | Cost   |  |   | Amortization |  |   | Net   | 
| |                              |   |        |  |   |              |  |   |       | 
| |                              |   |        |  |   |              |  |   |       | 
| | Leasehold improvements       | $ | 13,261 |  | $ | 7,663        |  | $ | 5,598 | 
| | Furniture and fixtures       |   | 5,174  |  |   | 3,267        |  |   | 1,907 | 
| | China, glassware and cutlery |   | 350    |  |   | 0            |  |   | 350   | 
| | Computer equipment           |   | 787    |  |   | 455          |  |   | 332   | 
| |                              | $ | 19,572 |  | $ | 11,385       |  | $ | 8,187 | 

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

| |                        |   | 2006  |  |   | 2005  | 
| | ---------------------- | - | ----- |  | - | ----- | 
| |                        |   |       |  |   |       | 
| | Deferred finance costs | $ | 1,664 |  | $ | 1,837 | 
| | Other                  |   | 68    |  |   | 58    | 
| | Trademark              |   | 20    |  |   | 20    | 
| |                        |   |       |  |   |       | 
| |                        | $ | 1,752 |  | $ | 1,915 | 

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

| |                                            |   | 2006  |  |   | 2005  | 
| | ------------------------------------------ | - | ----- |  | - | ----- | 
| |                                            |   |       |  |   |       | 
| | Trade payables                             | $ | 1,601 |  | $ | 1,444 | 
| | Accrued salaries, wages and related        |   | 975   |  |   | 607   | 
| | Sales taxes                                |   | 322   |  |   | 249   | 
| | Lease inducements                          |   | 192   |  |   | 0     | 
| | Other payables                             |   | 160   |  |   | 105   | 
| | Occupancy and other operating              |   | 98    |  |   | 118   | 
| | Debt redemption and other interest         |   | 43    |  |   | 50    | 
| | Provision for income
      taxes (note 10) |   | 0     |  |   | 140   | 
| |                                            |   |       |  |   |       | 
| |                                            | $ | 3,391 |  | $ | 2,713 | 

F-11

---

|ELEPHANT & CASTLE GROUP INC.                                                                      
|--------------------------------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                                        
|53 Weeks Ended December 31, 2006, and 52 Weeks Ended December
      25, 2005 and December 26, 2004
|(US Dollars)                                                                                      
|(In Thousand of
      Dollars, Except Share Prices)                                               

|6. | FINANCING STRUCTURE                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | On December 17, 2004, the Company entered
        into a series of financing agreements. The transactions resulted in the
        raising of CDN$5,000 (US$4,288) for the purposes of opening new Elephant
        & Castle restaurants and refurbishing existing Elephant & Castle
        restaurants. In addition, the structure of the Companys pre-existing
        debt and equity were substantially altered, as described below.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | (a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | In consideration for the surrender of US$3,900
        of the existing Senior Notes, the surrender of US$5,000 of the existing
        Junior Notes (together with the Senior Notes, the Notes) and
        the exchange of US$1,209 of accrued interest on these Notes the Company
        issued US$4,204 of new Secured 14% Notes (the Secured Notes),
        3,653,972 of CDN$2 (US$1.72) preferred shares (note 8(b)) and a warrant
        to purchase 1,750,000 shares of common stock (note 8 (g) (v)). The Secured
        Notes bear interest at 14%, which was deferred until payments commenced
        in March 2007, except in certain circumstances, and are fully repayable
        on December 18, 2009. The preferred shares accrue a cumulative annual
        dividend of 6%, payable only when the debt owing to Crown Capital Partners
        (Crown) and the Secured Notes are repaid in full. The preferred
        shares are redeemable at the Company's option at 100% of redemption principal
        plus a redemption premium of up to 50% of the principal amount. The premium
        shall accrue at 10% per year or part thereof (note 8(b)). Unless redeemed
        earlier, the preferred shares are automatically convertible, subject to
        the Company achieving an EBITDA target of US$3,500, at the rate of 3 shares
        of common stock for every preferred share. The warrants are exercisable
        for a period of ten years at a price of CDN$0.667 (US$0.572) per share.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | (b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | The Company has entered into a credit agreement
        with Crown, pursuant to which it borrowed CDN$5,000 (US$4,288). The loan
        bears interest at the rate of 12% per annum. Interest is payable monthly
        and monthly principal payments of CDN$40 (US$34) commence in December
        2006, rising to CDN$60 (US$51) in December 2007 and CDN$100 (US$86) in
        December 2008, with the balance of CDN$2,600 (US$2,230) repayable by December
        17, 2009. In connection with the making of the loan, Crown received a
        first secured position over all of the Company's assets and properties,
        including the capital stock of the subsidiary companies, in respect of
        the loan indebtedness. Additionally, the Company granted Crown a warrant
        to purchase 1,049,301 shares of common stock of the Company and 730,794
        preferred shares of the Company for one hundred Canadian dollars, representing
        15% of the outstanding shares of both classes of stock of the Company
        and a further warrant to purchase 350,000 shares of common stock. These
        further warrants are exercisable for a period of ten years at a price
        of CDN$0.667 (US$0.572) per share (notes 8 (g) (iv), 8 (g) (v) and 8(h)(ii)).                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | (c)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | The Company has entered into an agreement
        with the three senior managers of the Company ("Management"), whereby
        Management has committed to purchase for CDN$265 (US$227), over a period
        of 18 months commencing December 2004, 699,534 common shares and 487,196
        preferred shares, representing 10% of the outstanding shares of both classes
        of stock of the Company. Management made an initial payment of CDN$115
        (US$99) on December 17, 2004 and subsequent payments of CDN$86 (US$71)
        during the 52 weeks ended December 25, 2005 and of CDN$64 (US$) during
        the 53 weeks ended December 31, 2006, representing the remaining balance.
        In connection with this purchase, Management has also been issued a warrant
        for the purchase of an additional 5% of both classes of stock for CDN$133
        (US$114) (notes 8 (g) (ii) and 8 (h) (i)).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

F-12

---

|ELEPHANT & CASTLE GROUP INC.                                                                      
|--------------------------------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                                        
|53 Weeks Ended December 31, 2006, and 52 Weeks Ended December
      25, 2005 and December 26, 2004
|(US Dollars)                                                                                      
|(In Thousand of
      Dollars, Except Share Prices)                                               

|6. | FINANCING STRUCTURE(continued)                                                                                                                                                                                                                                                                                                                                                                                            
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | (d)                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | GEIPPPII and Crown have entered into an inter-creditor
        agreement, which establishes the seniority of the Crown security and the
        subordination of the GEIPPPII security over the assets of the Company.                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | GEIPPPII, Crown and Management have entered
        into an inter-shareholder agreement. Under this agreement all parties
        agree to appoint two GEIPPPII nominees, one Crown nominee and one Management
        nominee to the board of the Company. Additionally, the parties have agreed
        conditions and entitlements associated with the sale or transfer of their
        shares.                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | The terms of the 8% convertible, subordinated
        notes of the Company issued in 2000 ("Delphi Financing") have been amended
        such that the coupon has been increased to 9.25% and repayment re-commenced
        in March 2007.                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | (e)                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | For the 52 weeks ended December 28, 2003,
        the GEIPPPII Junior Notes were recorded as an equity instrument.                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | For the twelve month period ended June 29,
        2003, the Company achieved less than 67% of the original EBITDA target.
        Under the terms of the original agreement, this would have required the
        Company to reclassify the first two tranches as a debt instrument.                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | In 2003, the Company, however, reached an
        agreement with GEIPPPII to modify the terms of the Junior Notes, such
        that the test for mandatory conversion of all four tranches was dependent
        on achievement of EBITDA targets for the twelve months ending June 30,
        2005. Accordingly, no reclassification of the Junior Notes was required
        for the 52 weeks ended December 28, 2003.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | (f)                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | Prior to the agreement of the Company's new
        funding structure on December 17, 2004, GEIPPPII owned 62.1% of the Company's
        outstanding common shares.                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | Following the new funding agreement, and before
        any conversion of preferred shares, GEIPPPII owns 50.1% of the Company's
        outstanding common shares, once Crown exercises its CDN$ One Hundred warrant.                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | Post-conversion of the preferred shares, GEIPPPII
        will own the following percentages of the Companys outstanding common
        shares:                                                                                                                                                                                                                                                                          

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

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

F-13

---

|ELEPHANT & CASTLE GROUP INC.                                                                      
|--------------------------------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                                        
|53 Weeks Ended December 31, 2006, and 52 Weeks Ended December
      25, 2005 and December 26, 2004
|(US Dollars)                                                                                      
|(In Thousand of
      Dollars, Except Share Prices)                                               

