UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

  x  QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 27, 2005

  ¨  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from ___________________ to _______________________

Commission file number 33-60612

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

(604) 684-6451
(Registrant’s telephone number, including area code)

_____________________________________________________________________
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceeding 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.  
 x  Yes  ¨  No

Indicate by check mark whether the registrant (1) is an accelerated filer (as defined in rule 12b-2 of the Exchange Act).
  ¨  Yes  x  No

As of March 27, 2005, 5,644,411 common shares of the registrant were issued and outstanding.

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ELEPHANT & CASTLE GROUP INC.
QUARTERLY REPORT ON FORM 10-Q
MARCH 31, 2005

TABLE OF CONTENTS

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NOTE REGARDING FORWARD–LOOKING STATEMENTS

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

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

PART I – FINANCIAL INFORMATION

Item 1 – Financial Statements

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ELEPHANT & CASTLE GROUP INC.
Consolidated Balance Sheets
US Dollars
(In Thousands of Dollars)

See notes to consolidated financial statements

ELEPHANT & CASTLE GROUP INC.
Consolidated Statements of Operations
US Dollars
(In Thousands of Dollars, Except Net Income/(Loss) Per Share)
(Unaudited)

See notes to consolidated financial statements

ELEPHANT & CASTLE GROUP INC.
Consolidated Statements of Cash Flows
US Dollars
(In Thousands of Dollars)
(Unaudited)

See notes to consolidated financial statements

ELEPHANT & CASTLE GROUP INC.
Consolidated Statements of Shareholders' Equity (Deficit)
US Dollars
(In Thousands of Dollars)
(Unaudited)

See notes to financial statements

Notes to Consolidated Financial Statements
Thirteen Weeks Ended March 27, 2005 and March 28, 2004
US Dollars
(In Thousands of Dollars, Except Net Income/(Loss) Per Share)
(Unaudited)

With effect from the reporting period ended March 28, 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.

This change in functional and reporting currency has been adopted because:

These consolidated financial statements have been prepared in accordance with generally accepted accounting principles in Canada for interim financial information. These financial statements are condensed and do not include all disclosures required for annual financial statements. The organization and business of the Company, accounting policies followed by the Company and other information are contained in the notes to the Company’s audited consolidated financial statements filed as part of the Company’s December 26, 2004 Form 10-K.

In the opinion of the Company’s management, these interim financial statements reflect all adjustments necessary to present fairly the Company’s consolidated financial position at March 27, 2005 and the consolidated results of operations, the consolidated statement of shareholders’ equity (deficit) and cash flow for the thirteen weeks then ended. The results of operations for the interim period are not necessarily indicative of the results of any other interim periods or for the entire fiscal year.

Certain comparative figures have been reclassified to conform to the current period’s presentation.

Royalties receivable from franchised locations are included in sales.

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

Accordingly, the Company reduced the net book value of these assets by recording a US $147,000 charge for the Impairment of Long Lived Assets in the first quarter of 2004.

On December 17, 2004, the Company entered into a series of financing agreements. The transactions resulted in the raising of CDN $5,000 (US $4,066) 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")

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 and the waiver of US $1,209 of accrued interest on these Notes the Company issued US $4,204 of new Secured 14% Notes, 3,653,972 of CDN $2 (US $1.63) preferred shares and a warrant to purchase 1,750,000 shares of common stock. The Secured Notes bear interest at 14%, which is deferred until payments commence in March, 2007, except in certain circumstances, and are fully repayable on December 18, 2009. The preferred shares accrue a cumulative annual dividend of 6%, payable only when the debt owing to Crown Life Insurance Company (“Crown”) and the GEIPPPII Secured 14% 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, 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 $0.542) per share.

(b) Transactions with Crown

The Company has entered into a credit agreement with Crown, pursuant to which it borrowed CDN $5,000 (US $4,066). The loan bears interest at the rate of 12% per annum. Interest is payable monthly and monthly principal payments of CDN $40 (US $33) commence in December 2006, rising to CDN $60 (US $49) in December 2007 and CDN $100 (US $81) in December 2008, with the balance of CDN $2,600 (US $2,114) 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

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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 $0.542) per share.

(c) Transactions with Management

The Company has entered into an agreement with the three senior managers of the Company ("Management"), whereby Management has committed to purchase for CDN $265 (US $215), 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 stock of the Company. Management has made an initial payment of CDN $115 (US $93). In connection with this purchase, Management have also been issued a warrant for the purchase of an additional 5% of both classes of stock for CDN $133 (US $108).

(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 the Company. Additionally the parties have agreed conditions and entitlements associated with the sale or transfer of their shares.

Investors holding 87% of the US $661 of 8% convertible, subordinated notes of the Company issued in 2000 ("Delphi Investors") have agreed to the amendment of their notes such that the coupon will be increased to 9.25% and repayment will be scheduled to recommence in March, 2007. The remaining Delphi Investors, representing US $85 of 8% convertible, subordinated notes have not agreed to the amendment.

(e) Accounting treatment of Preferred Shares

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$1.63) 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.

(f) Prior years’ accounting treatment of GEIPPPII junior notes

For the thirteen weeks ended March 28, 2004, the GEIPPPII Junior Notes were recorded as an equity instrument.

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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 common 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 EBITDA target for the twelve months ending June 30, 2003 would have allowed the Company to convert two thirds of the second tranche of Junior Notes into equity, but the Company would have lost the ability to convert any of the first tranche.

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

The Company, however, reached an agreement with GEIPPPII to modify the terms of the Junior Notes, such that the test for mandatory conversion of all four tranches was dependent on achievement of EBITDA targets for the twelve months ending June 30, 2005. Accordingly, no reclassification of the Junior Notes was required for the thirteen week period ended March 28, 2004.

Financial statement presentation differs in certain respects between Canada and the United States. Reconciliation of Canadian earnings and US earnings is as follows (the reader is referred to the Company’s Form 10-K for the Year Ended December 26, 2004, as filed with the United States Securities and Exchange Commission):

Reconciliation of total assets, liabilities and shareholders’ equity (deficit):

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In thousands of US dollars

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.

For Canadian GAAP purposes, pre-opening costs are recorded as a balance sheet item until the new store to which they relate is open for trading. These costs are then amortized over a 12 month period. For US GAAP purposes, such costs are charged to income 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.

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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 the year ended December 28, 2003 Canadian GAAP treated convertible debt (Junior Notes) as equity if the debt was convertible into Common Shares of the Company at the option of the issuer. For US GAAP purposes these amounts were reclassified as a liability. 50% of the interest relating to these Junior Notes was in the form of dividend for Canadian GAAP, which would be interest expense for US GAAP.

(b) Reconciliation of income (loss) reported in accordance with Canadian GAAP and US GAAP:

(c) Reconciliation statement of cash flows reported in accordance with Canadian GAAP and US GAAP:

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(d) Reconciliation statement of Shareholders’ Equity (Deficit) reported in accordance with Canadian GAAP and US GAAP:

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