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

| |                                                                                                                                                                                                                                                                                                                                                                                                       |  |   | 2006   |  |   | 2005   | 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | - | ------ |  | - | ------ | 
| | General Electric Investment Private Placement
      Partners II ("GEIPPPII"), a limited partnership, secured 14% notes, maturing
      December 18, 2009. Interest payments were deferred until March 2007, at
      which point interest began being paid quarterly in cash. Deferred interest
      is to be repaid along with the principal on December 18, 2009.                                  |  | $ | 5,403  |  | $ | 4,805  | 
| |                                                                                                                                                                                                                                                                                                                                                                                                       |  |   |        |  |   |        | 
| | First secured loan from Crown for CDN$5,000
      (US$4,288) bearing an interest rate of 12% per annum. Interest is payable
      monthly in cash. Monthly principal payments of CDN$40 (US$34) commenced
      in December 2006 rising to CDN$60 (US$51) in December 2007 and CDN$100 (US$86)
      in December 2008, with the balance of CDN$2,600 (US$2,230) repayable by
      December 17, 2009. |  |   | 4,256  |  |   | 4,288  | 
| |                                                                                                                                                                                                                                                                                                                                                                                                       |  |   |        |  |   |        | 
| | 4,141,185 Preferred Shares, Series A and Class
      A, with a redemption price of CDN$2 (US$1.72) per share (note 8(b)). 3,653,972
      Series A shares were issued to GEIPPPII in exchange for US$5,000 of Junior
      Notes, plus US$905 of accrued interest (note 6(a)). The remaining 487,213
      Class A shares were issued to management.                                                  |  |   | 7,107  |  |   | 6,902  | 
| |                                                                                                                                                                                                                                                                                                                                                                                                       |  |   |        |  |   |        | 
| | Redemption premium on Preferred Shares, accruing
      at 10% per annum or part thereof, to a maximum of 50% (note 8(b)).                                                                                                                                                                                                                                                                             |  |   | 1,399  |  |   | 695    | 
| |                                                                                                                                                                                                                                                                                                                                                                                                       |  |   |        |  |   |        | 
| | Convertible subordinated notes issued in 2000
      to the Delphi Investors, originally due December 31, 2003, but now repayable
      in quarterly instalments of US$38 beginning March 2007 with one final instalment
      of US$243 due on December 31, 2009. Interest at 9.25% per annum payable
      quarterly in cash (note 6(d)).                                                            |  |   | 649    |  |   | 649    | 
| |                                                                                                                                                                                                                                                                                                                                                                                                       |  |   |        |  |   |        | 
| | Capital lease obligations repayable over terms ranging from
      36 to 60 months, interest rates average 13%.                                                                                                                                                                                                                                                                                        |  |   | 1      |  |   | 8      | 
| |                                                                                                                                                                                                                                                                                                                                                                                                       |  |   |        |  |   |        | 
| |                                                                                                                                                                                                                                                                                                                                                                                                       |  |   | 18,815 |  |   | 17,347 | 
| | Less: Current portion                                                                                                                                                                                                                                                                                                                                                                                 |  |   | 583    |  |   | 41     | 
| |                                                                                                                                                                                                                                                                                                                                                                                                       |  |   |        |  |   |        | 
| |                                                                                                                                                                                                                                                                                                                                                                                                       |  | $ | 18,232 |  | $ | 17,306 | 

F-14

---

|ELEPHANT & CASTLE GROUP INC.                                                                      
|--------------------------------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                                        
|53 Weeks Ended December 31, 2006, and 52 Weeks Ended December
      25, 2005 and December 26, 2004
|(US Dollars)                                                                                      
|(In Thousand of
      Dollars, Except Share Prices)                                               

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

2007
      $
      5832008
      
      8062009
      
      17,426$
      18,815


|8. | CAPITAL STOCK
|-- | -------------
|   |              
|   | (a)          
|   |              
|   |              
|   |              
|   |              
|   |              
|   | (b)          

| |  | Authorized  10,000,000 Preferred Shares with
      a par value of CDN$1 (US$0.813) per share
| |  | ---------------------------------------------------------------------------------------------
| |  | (6,000,000 designated as Preferred Shares, Series A)                                         
| |  |                                                                                              
| |  | Issued  4,141,185 (2005  4,023,975)
      Preferred Shares, Series A and Class A           

| | (i)  | Voting Rights                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |      | The holders of the Preferred Shares, Series A and Class
        A shall be entitled as such to receive notice of and to attend all meetings
        of the shareholders of the Company (except meetings at which only holders
        of another class or series of shares of the Company are required by law
        to vote separately as a class or series) and at each such meeting shall
        have that number of votes in person or by proxy for each Preferred Share,
        Series A and Class A held equal to the number of Common Shares into which
        such Preferred Shares, Series A may be converted at the Series A and Class
        A Conversion Rate of 3 Common Shares for each Preferred Share, Series
        A or Class A.
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | (ii) | Dividends                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |      | The holders of the Preferred Shares, Series A and Class
        A, in priority to the holders of the Common Shares, shall be entitled
        to receive and the Company shall pay thereon, as and when declared by
        the Directors provided the GEIPPPII 14% Secured Notes and the Crown term
        loan have been repaid in full, fixed, cumulative cash dividends at the
        rate of 6% of the Series A Redemption Price of CDN$2.00 (US$1.72) per
        share per annum payable on the dates to be fixed from time to time by
        the Directors.                                                                                                                                                                                  

F-15

---

|ELEPHANT & CASTLE GROUP INC.                                                                      
|--------------------------------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                                        
|53 Weeks Ended December 31, 2006, and 52 Weeks Ended December
      25, 2005 and December 26, 2004
|(US Dollars)                                                                                      
|(In Thousand of
      Dollars, Except Share Prices)                                               

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

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

F-16

---

|ELEPHANT & CASTLE GROUP INC.                                                                      
|--------------------------------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                                        
|53 Weeks Ended December 31, 2006, and 52 Weeks Ended December
      25, 2005 and December 26, 2004
|(US Dollars)                                                                                      
|(In Thousand of
      Dollars, Except Share Prices)                                               

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

| | (v) | Conversion rights                                                                                            
| | --- | -------------------------------------------------------------------------------------------------------------
| |     |                                                                                                              
| |     | (a)                                                                                                          
| |     |                                                                                                              
| |     | below (the "Conversion Rights").                                                                             
| |     |                                                                                                              
| |     | (b)                                                                                                          
| |     |                                                                                                              
| |     | Shares at the Series A Conversion Rate on
        the date (the "Conversion Date"), which is the earliest of:

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

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

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

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

F-17

---

|ELEPHANT & CASTLE GROUP INC.                                                                      
|--------------------------------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                                        
|53 Weeks Ended December 31, 2006, and 52 Weeks Ended December
      25, 2005 and December 26, 2004
|(US Dollars)                                                                                      
|(In Thousand of
      Dollars, Except Share Prices)                                               

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

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

F-18

---

|ELEPHANT & CASTLE GROUP INC.                                                                      
|--------------------------------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                                        
|53 Weeks Ended December 31, 2006, and 52 Weeks Ended December
      25, 2005 and December 26, 2004
|(US Dollars)                                                                                      
|(In Thousand of
      Dollars, Except Share Prices)                                               

|8. | CAPITAL STOCK(continued)
|-- | ------------------------
|   |                         
|   | (c)                     
|   |                         
|   |                         
|   |                         
|   |                         
|   |                         
|   |                         
|   |                         
|   | (d)                     
|   |                         
|   |                         
|   |                         
|   |                         
|   |                         
|   | (e)                     
|   |                         
|   |                         
|   |                         
|   |                         
|   |                         
|   | (f)                     
|   |                         
|   |                         

F-19

---

|ELEPHANT & CASTLE GROUP INC.                                                                      
|--------------------------------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                                        
|53 Weeks Ended December 31, 2006, and 52 Weeks Ended December
      25, 2005 and December 26, 2004
|(US Dollars)                                                                                      
|(In Thousand of
      Dollars, Except Share Prices)                                               

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

Stock option activity is summarized
  as follows:

| |                        |  | Number    |   |   | Exercise Price |  |   |        | 
| | ---------------------- |  | --------- | - | - | -------------- |  | - | ------ | 
| |                        |  | of Shares |   |   | (US$)          |  |   | (Cdn$) | 
| | Balance outstanding,   |  |           |   |   |                |  |   |        | 
| | December 28, 2003      |  | 584,000   |   | $ | 5.70 *         |  | $ | 8.84   | 
| | 2004- Cancelled/lapsed |  | (27,500   | ) |   | 1.00           |  |   | 1.40   | 
| |                        |  |           |   |   |                |  |   |        | 
| | Balance outstanding,   |  |           |   |   |                |  |   |        | 
| | December 26, 2004      |  | 556,500   |   | $ | 5.70 *         |  | $ | 8.84   | 
| | 2005- Cancelled/lapsed |  | (10,000   | ) |   | 1.00           |  |   | 1.40   | 
| |                        |  |           |   |   |                |  |   |        | 
| |                        |  |           |   |   |                |  |   |        | 
| | Balance outstanding,   |  |           |   |   |                |  |   |        | 
| | December 25, 2005      |  | 546,500   |   | $ | 5.79 *         |  | $ | 8.98   | 
| | 2006- Cancelled/lapsed |  | (286,500  | ) |   | 7.68           |  |   | 8.95   | 
| |                        |  |           |   |   |                |  |   |        | 
| |                        |  |           |   |   |                |  |   |        | 
| | Balance outstanding,   |  |           |   |   |                |  |   |        | 
| | December 31, 2006      |  | 260,000   |   | $ | 3.70*          |  | $ | 4.31   | 

* Weighted average exercise price.

All outstanding options were vested
  and exercisable as at December 31, 2006.

At December 31, 2006 and at December
  25, 2005, options to purchase Common Shares were outstanding as follows:

Exercise
      Balance outstandingExpiry
      Price
      2006
      2005(i)
      2006/2007
      US $11.26 to US $12.00
      10,000
      74,000(ii)
      2006/2007
      US $10.00 to US $16.00
      50,000
      162,500(iii)
      2008
      US $1.00
      200,000
      310,000Outstanding and exercisable
      
      260,000
      546,500


| | (i)  | The 1997 employee option plan set aside 200,000 Common
        Shares. Options have been granted for 139,000 shares. All options expire
        on the fifth anniversary following the date of the grant. None have been
        exercised through December 31, 2006 and 129,000 of the options were cancelled
        through December 31, 2006.            
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                              
| | (ii) | During 1999, options for 472,500 common shares were
        granted to five key executives, four of whom commenced employment with
        the Company in 1997. These stock options were granted in addition to the
        above stock option plans. None have been exercised and 422,500 of these
        options were cancelled through December 31, 2006.

F-20

---

|ELEPHANT & CASTLE GROUP INC.                                                                      
|--------------------------------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                                        
|53 Weeks Ended December 31, 2006, and 52 Weeks Ended December
      25, 2005 and December 26, 2004
|(US Dollars)                                                                                      
|(In Thousand of
      Dollars, Except Share Prices)                                               

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

| | (iii) | The 2001 stock options and bonus plan set aside 950,000
        Common Shares of which 400,000 were granted in January 2003. None have
        been exercised, but 200,000 have been cancelled due to option holders
        leaving the Companys employment.
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| |                                      |  | Number    |  |   | Exercise Price | 
| | ------------------------------------ |  | --------- |  | - | -------------- | 
| |                                      |  | of Shares |  |   | (US$)          | 
| |                                      |  |           |  |   |                | 
| | Balance outstanding,                 |  |           |  |   |                | 
| | December 31, 2006, December 25, 2005 |  |           |  |   |                | 
| | and December 26, 2004                |  | 5,918,812 |  | $ | 0.54*          | 

* Weighted average exercise price.

At December 31, 2006 and at December
  25, 2005, warrants to purchase Common Shares were outstanding as follows:

Exercise
      Balance outstandingExpiry
      Price
      2006
      2005(i)
      2006
      US $1.00
      0
      1,869,744(ii)
      2009
      See note (8 (g) (ii))
      566,434
      566,434(iii)
      2009
      CDN $0.667
      233,333
      233,333(iv)
      2014
      See note (8 (g) (iv))
      1,049,301
      1,049,301(v)
      2014
      CDN $0.667
      2,100,000
      2,100,000(vi)
      2014
      See note (8 (g) (vi))
      100,000
      100,000Outstanding
      
      4,049,068
      5,918,812Exercisable
      
      3,149,301
      5,019,045


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

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

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

F-21

---

|ELEPHANT & CASTLE GROUP INC.                                                                      
|--------------------------------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                                        
|53 Weeks Ended December 31, 2006, and 52 Weeks Ended December
      25, 2005 and December 26, 2004
|(US Dollars)                                                                                      
|(In Thousand of
      Dollars, Except Share Prices)                                               

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

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

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

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

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

| |                       | 2006 | 2005
| | --------------------- | ---- | ----
| | Expected life (years) | n/a  | n/a 
| | Interest rate         | n/a  | n/a 
| | Volatility            | n/a  | n/a 
| |                       |      |     
| | Dividend yield        | n/a  | n/a 

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

| |                                      |  | Number    |  |   | Exercise Price | 
| | ------------------------------------ |  | --------- |  | - | -------------- | 
| |                                      |  | of Shares |  |   | (US$)          | 
| |                                      |  |           |  |   |                | 
| | Balance outstanding,                 |  |           |  |   |                | 
| | December 31, 2006, December 25, 2005 |  |           |  |   |                | 
| | and December 26, 2004                |  | 1,078,794 |  | $ | 0.06*          | 

* Weighted average exercise price.

F-22

---

|ELEPHANT & CASTLE GROUP INC.                                                                      
|--------------------------------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                                        
|53 Weeks Ended December 31, 2006, and 52 Weeks Ended December
      25, 2005 and December 26, 2004
|(US Dollars)                                                                                      
|(In Thousand of
      Dollars, Except Share Prices)                                               

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

At December 31, 2006 and December 25,
  2005, warrants to purchase Preferred Shares were outstanding as follows:

Exercise
      Balance outstandingExpiry
      Price
      2006
      2005(i)
      2009
      See note (8 (h) (i))
      295,799
      295,799(ii)
      2014
      See note (8 (h) (ii))
      730,794
      730,794(iii)
      2014
      See note (8 (h) (iii))
      52,201
      52,201Outstanding
      
      1,078,794
      1,078,794Exercisable
      
      730,794
      730,794


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

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

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

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

|9. | FINANCIAL INSTRUMENTS
|-- | ---------------------
|   |                      
|   | (a)                  
|   |                      
|   |                      
|   |                      
|   |                      
|   |                      
|   |                      
|   |                      
|   | (b)                  
|   |                      
|   |                      

F-23

---

|ELEPHANT & CASTLE GROUP INC.                                                                      
|--------------------------------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                                        
|53 Weeks Ended December 31, 2006, and 52 Weeks Ended December
      25, 2005 and December 26, 2004
|(US Dollars)                                                                                      
|(In Thousand of
      Dollars, Except Share Prices)                                               

|9. | FINANCIAL INSTRUMENTS (continued)
|-- | ---------------------------------
|   |                                  
|   | (c)                              
|   |                                  
|   |                                  
|   |                                  
|   | (d)                              
|   |                                  
|   |                                  
|   |                                  
|   |                                  
|   |                                  
|   |                                  
|   |                                  
|   |                                  

|10. | CONTINGENCIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | The Company has been served notice of a class action
        launched against it in Massachusetts in relation to the distribution of
        gratuities received and paid over to staff for banquet and conference
        services. The Company maintains that it has materially complied with all
        appropriate legislation and that underpayment of gratuities to the staff
        in question amounts to no more than $10. The class action suggests that
        the Company should be denied tip-credit relief for a period of three years
        as a result of this administrative oversight, which would represent a
        cost to the Company of $250. The Company has received legal advice that
        this aspect of the claim is without merit, and accordingly the Company
        has not made provision against it for the year ended December 31, 2006.                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | In March 2006, the Company initiated an arbitration
        action against its franchisee in Springfield, NJ, B&S Limited (B&S),
        for failure to pay continuing franchise fees and other costs per the parties
        Franchise Agreement. At present, the amount the Company seeks to recover
        is approximately $150. However, due to the ongoing nature of the continuing
        franchise fees, the Companys demand increases by approximately $5
        each month. In November 2006, B&S responded to the arbitration demand
        by denying the Companys allegations and pleading several counterclaims,
        seeking rescission of the Franchise Agreement and the return of all sums
        paid to the Company since 2002. The Company vigorously disputes the counterclaims
        and filed a motion with the arbitrator to dismiss them in December 2006.
        The arbitrators decision, dismissing some, but not all of the counterclaims
        was received in February 2007. The Company believes that all of B&Ss
        counterclaims will ultimately be dismissed, and that the Company will
        prevail in full on the merits of its claim against B&S. The binding
        arbitration hearing is scheduled for July 2007.

F-24

---

|ELEPHANT & CASTLE GROUP INC.                                                                      
|--------------------------------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                                        
|53 Weeks Ended December 31, 2006, and 52 Weeks Ended December
      25, 2005 and December 26, 2004
|(US Dollars)                                                                                      
|(In Thousand of
      Dollars, Except Share Prices)                                               

|11. | COMMITMENTS                                                                                                                                                                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                 
|    | The subsidiaries are committed to leases on their restaurant
        locations extending into the 2021 fiscal year. Minimum annual rentals
        for the restaurants excluding realty taxes, common area maintenance and
        other charges are as follows:

| | 2007                   | $ | 1,980  | 
| | ---------------------- | - | ------ | 
| | 2008                   |   | 1,805  | 
| | 2009                   |   | 1,602  | 
| | 2010                   |   | 1,488  | 
| | 2011 to 2015 inclusive |   | 6,536  | 
| |                        |   |        | 
| |                        | $ | 13,411 | 

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

For the 53 weeks ended December 31, 2006
  minimum rents were US$1,701 (2005 - US$1,776, 2004 - US$1,457) and additional
  rents paid based on gross revenues were US$446 (2005 - US$418, 2004 - US$393).

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

The Company has arranged with third party
  financiers to pay its annual insurance premiums in monthly instalments. As at
  December 31, 2006 the Company owed US$124 (2005  US$107, 2004 - US$96)
  in relation to the insurance year ending May 2007.

The Companys total contractual
  obligations at December 31, 2006 can therefore be summarized as follows:

Payments due by period:Total
      
      
      Less than
      
      
      1 to 3
      
      
      3 to 5
      
      
      More thanOutstanding
      
      
      1
        year
      
      
      years
      
      
      years
      
      
      5
        yearsLong-term debt obligations
      
      18,814
      
      
      582
      
      
      18,232
      
      
      0
      
      
      0Capital lease obligations
      
      1
      
      
      1
      
      
      0
      
      
      0
      
      
      0Operating lease obligations
      
      13,411
      
      
      1,980
      
      
      3,407
      
      
      2,678
      
      
      5,346Purchase obligations
      
      124
      
      
      124
      
      
      0
      
      
      0
      
      
      0Other long-term obligations
      
      57
      
      
      57
      
      
      0
      
      
      0
      
      
      0Total contractual obligations
      
      32,407
      
      
      2,744
      
      
      21,639
      
      
      2,678
      
      
      5,346


F-25

---

|ELEPHANT & CASTLE GROUP INC.                                                                      
|--------------------------------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                                        
|53 Weeks Ended December 31, 2006, and 52 Weeks Ended December
      25, 2005 and December 26, 2004
|(US Dollars)                                                                                      
|(In Thousand of
      Dollars, Except Share Prices)                                               

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

(a) Impairment of Long Lived Assets
  for 2006

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

As at December 31, 2006 the Company
  has determined that no impairment provision is required.

(b) Impairment of Long Lived Assets
  for 2005

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

The leases of the Companys Canadian
  restaurants in Calgary, AB and Victoria, BC, expired in December 2005. Calculations
  performed each quarter during the 52 weeks ended December 25, 2005 determined
  that the discounted value of the cash flows expected from these stores until
  time of closure was US$181 lower than the net book value of the associated property,
  plant and equipment as that time.

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

(c) Impairment of Long Lived Assets
  for 2004

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

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

(d) Restaurant closing costs for 2005
  were comprised of the following:

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

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

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

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

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

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

F-26

---

|ELEPHANT & CASTLE GROUP INC.                                                                      
|--------------------------------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                                        
|53 Weeks Ended December 31, 2006, and 52 Weeks Ended December
      25, 2005 and December 26, 2004
|(US Dollars)                                                                                      
|(In Thousand of
      Dollars, Except Share Prices)                                               

|13. | INCOME TAXES                                                                                                        
|--- | --------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                     
|    | The components of the future income tax benefits at
        December 31, 2006 and December 25, 2005, are as follows:

| |                                                              |   | 2006   |   |   | 2005   |  
| | ------------------------------------------------------------ | - | ------ | - | - | ------ | -
| |                                                              |   |        |   |   |        |  
| | Future income tax benefits                                   |   |        |   |   |        |  
| | Tax benefit of non-capital loss
      carry forwards         | $ | 3,052  |   | $ | 5,062  |  
| | Tax benefit of capital
      loss carry forwards             |   | 1,160  |   |   | 1,203  |  
| | Fixed asset values for tax purposes in excess of book values |   | 949    |   |   | 1,166  |  
| |                                                              |   | 5,161  |   |   | 7,431  |  
| | Valuation allowance                                          |   | (2,440 | ) |   | (5,332 | )
| | Net future income tax benefits                               | $ | 2,721  |   | $ | 2,099  |  

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

| | (i)   | Non-capital losses of approximately US$6,104 which can
        be applied against future income for Canadian tax purposes up to and including
        2011.                             
| | ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |       |                                                                                                                                                                                         
| | (ii)  | Operating losses of approximately US$6,943 which may
        be carried forward to apply against future years' income for United States
        income tax purposes expiring up to 2021.
| |       |                                                                                                                                                                                         
| | (iii) | Net capital losses of approximately US$3,401 which can
        be applied against future capital gains income for Canadian tax purposes
        indefinitely.                           

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

| |                                                               |   | 2006 |   |   | 2005   |  
| | ------------------------------------------------------------- | - | ---- | - | - | ------ | -
| |                                                               |   |      |   |   |        |  
| | Income tax benefit computed at Canadian statutory
      rates | $ | 114  |   | $ | 1,776  |  
| | Temporary differences not recognized in year                  |   | (439 | ) |   | 206    |  
| | Recognition of FIT benefit resulting from recognition         |   |      |   |   |        |  
| | of loss carrryforwards                                        |   | 123  |   |   | (23    | )
| | Recognized (unrecognized) tax losses                          |   | (277 | ) |   | (1,696 | )
| | Foreign exchange                                              |   | 0    |   |   | (5     | )
| |                                                               | $ | (479 | ) | $ | 258    |  

F-27

---

|ELEPHANT & CASTLE GROUP INC.                                                                      
|--------------------------------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                                        
|53 Weeks Ended December 31, 2006, and 52 Weeks Ended December
      25, 2005 and December 26, 2004
|(US Dollars)                                                                                      
|(In Thousand of
      Dollars, Except Share Prices)                                               

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

| |                                              |   | 2006   |  |   | 2005   |  |   | 2004   | 
| | -------------------------------------------- | - | ------ |  | - | ------ |  | - | ------ | 
| | Sales to unaffiliated customers              |   |        |  |   |        |  |   |        | 
| | Canada                                       | $ | 14,431 |  | $ | 15,149 |  | $ | 13,986 | 
| | United States                                |   | 21,881 |  |   | 17,896 |  |   | 14,216 | 
| |                                              |   |        |  |   |        |  |   |        | 
| |                                              | $ | 36,312 |  | $ | 33,045 |  | $ | 28,202 | 
| | Property, plant & equipment and other assets |   |        |  |   |        |  |   |        | 
| | Canada                                       | $ | 3,168  |  | $ | 3,357  |  | $ | 4,038  | 
| | United States                                |   | 8,634  |  |   | 6,745  |  |   | 3,454  | 
| |                                              |   |        |  |   |        |  |   |        | 
| |                                              | $ | 11,802 |  | $ | 10,102 |  | $ | 7,492  | 

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

F-28

---

|ELEPHANT & CASTLE GROUP INC.                                                                      
|--------------------------------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                                        
|53 Weeks Ended December 31, 2006, and 52 Weeks Ended December
      25, 2005 and December 26, 2004
|(US Dollars)                                                                                      
|(In Thousand of
      Dollars, Except Share Prices)                                               

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

| | (iv)  | FIN 48, Accounting for Uncertainty in Income Taxes prescribes
        a recognition threshold and measurement attribute for the financial statement
        recognition and measurement of a tax position taken or expected to be
        taken in a tax return. The provisions of FIN 48 are effective for fiscal
        years beginning after December 15, 2006. The provisions of FIN 48 are
        to be applied to all tax positions upon initial adoption of this standard.
        There is no impact on the Companys financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | (v)   | FAS 151, Inventory Costs. This Statement is effective
        for inventory costs incurred during fiscal years beginning after June
        15, 2005. Earlier application is permitted for inventory costs incurred
        during fiscal years beginning after November 24, 2004. The provisions
        of this Statement should be applied prospectively. There is no impact
        on the Companys financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | (vi)  | FAS 153, Exchanges of non monetary Assets. The provisions
        of this Statement is effective for non monetary asset exchanges occurring
        in fiscal periods beginning after June 15, 2005. Earlier application is
        permitted for non monetary asset exchanges occurring in fiscal periods
        beginning after December 16, 2004. The provisions of this Statement should
        be applied prospectively. There is no impact on the Companys financial
        statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | (vii) | FIN 46(R), Consolidation of Variable Interest Entities,
        applies at different dates to different types of enterprises and entities,
        and special provisions apply to enterprises that have fully or partially
        applied Interpretation 46 prior to issuance of Interpretation 46(R). Application
        of Interpretation 46 or Interpretation 46(R) is required in financial
        statements of public entities that have interests in variable interest
        entities or potential variable interest entities commonly referred to
        as special-purpose entities for periods ending after December 15, 2003.
        Application by public entities (other than small business issuers) for
        all other types of entities is required in financial statements for periods
        ending after March 15, 2004. Application by small business issuers to
        entities other than special-purpose entities and by nonpublic entities
        to all types of entities is required at various dates in 2004 and 2005.
        In some instances, enterprises have the option of applying or continuing
        to apply Interpretation 46 for a short period of time before applying
        Interpretation 46(R). There is no impact on the Companys financial
        statements.
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | (v)   | In 2004, FASB issued a revision of FASB Statement No.
        123, Accounting for Stock- Based Compensation. This Statement supersedes
        APB Opinion No. 25, Accounting for Stock Issued to Employees, and its
        related implementation guidance. This revised pronouncement requires that
        all stock options and warrants be accounted for using the fair value method.
        This pronouncement will have no impact on the Company, as the Company
        accounts for all options and warrants using the fair value method, under
        Canadian GAAP.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

F-29

---

|ELEPHANT & CASTLE GROUP INC.                                                                      
|--------------------------------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                                        
|53 Weeks Ended December 31, 2006, and 52 Weeks Ended December
      25, 2005 and December 26, 2004
|(US Dollars)                                                                                      
|(In Thousand of
      Dollars, Except Share Prices)                                               

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

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

| |                                                               |   | 2006   |   |   | 2005   |  
| | ------------------------------------------------------------- | - | ------ | - | - | ------ | -
| |                                                               |   |        |   |   |        |  
| | Total assets for Canadian GAAP                                | $ | 16,968 |   | $ | 14,682 |  
| | Adjustments increasing/(decreasing) total assets              |   |        |   |   |        |  
| | Less proportional
      share of assets in San Francisco      |   |        |   |   |        |  
| | joint venture (investment
      under US GAAP)                |   | (163   | ) |   | (166   | )
| | Add investment
      in San Francisco joint ventures          |   |        |   |   |        |  
| | (proportional consolidation
      under CDN GAAP)             |   | 79     |   |   | 126    |  
| | Less pre-opening
      costs (fully amortized for US GAAP)    |   | (129   | ) |   | (191   | )
| | Less additional amortization
      of leasehold improvements  |   |        |   |   |        |  
| | (amortized
      over lease plus first renewal for CDN GAAP)  |   | (42    | ) |   | (160   | )
| | Less deferred finance costs (liability for US GAAP)           |   | (1,664 | ) |   | (1,837 | )
| |                                                               |   |        |   |   |        |  
| | Total assets for
      US GAAP                                | $ | 15,049 |   | $ | 12,454 |  
| |                                                               |   |        |   |   |        |  
| | Total liabilities per Canadian GAAP                           | $ | 23,045 |   | $ | 20,477 |  
| | Adjustments increasing/(decreasing) total liabilities         |   |        |   |   |        |  
| | Less proportional share of
      liabilities in San Francisco |   |        |   |   |        |  
| | joint venture
      (investment under US GAAP)                |   | (84    | ) |   | (40    | )
| | Less deferred finance costs (asset for CDN GAAP)              |   | (1,664 | ) |   | (1,837 | )
| |                                                               |   |        |   |   |        |  
| | Total liabilities
      for US GAAP                           |   | 21,297 |   |   | 18,600 |  
| |                                                               |   |        |   |   |        |  
| | Total deficit for Canadian GAAP                               |   | (6,077 | ) |   | (5,795 | )
| | Adjustments increasing/(decreasing) total (deficit)           |   |        |   |   |        |  
| | Less pre-opening costs (fully
      amortized for US GAAP)    |   | (129   | ) |   | (191   | )
| | Less additional
      amortization of leasehold improvements  |   |        |   |   |        |  
| | (amortized over lease plus first renewal for CDN GAAP)        |   | (42    | ) |   | (160   | )
| |                                                               |   |        |   |   |        |  
| | Total deficit for
      US GAAP                               |   | (6,248 | ) |   | (6,146 | )
| |                                                               |   |        |   |   |        |  
| | Total deficit and
      liabilities for US GAAP               | $ | 15,049 |   | $ | 12,454 |  

For Canadian GAAP purposes, the Company
  uses the proportionate method of consolidation to record its one-third ownership
  stake in the joint venture Elephant & Castle restaurant in San Francisco,
  CA. For US GAAP purposes these amounts would have been recorded as single line
  entries representing income from joint venture and investment in joint venture.
  (2006: Reduces assets and liabilities by $84; 2005: Reduces assets and liabilities
  by $40).

For Canadian GAAP purposes, pre-opening
  costs associated with new store openings are amortized over a period of 12 months
  commencing at date of opening. For US GAAP purposes, such costs are written
  off in full as they are incurred. (2006: Reduces assets and increases shareholders
  deficit by $129; 2005: Reduces assets and increases shareholders deficit
  by $191).

F-30

---

|ELEPHANT & CASTLE GROUP INC.                                                                      
|--------------------------------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                                        
|53 Weeks Ended December 31, 2006, and 52 Weeks Ended December
      25, 2005 and December 26, 2004
|(US Dollars)                                                                                      
|(In Thousand of
      Dollars, Except Share Prices)                                               

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

| |     | Improvements to leased premises and property under capital
        leases are being amortized on a straight-line basis over the term of the
        lease except for locations opened prior to January 1, 1993. Those improvements
        are being amortized on the straight-line method over the term of the lease
        plus the first two renewal options. Under US GAAP, amortization of leasehold
        improvement costs would be restricted to the term of the lease. (2005:
        Reduces assets and increases deficit by $42; 2005: Reduces assets and
        increases deficit by $160).
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     | For Canadian GAAP purposes, deferred financing costs
        are recorded as an asset which is then amortized over the life of the
        associated instrument. Under US GAAP, such costs are offset against long
        term debt. (2005: Reduces assets and liabilities by $1,664; 2005: Reduces
        assets and liabilities by $1,837).                                                                                                                                                                                                                                                           
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | (c) | Reconciliation of earnings (loss) reported in accordance
        with Canadian GAAP and US GAAP.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     | The financial statements under US GAAP for the year
        ended December 26, 2004 have been restated to reflect previously undisclosed
        gains on translation of convertible notes recorded as equity for Canadian
        GAAP purposes but as a liability under US GAAP. The Company has restated
        the 2004 financial statements as follows:                                                                                                                                                                                                                                              

| |                                                              |  | 2006       |   |  | 2005       |   |  | 2004      |  
| | ------------------------------------------------------------ |  | ---------- | - |  | ---------- | - |  | --------- | -
| |                                                              |  |            |   |  |            |   |  |           |  
| | Net income (loss) Canadian GAAP                              |  | ($334      | ) |  | ($3,266    | ) |  | ($888     | )
| |                                                              |  |            |   |  |            |   |  |           |  
| | Adjustments decreasing (increasing) net income
      (loss)  |  |            |   |  |            |   |  |           |  
| | Amortization of improvement
      costs*                     |  | 117        |   |  | 218        |   |  | 6         |  
| | Dividend
      on paid-in capital that would be treated      |  |            |   |  |            |   |  |           |  
| | as interest under US GAAP                                    |  | 0          |   |  | 0          |   |  | (333      | )
| | Pre-opening
      costs, expensed under US GAAP              |  | 63         |   |  | (191       | ) |  | 45        |  
| |                                                              |  |            |   |  |            |   |  |           |  
| | Net (loss) US GAAP as previously stated                      |  | (154       | ) |  | (3,239     | ) |  | (1,170    | )
| |                                                              |  |            |   |  |            |   |  |           |  
| | Restatements decreasing (increasing) net income
      (loss) |  |            |   |  |            |   |  |           |  
| | Gain on exchange of junior
      notes                       |  | 0          |   |  | 0          |   |  | 0         |  
| | Gain on translation
      of convertible notes               |  |            |   |  |            |   |  |           |  
| | using period end rate for
      US GAAP                      |  | 0          |   |  | 0          |   |  | 860       |  
| | Amortize set up costs
      of junior notes                  |  | 0          |   |  | 0          |   |  | 0         |  
| |                                                              |  |            |   |  |            |   |  |           |  
| | Net income (loss) US GAAP as restated                        |  | ($154      | ) |  | ($3,239    | ) |  | ($310     | )
| |                                                              |  |            |   |  |            |   |  |           |  
| | Net income (loss) per common share                           |  |            |   |  |            |   |  |           |  
| | Canadian GAAP - Basic                                        |  | ($0.06     | ) |  | ($0.57     | ) |  | ($0.17    | )
| | US GAAP - Basic                                              |  | ($0.03     | ) |  | ($0.56     | ) |  | ($0.06    | )
| |                                                              |  |            |   |  |            |   |  |           |  
| | Weighted average number of shares outstanding
      - basic  |  | 5,982,656  |   |  | 5,744,360  |   |  | 5,244,507 |  
| | Average options outstanding                                  |  | 403,250    |   |  | 556,500    |   |  | 577,125   |  
| | Average warrants outstanding                                 |  | 5,918,812  |   |  | 5,918,812  |   |  | 1,980,677 |  
| |                                                              |  |            |   |  |            |   |  |           |  
| | Weighted average number of shares outstanding - diluted      |  | 12,304,718 |   |  | 12,219,672 |   |  | 7,802,309 |  

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

F-31

---

|ELEPHANT & CASTLE GROUP INC.                                                                      
|--------------------------------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                                        
|53 Weeks Ended December 31, 2006, and 52 Weeks Ended December
      25, 2005 and December 26, 2004
|(US Dollars)                                                                                      
|(In Thousand of
      Dollars, Except Share Prices)                                               

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

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

| |                                                         |   | 2006   |   |   | 2005    |   |   | 2004   |  
| | ------------------------------------------------------- | - | ------ | - | - | ------- | - | - | ------ | -
| |                                                         |   |        |   |   |         |   |   |        |  
| | Operating Activities                                    |   |        |   |   |         |   |   |        |  
| | Net income (loss)                                       |   | ($155  | ) |   | ($3,239 | ) |   | ($310  | )
| | Operating items not using cash                          |   |        |   |   |         |   |   |        |  
| | Amortization                                            |   | 1,678  |   |   | 1,845   |   |   | 1,508  |  
| | Loss (Gain) on Foreign
      Exchange                   |   | (65    | ) |   | 679     |   |   | (831   | )
| | Impairment of Long-Lived Assets                         |   | 0      |   |   | 181     |   |   | 199    |  
| | Non-Cash Interest                                       |   | 2,275  |   |   | 1,998   |   |   | 650    |  
| | Future Income Tax                                       |   | (625   | ) |   | 170     |   |   | 126    |  
| | Other                                                   |   | 73     |   |   | (568    | ) |   | 991    |  
| |                                                         |   |        |   |   |         |   |   |        |  
| | Operating Cash Flow                                     |   | 3,181  |   |   | 1,066   |   |   | 2,333  |  
| |                                                         |   |        |   |   |         |   |   |        |  
| | Changes in Non-Cash Working Capital                     |   |        |   |   |         |   |   |        |  
| | Accounts receivable                                     |   | (484   | ) |   | (150    | ) |   | (59    | )
| | Inventory                                               |   | (32    | ) |   | (27     | ) |   | (51    | )
| | Deposits and prepaid expenses                           |   | 44     |   |   | 268     |   |   | (442   | )
| | Accounts payable and accrued liabilities                |   | 674    |   |   | 201     |   |   | (1,055 | )
| |                                                         |   | 202    |   |   | 292     |   |   | (1,607 | )
| |                                                         |   |        |   |   |         |   |   |        |  
| | Cash Provided by
      Operating Activities             |   | 3,383  |   |   | 1,358   |   |   | 726    |  
| |                                                         |   |        |   |   |         |   |   |        |  
| | Investing Activities                                    |   |        |   |   |         |   |   |        |  
| | Acquisition of property, plant and equipment            |   | (3,570 | ) |   | (4,495  | ) |   | (560   | )
| | Acquisition
      of other assets and pre-opening costs |   | (140   | ) |   | (521    | ) |   | 0      |  
| |                                                         |   |        |   |   |         |   |   |        |  
| | Cash Used in Investing
      Activities                 |   | (3,710 | ) |   | (5,016  | ) |   | (560   | )
| | Financing Activities                                    |   |        |   |   |         |   |   |        |  
| | Deferred finance charges                                |   | (138   | ) |   | 601     |   |   | (372   | )
| | Repurchase of shares                                    |   | 0      |   |   | 0       |   |   | 0      |  
| | Proceeds from long-term debt                            |   | 0      |   |   | 0       |   |   | 3,842  |  
| | Proceeds from sale of shares                            |   | 56     |   |   | 71      |   |   | 93     |  
| | Repayment of
      long-term debt                       |   | (42    | ) |   | (31     | ) |   | (154   | )
| |                                                         |   |        |   |   |         |   |   |        |  
| | Cash Provided by
      (Used in) Financing Activities   |   | (124   | ) |   | 641     |   |   | 3,409  |  
| |                                                         |   |        |   |   |         |   |   |        |  
| | Inflow (Outflow) of Cash                                |   | (451   | ) |   | (3,017  | ) |   | 3,575  |  
| | Cash, Beginning of Year                                 |   | 953    |   |   | 3,970   |   |   | 395    |  
| |                                                         |   |        |   |   |         |   |   |        |  
| | Cash, End of Year                                       | $ | 502    |   | $ | 953     |   | $ | 3,970  |  
| |                                                         |   |        |   |   |         |   |   |        |  
| | Reconcilation to cash flow under CDN GAAP               |   |        |   |   |         |   |   |        |  
| | Cash, End of Year under CDN GAAP                        | $ | 507    |   | $ | 956     |   | $ | 3,981  |  
| | Less proportional share
      of cash in joint venture  |   | (5     | ) |   | (3      | ) |   | (11    | )
| | Cash, End of Year
      under US GAAP                   | $ | 502    |   | $ | 953     |   | $ | 3,970  |  

F-32

---

|ELEPHANT & CASTLE GROUP INC.                                                                      
|--------------------------------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                                        
|53 Weeks Ended December 31, 2006, and 52 Weeks Ended December
      25, 2005 and December 26, 2004
|(US Dollars)                                                                                      
|(In Thousand of
      Dollars, Except Share Prices)                                               

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

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

| |                                                 |   | 2006     |   |   | 2005     |   |   | 2004     |  
| | ----------------------------------------------- | - | -------- | - | - | -------- | - | - | -------- | -
| | Common Shares Issued                            |   |          |   |   |          |   |   |          |  
| | Beginning balance                               | $ | 13,112   |   | $ | 12,999   |   | $ | 12,829   |  
| | Issue of shares                                 |   |          |   |   |          |   |   |          |  
| | On renegotiation of debenture interest          |   | 0        |   |   | 0        |   |   | 59       |  
| | For services                                    |   | 4        |   |   | 5        |   |   | 6        |  
| | Purchased
      by Management                   |   | 48       |   |   | 108      |   |   | 106      |  
| | Ending balance                                  | $ | 13,164   |   | $ | 13,112   |   | $ | 12,999   |  
| | Contributed Surplus                             |   |          |   |   |          |   |   |          |  
| | Beginning balance                               | $ | 1,081    |   | $ | 1,081    |   | $ | 0        |  
| | For
      issue of warrants                     |   | 0        |   |   | 0        |   |   | 1,081    |  
| | Ending balance                                  | $ | 1,081    |   | $ | 1,081    |   | $ | 1,081    |  
| | Currency Translation Adjustment                 |   |          |   |   |          |   |   |          |  
| | Beginning balance                               |   | ($2,494  | ) |   | ($2,494  | ) |   | ($2,494  | )
| | Deferred gain
      (loss) incurred during year |   | 0        |   |   | 0        |   |   | 0        |  
| | Ending balance                                  |   | ($2,494  | ) |   | ($2,494  | ) |   | ($2,494  | )
| | Deficit                                         |   |          |   |   |          |   |   |          |  
| | Beginning balance                               |   | ($17,845 | ) |   | ($14,606 | ) |   | ($14,296 | )
| | Net income (loss)                               |   | (154     | ) |   | (3,239   | ) |   | (310     | )
| | Ending balance                                  |   | ($17,999 | ) |   | ($17,845 | ) |   | ($14,606 | )
| | Total Shareholders'
      Equity (Deficit)      |   | ($6,248  | ) |   | ($6,146  | ) |   | ($3,020  | )

F-33

---

|ELEPHANT & CASTLE GROUP INC.                                                                      
|--------------------------------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                                        
|53 Weeks Ended December 31, 2006, and 52 Weeks Ended December
      25, 2005 and December 26, 2004
|(US Dollars)                                                                                      
|(In Thousand of
      Dollars, Except Share Prices)                                               

|17. | SUBSEQUENT EVENT                                                                                                                                                                                                                                                                        
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                         
|    | On January 22, 2007, the Company entered into a definitive
        Arrangement Agreement with Repechage Restaurant Group Ltd. (RRG),
        a company incorporated under the laws of Canada. RRG is a wholly-owned
        subsidiary of Repechage Investments Limited (Repechage).
|    |                                                                                                                                                                                                                                                                                         
|    | Repechage is a closely-held investment company
        incorporated under the laws of Newfoundland and Labrador. It holds investments
        in the transportation, service and real estate sectors.                                                                                   
|    |                                                                                                                                                                                                                                                                                         
|    | Pursuant to the Arrangement Agreement and
        the Plan of Arrangement:                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                         
|    | (a) Each of the holders of the
        Companys Common Shares will transfer their Common Shares to RRG
        for $0.7982 for each Common Share held;                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                         
|    | (b) Each of the holders of the
        Companys Preferred Shares will transfer their Preferred Shares to
        RRG for $2.3946 for each Preferred Share held;                                                                                                                        
|    |                                                                                                                                                                                                                                                                                         
|    | (c) Each of the holders of Warrants
        to acquire Common Shares and Preferred Shares in the Company will transfer
        their Warrants to RRG at a price equal to the amount, if any, by which
        the applicable per share consideration exceeds the warrant exercise price;
|    |                                                                                                                                                                                                                                                                                         
|    | (d) All options to acquire shares
        in the Company will be terminated; and                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                         
|    | (e) Lenders and Noteholders (note
        7) will be paid all amounts owing under the Notes, and the Notes will
        be discharged.                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                         
|    | On the Effective Date of the Arrangement,
        the Company will be a direct, wholly-owned subsidiary of RRG and an indirect
        wholly-owned subsidiary of Repechage.                                                                                                            
|    |                                                                                                                                                                                                                                                                                         
|    | The Plan of Arrangement provides that holders
        of Common Shares in the Company will be granted a right of dissent in
        accordance with the dissent provisions of the British Columbia Act.                                                                                 

F-34

---

SELECTED FINANCIAL INFORMATION

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

12 monthsCDN GAAP
      
      Quarter ended:
      
      
      ended12/31/2006
      
      
      9/24/2006
      
      
      6/25/2006
      
      
      3/26/2006
      
      
      12/31/2006Revenue
      $
      10,167
      
      $
      8,767
      
      $
      9,135
      
      $
      8,243
      
      $
      36,312Income (loss) from Restaurant Operations
      $
      1,688
      
      $
      1,277
      
      $
      1,391
      
      $
      965
      
      $
      5,321Per share
      $
      0.28
      
      $
      0.21
      
      $
      0.23
      
      $
      0.16
      
      $
      0.89Diluted per share
      $
      0.13
      
      $
      0.10
      
      $
      0.11
      
      $
      0.08
      
      $
      0.42Earnings (loss) before income taxes
      $
      620
      
      $
      (198
      )
      $
      (695
      )
      $
      (540
      )
      $
      (813
      )Per share
      $
      0.10
      
      $
      (0.03
      )
      $
      (0.12
      )
      $
      (0.09
      )
      $
      (0.14
      )Diluted per share
      $
      0.05
      
      
      n/a
      
      
      n/a
      
      
      n/a
      
      
      n/aNet income (loss)
      $
      1,225
      
      $
      (216
      )
      $
      (743
      )
      $
      (600
      )
      $
      (334
      )Per share
      $
      0.20
      
      $
      (0.04
      )
      $
      (0.12
      )
      $
      (0.10
      )
      $
      (0.06
      )Diluted per share
      $
      0.10
      
      
      n/a
      
      
      n/a
      
      
      n/a
      
      
      n/aTotal assets
      $
      16,968
      
      $
      14,805
      
      $
      14,845
      
      $
      14,406
      
      $
      16,968Shareholders' equity (deficit)
      $
      (6,077
      )
      $
      (7,300
      )
      $
      (7,102
      )
      $
      (6,374
      )
      $
      (6,077
      )Long term debt
      $
      18,815
      
      $
      19,114
      
      $
      18,628
      
      $
      17,712
      
      $
      18,815Cash dividend per share
      $
      -
      
      $
      -
      
      $
      -
      
      $
      -
      
      $
      -


-57-

---

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

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


-58-

---

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

12 monthsUS GAAP
      
      Quarter ended:
      
      
      ended12/31/2006
      
      
      9/24/2006
      
      
      6/25/2006
      
      
      3/26/2006
      
      
      12/31/2006Revenue
      $
      9,950
      
      $
      8,583
      
      $
      8,952
      
      $
      8,054
      
      $
      35,539Income (loss) from Restaurant Operations
      $
      1,577
      
      $
      1,300
      
      $
      1,479
      
      $
      1,113
      
      $
      5,469Per share
      $
      0.26
      
      $
      0.22
      
      $
      0.25
      
      $
      0.19
      
      $
      0.91Diluted per share
      $
      0.12
      
      $
      0.10
      
      $
      0.12
      
      $
      0.09
      
      $
      0.43Earnings (loss) before income taxes
      $
      520
      
      $
      (167
      )
      $
      (603
      )
      $
      (385
      )
      $
      (635
      )Per share
      $
      0.09
      
      $
      (0.03
      )
      $
      (0.10
      )
      $
      (0.07
      )
      $
      (0.11
      )Diluted per share
      $
      0.04
      
      
      n/a
      
      
      n/a
      
      
      n/a
      
      
      n/aNet income (loss)
      $
      1,127
      
      $
      (185
      )
      $
      (651
      )
      $
      (445
      )
      $
      (154
      )Per share
      $
      0.19
      
      $
      (0.03
      )
      $
      (0.11
      )
      $
      (0.08
      )
      $
      (0.03
      )Diluted per share
      $
      0.09
      
      
      n/a
      
      
      n/a
      
      
      n/a
      
      
      n/aTotal assets
      $
      15,049
      
      $
      13,058
      
      $
      12,956
      
      $
      12,369
      
      $
      15,048Shareholders' equity (deficit)
      $
      (6,248
      )
      $
      (7,373
      )
      $
      (7,206
      )
      $
      (6,569
      )
      $
      (6,249
      )Long term debt
      $
      17,151
      
      $
      17,461
      
      $
      16,910
      
      $
      15,931
      
      $
      17,151Cash dividend per share
      $
      -
      
      $
      -
      
      $
      -
      
      $
      -
      
      $
      -


-59-

---

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

12 monthsUS GAAP
      
      Quarter ended:
      
      
      ended12/25/2005
      
      
      9/25/2005
      
      
      6/26/2005
      
      
      3/27/2005
      
      
      12/25/2005Revenue
      $
      8,893
      
      $
      8,767
      
      $
      7,943
      
      $
      6,828
      
      $
      32,431Income (loss) from Restaurant Operations
      $
      1,346
      
      $
      748
      
      $
      546
      
      $
      632
      
      $
      3,272Per share
      $
      0.23
      
      $
      0.13
      
      $
      0.10
      
      $
      0.11
      
      $
      0.57Diluted per share
      $
      0.11
      
      $
      0.06
      
      $
      0.04
      
      $
      0.05
      
      $
      0.27Earnings (loss) before income taxes
      $
      (38
      )
      $
      (1,204
      )
      $
      (883
      )
      $
      (856
      )
      $
      (2,981
      )Per share
      $
      (0.01
      )
      $
      (0.21
      )
      $
      (0.15
      )
      $
      (0.15
      )
      $
      (0.52
      )Diluted per share
      
      n/a
      
      
      n/a
      
      
      n/a
      
      
      n/a
      
      
      n/aNet income (loss)
      $
      (223
      )
      $
      (1,212
      )
      $
      (900
      )
      $
      (903
      )
      $
      (3,239
      )Per share
      $
      (0.04
      )
      $
      (0.21
      )
      $
      (0.16
      )
      $
      (0.16
      )
      $
      (0.56
      )Diluted per share
      
      n/a
      
      
      n/a
      
      
      n/a
      
      
      n/a
      
      
      n/aTotal assets
      $
      12,454
      
      $
      11,913
      
      $
      12,396
      
      $
      12,327
      
      $
      12,454Shareholders' equity (deficit)
      $
      (6,146
      )
      $
      (5,944
      )
      $
      (4,760
      )
      $
      (3,917
      )
      $
      (6,146
      )Long term debt
      $
      15,510
      
      $
      14,492
      
      $
      13,777
      
      $
      13,646
      
      $
      15,510Cash dividend per share
      $
      -
      
      $
      -
      
      $
      -
      
      $
      -
      
      $
      -


-60-

---

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

Not applicable.

ITEM 9A        
CONTROLS AND PROCEDURES

Disclosure Controls and Procedures.As of the end of the
period covered by this report, the Company carried out an evaluation, under the
supervision and with the participation of management, including the Chief
Executive Officer (CEO) and the Vice President, Finance and Chief Financial
Officer (CFO), of the effectiveness of the design and operation of the
Companys disclosure controls and procedures as defined in Rules 13a-15(e) of
the Exchange Act. Based on that evaluation, the CEO and the CFO have concluded
that the Companys disclosure controls and procedures were effective as of
December 31, 2006 to ensure that information required to be disclosed by the
Company in reports that it files or submits under the Exchange Act, is recorded,
summarized and reported within the time periods specified in the rules and forms
of the SEC, and accumulated and communicated to management, including the CEO
and CFO, to allow timely decisions regarding required disclosures. Because of
the inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that the Companys disclosure controls and procedures
will detect or uncover every situation involving the failure of persons within
the Company to disclose material information otherwise required to be set forth
in our periodic reports; however, the Companys disclosure controls and
procedures are designed to provide reasonable assurance of achieving their
objective of ensuring that information required to be disclosed in the reports
that the Company files or submits under the Exchange Act is communicated to
management, including the CEO and CFO, to allow timely decisions regarding
required disclosure.

Internal Control over Financial Reporting.Management is
responsible for establishing and maintaining adequate internal controls over
financial reporting (as such term is defined in Rule 13a-15(f) under the
Exchange Act). The Companys internal controls over financial reporting is a
process designed under the supervision of the CEO and the CFO to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of the Companys financial statements for external reporting
purposes.

Changes in Internal Control over Financial Reporting.During the fourth quarter of the year ended December 31, 2006, no change in
the Companys internal controls over financial reporting (as such term is
defined in Rules 13a-15(f) under the Exchange Act) occurred that has materially
affected or is reasonably likely to materially affect, the Companys internal
control over financial reporting.

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

-61-

---

ITEM 9B.       
 OTHER INFORMATION

None.

-62-

---

PART III

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

-63-

---

PART IV

ITEM 15        EXHIBITS,
  FINANCIAL STATEMENT SCHEDULES

| | (a) |    
| | --- | ---
| |     |    
| |     | (1)
| |     |    

| | INDEX                                                     | Page  
| | --------------------------------------------------------- | ------
| |                                                           |       
| | Management Report                                         | F-1   
| |                                                           |       
| | Report of Independent Registered Public Accounting Firm   | F-2   
| |                                                           |       
| | Consolidated Financial Statements                         |       
| |                                                           |       
| | Consolidated Balance Sheets                               | F-3   
| |                                                           |       
| | Consolidated Statements of Operations                     | F-4   
| |                                                           |       
| | Consolidated Statements of Shareholders' Equity (Deficit) | F-5   
| |                                                           |       
| | Consolidated Statements of Cash Flows                     | F-6   
| |                                                           |       
| | Notes to Consolidated Financial Statements                | F-7-34

| |  |     |         
| |  | --- | --------
| |  | (2) | Exhibits

The following exhibits are filed herewith:

|Exhibit | **Exhibit**                                                                                                                                                         
|------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------
|No.     |                                                                                                                                                                     
|2.1     | Arrangement Agreement, dated January 22, 2007, among
      Repechage Investments Limited, Repechage Restaurant Group Ltd and Elephant
      & Castle Group Inc. (11)
|3.1     | Certificate of Incorporation and Certificate of Name
      Change of Registrant (1)                                                                                 
|3.2     | Articles of
        Association of Registrant, and amended May 11, 2006 (12)                                                                                        
|3.3     | Certificate of Amalgamation, dated May 1, 1990 (1)                                                                                                                  
|4.1     | Specimen of Common Share Certificate(1)                                                                                                                             
|4.2     | Form of Convertible Subordinated Note issued in Delphi
      Financing(5)                                                                                           
|4.3     | Form of Warrant issued to Delphi Noteholders(5)                                                                                                                     
|4.4     | Special Rights and Restrictions Attached to Preferred
      Shares, Series A (10)                                                                                   
|10.1    | Letter Agreement dated June 26, 1991, regarding expansion
      of facilities at Edmonton Eaton Centre (1)                                                          
|10.2    | Restaurant Lease Agreement with Holiday Inns of Canada,
      Ltd. with respect to Holiday Inn Crown Plaza in Winnipeg, Manitoba (2)                                
|10.3    | Restaurant Lease Agreement with respect to Holiday Inn,
      Philadelphia, Pennsylvania location (3)                                                               
|10.4    | Abstract of Restaurant Lease Agreement with respect to
      Holiday Inn, San Diego location(4)                                                                     
|10.5    | Abstract of Lease Agreement of Elephant & Castle
      Group Inc. with respect to Edmonton, Alberta location (5)                                                    
|10.6    | Form of Franchise Agreement for Elephant & Castle
      Group Inc. (6)                                                                                              
|10.7    | Abstract of Lease Agreement of Elephant & Castle
      Group, Inc. with respect to Chicago, Illinois location (7)                                                   
|10.8    | Operating Agreement of BC Restaurants, LLC dated January
      3, 2003 (8)                                                                                          
|10.9    | Member Control Agreement of BC Restaurants, LLC dated
      January 3, 2003 (8)                                                                                     
|10.10   | Management Agreement dated January 3, 2003 between E
      & C San Francisco, LLC and BC Restaurants, LLC (8)                                                       
|10.11   | License Agreement dated January 3, 2003 between Elephant
      & Castle International, Inc. and BC Restaurants, LLC (8)                                             
|10.12   | Franchising and Development Agreement dated January 3,
      2003 between Elephant & Castle International, Inc. and Battery &
      Clay, LLC(8)                    
|10.13   | Abstract of Lease Agreement of Elephant & Castle
      Group, Inc. with respect to San Francisco, California location (8)                                           
|10.14   | Abstract of Lease Agreement of Elephant & Castle
      Group, Inc. with respect to Washington, D.C. location (9)                                                    

-64-

---

|10.15 | Abstract of Lease Agreement of Elephant & Castle
        Group, Inc. with respect to East Huron Street, Illinois location (9)                                                                                                                                                                                                                                                                                                                                                                                                                            
|----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|10.16 | Amended and Restated Note and Stock Purchase Agreement
        dated December 17, 2004 by and between the Company and GE Investment Private
        Placement Partners II (10)                                                                                                                                                                                                                                                                                                                                                                           
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|10.17 | Credit Agreement dated as of December 17, 2004 by and
        among the Company, Elephant and Castle Canada Inc., Elephant & Castle,
        Inc., Elephant & Castle of Pennsylvania, Inc., E&C Pub, Inc.,
        Massachusetts Elephant & Castle Group, Inc., Elephant & Castle
        International, Inc., Elephant & Castle (Chicago) Corporation, Elephant
        & Castle East Huron, LLC, E&C San Francisco, LLC and E&C Capital,
        LLC and Crown Life Insurance Company (10)                                                             
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|10.18 | Investment Agreement dated December 17, 2004 by and
        among the Company, GE Investment Private Placement Partners II, Crown
        Life Insurance Company, Richard H. Bryant, Roger Sexton and Peter Laurie
        (10)                                                                                                                                                                                                                                                                                                                          
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|10.19 | Inter-Creditor Agreement dated as of December 17, 2004
        by and among the Company, Elephant and Castle Canada Inc., Elephant &
        Castle, Inc., Elephant & Castle of Pennsylvania, Inc., E&C Pub,
        Inc., Massachusetts Elephant & Castle Group, Inc., Elephant &
        Castle International, Inc., Elephant & Castle (Chicago) Corporation,
        Elephant & Castle East Huron, LLC, E&C San Francisco, LLC and
        E&C Capital, LLC, GE Investment Private Placement Partners II and
        Crown Life Insurance Company (10)
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|10.20 | Inter-Shareholder Agreement dated as of December 17,
        2004 by and among the Company, GE Investment Private Placement Partners
        II, Crown Life Insurance Company, Richard H. Bryant, Roger Sexton and
        Peter Laurie (10)                                                                                                                                                                                                                                                                                                             
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|21.1  | List of Subsidiaries (13)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|31.1  | Section 302 Certification
        of Chief Executive Officer  April 16, 2006                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|31.2  | Section 302 Certification
        of Chief Financial Officer  April 16, 2006                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|32.1  | Section 906 Certification of
        Chief Executive Officer  April 16, 2006                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|32.2  | Section 906 Certification
        of Chief Financial Officer  April 16, 2006                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

|* | Indicates management contract or compensatory plan or
      arrangement.
|- | ------------------------------------------------------------------------

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

-65-

---

|(8)  | Incorporated by reference from Registrants 10-K
        for the Fiscal Year Ended December 29, 2002          
|---- | --------------------------------------------------------------------------------------------------------------
|(9)  | Incorporated by reference from the Registrants
        10-K for the Fiscal Year Ended December 26, 2004      
|(10) | Incorporated by reference from the Registrants
        Form 8-K dated December 23, 2004                      
|(11) | Incorporated by reference from the Registrants
        Form 8-K dated January 22, 2007                       
|(12) | Incorporated by reference from the Registrants
        Form 10-Q for the Twenty-Six Weeks Ended June 25, 2006
|(13) | Incorporated by reference from the Registrants
        Form 10-K for the Fiscal Year Ended December 25, 2005 

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SIGNATURES

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

(Registrant) Elephant & Castle Group Inc.

By
      /s/Richard BryantRichard Bryant, Chairman,ChiefExecutiveOfficer and a Director(principalexecutive officer)Date
      April16,2007


Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.

|By   | /s/Richard Bryant                                                                                               | 
|---- | --------------------------------------------------------------------------------------------------------------- | 
|     | Richard Bryant, Chairman,ChiefExecutive
      Officer and a Director(principalexecutive officer)                | 
|     |                                                                                                                 | 
|Date | April16,2007                                                                                                    | 
|     |                                                                                                                 | 
|     |                                                                                                                 | 
|By   | /s/Roger Sexton                                                                                                 | 
|     | RogerSexton, Vice President, Financeand ChiefFinancial Officer(principalfinancial
      and accounting officer) | 
|     |                                                                                                                 | 
|Date | April 16, 2007                                                                                                  | 
|     |                                                                                                                 | 
|     |                                                                                                                 | 
|By   | /s/Jeffrey Barnett                                                                                              | 
|     | Jeffrey Barnett, Director                                                                                       | 
|     |                                                                                                                 | 
|Date | April16,2007                                                                                                    | 
|     |                                                                                                                 | 
|By   | /s/George Pitman                                                                                                | 
|     | George W.Pitman, Director                                                                                       | 
|     |                                                                                                                 | 
|Date | April16,2007                                                                                                    | 

-67-

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|By   | /s/Colin Stacey                | 
|---- | ------------------------------ | 
|     | Colin Stacey, Director         | 
|     |                                | 
|Date | April 16, 2007                 | 
|     |                                | 
|By   | /s/Thomas Chambers             | 
|     | Thomas Chambers, Director      | 
|     |                                | 
|Date | April 16, 2007                 | 
|     |                                | 
|By   | /s/Christopher Anderson        | 
|     | Christopher Anderson, Director | 
|     |                                | 
|Date | April 16, 2007                 | 

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INDEX TO EXHIBITS

|Exhibit | **Exhibit**                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|No.     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|2.1     | Arrangement Agreement, dated January 22, 2007, among
      Repechage Investments Limited, Repechage Restaurant Group Ltd and Elephant
      & Castle Group Inc. (11)                                                                                                                                                                                                                                                                                                            
|3.1     | Certificate of Incorporation and Certificate of Name
      Change of Registrant (1)                                                                                                                                                                                                                                                                                                                                                                                             
|3.2     | Articles of Association of Registrant, and amended May
        11, 2006 (12)                                                                                                                                                                                                                                                                                                                                                                                                    
|3.3     | Certificate of Amalgamation, dated May 1, 1990 (1)                                                                                                                                                                                                                                                                                                                                                                                                                              
|4.1     | Specimen of Common Share Certificate(1)                                                                                                                                                                                                                                                                                                                                                                                                                                         
|4.2     | Form of Convertible Subordinated Note issued in Delphi
      Financing(5)                                                                                                                                                                                                                                                                                                                                                                                                       
|4.3     | Form of Warrant issued to Delphi Noteholders(5)                                                                                                                                                                                                                                                                                                                                                                                                                                 
|4.4     | Special Rights and Restrictions Attached to Preferred
      Shares, Series A (10)                                                                                                                                                                                                                                                                                                                                                                                               
|10.1    | Letter Agreement dated June 26, 1991, regarding expansion
      of facilities at Edmonton Eaton Centre (1)                                                                                                                                                                                                                                                                                                                                                                      
|10.2    | Restaurant Lease Agreement with Holiday Inns of Canada,
      Ltd. with respect to Holiday Inn Crown Plaza in Winnipeg, Manitoba (2)                                                                                                                                                                                                                                                                                                                                            
|10.3    | Restaurant Lease Agreement with respect to Holiday Inn,
      Philadelphia, Pennsylvania location (3)                                                                                                                                                                                                                                                                                                                                                                           
|10.4    | Abstract of Restaurant Lease Agreement with respect to
      Holiday Inn, San Diego location(4)                                                                                                                                                                                                                                                                                                                                                                                 
|10.5    | Abstract of Lease Agreement of Elephant & Castle
      Group Inc. with respect to Edmonton, Alberta location (5)                                                                                                                                                                                                                                                                                                                                                                
|10.6    | Form of Franchise Agreement for Elephant & Castle
      Group Inc. (6)                                                                                                                                                                                                                                                                                                                                                                                                          
|10.7    | Abstract of Lease Agreement of Elephant & Castle
      Group, Inc. with respect to Chicago, Illinois location (7)                                                                                                                                                                                                                                                                                                                                                               
|10.8    | Operating Agreement of BC Restaurants, LLC dated January
      3, 2003 (8)                                                                                                                                                                                                                                                                                                                                                                                                      
|10.9    | Member Control Agreement of BC Restaurants, LLC dated
      January 3, 2003 (8)                                                                                                                                                                                                                                                                                                                                                                                                 
|10.10   | Management Agreement dated January 3, 2003 between E
      & C San Francisco, LLC and BC Restaurants, LLC (8)                                                                                                                                                                                                                                                                                                                                                                   
|10.11   | License Agreement dated January 3, 2003 between Elephant
      & Castle International, Inc. and BC Restaurants, LLC (8)                                                                                                                                                                                                                                                                                                                                                         
|10.12   | Franchising and Development Agreement dated January 3,
      2003 between Elephant & Castle International, Inc. and Battery &
      Clay, LLC(8)                                                                                                                                                                                                                                                                                                                                
|10.13   | Abstract of Lease Agreement of Elephant & Castle
      Group, Inc. with respect to San Francisco, California location (8)                                                                                                                                                                                                                                                                                                                                                       
|10.14   | Abstract of Lease Agreement of Elephant & Castle
      Group, Inc. with respect to Washington, D.C. location (9)                                                                                                                                                                                                                                                                                                                                                                
|10.15   | Abstract of Lease Agreement of Elephant & Castle
      Group, Inc. with respect to East Huron Street, Illinois location (9)                                                                                                                                                                                                                                                                                                                                                     
|10.16   | Amended and Restated Note and Stock Purchase Agreement
      dated December 17, 2004 by and between the Company and GE Investment
      Private Placement Partners II (10)                                                                                                                                                                                                                                                                                                      
|10.17   | Credit Agreement dated as of December 17, 2004 by and
      among the Company, Elephant and Castle Canada Inc., Elephant & Castle,
      Inc., Elephant & Castle of Pennsylvania, Inc., E&C Pub, Inc.,
      Massachusetts Elephant & Castle Group, Inc., Elephant & Castle
      International, Inc., Elephant & Castle (Chicago) Corporation, Elephant
      & Castle East Huron, LLC, E&C San Francisco, LLC and E&C
      Capital, LLC and Crown Life Insurance Company (10)
|10.18   | Investment Agreement dated December 17, 2004 by and among
      the Company, GE Investment Private Placement Partners II, Crown Life
      Insurance Company, Richard H. Bryant, Roger Sexton and Peter Laurie (10)                                                                                                                                                                                                                                                             
|10.19   | Inter-Creditor Agreement dated as of December 17, 2004 by
      and among                                                                                                                                                                                                                                                                                                                                                                                                       

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|      | the Company, Elephant and Castle Canada Inc., Elephant
        & Castle, Inc., Elephant & Castle of Pennsylvania, Inc., E&C
        Pub, Inc., Massachusetts Elephant & Castle Group, Inc., Elephant &
        Castle International, Inc., Elephant & Castle (Chicago) Corporation,
        Elephant & Castle East Huron, LLC, E&C San Francisco, LLC and
        E&C Capital, LLC, GE Investment Private Placement Partners II and
        Crown Life Insurance Company (10)
|----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|10.20 | Inter-Shareholder Agreement dated as of December 17,
        2004 by and among the Company, GE Investment Private Placement Partners
        II, Crown Life Insurance Company, Richard H. Bryant, Roger Sexton and
        Peter Laurie (10)                                                                                                                                                                                                                                 
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|21.1  | List of Subsidiaries (13)                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|31.1  | Section 302 Certification
        of Chief Executive Officer  April 16, 2006                                                                                                                                                                                                                                                                                                                                                                                                
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|31.2  | Section 302 Certification
        of Chief Financial Officer  April 16, 2006                                                                                                                                                                                                                                                                                                                                                                                                
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|32.1  | Section 906 Certification
        of Chief Executive Officer  April 16, 2006                                                                                                                                                                                                                                                                                                                                                                                                
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|32.2  | Section 906 Certification
        of Chief Financial Officer  April 16, 2006                                                                                                                                                                                                                                                                                                                                                                                                

|* | Indicates management contract or compensatory plan or
      arrangement.
|- | ------------------------------------------------------------------------

|(1)  | Incorporated by reference from the Exhibits filed with
        the Companys Registration Statement on Form SB-2 (Registration No.
        33-60612)
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------
|(2)  | Incorporated by reference from Registrants 10-KSB
        for the Fiscal Year Ended December 31, 1993                                              
|(3)  | Incorporated by reference from Registrants 10-KSB
        for the Fiscal Year Ended December 31, 1994                                              
|(4)  | Incorporated by reference from Registrants 10-KSB/A
        for the Fiscal Year Ended December 31, 1996                                            
|(5)  | Incorporated by reference from Registrants 10-KSB
        for the Fiscal Year Ended December 27,1998                                               
|(6)  | Incorporated by reference from Registrants 10-K
        for the Fiscal Year Ended December 26, 1999                                                
|(7)  | Incorporated by reference from Registrants 10-K
        for the Fiscal Year Ended December 31, 2000                                                
|(8)  | Incorporated by reference from Registrants 10-K
        for the Fiscal Year Ended December 29, 2002                                                
|(9)  | Incorporated by reference from the Registrants
        10-K for the Fiscal Year Ended December 26, 2004                                            
|(10) | Incorporated by reference from the Registrants
        Form 8-K dated December 23, 2004                                                            
|(11) | Incorporated by reference from the Registrants
        Form 8-K dated January22, 2007                                                              
|(12) | Incorporated by reference from the Registrants
        Form 10-Q for the Twenty-Six Weeks Ended June 25, 2006                                      
|(13) | Incorporated by reference from the Registrants
        Form 10-K for the Fiscal Year Ended December 25, 2005                                       

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