SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K SB/A-1
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended December 31, 1995
Commission File No. 33-60612
ELEPHANT & CASTLE GROUP INC.
(Name of Small Business Issuer)
Province of British Columbia Not Applicable
- --------------------------------------------------------------------------------
(State or other jurisdiction (IRS Employer
of incorporation) Identification Number)
856 Homer Street
Vancouver, B.C. CANADA V6B 2W5
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(Address of principal executive officers) (Zip Code)
Registrant's telephone number including area code: (604) 684-6451
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 13 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to filing requirements
for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K SB or any amendment to
this Form 10-K SB.[ ]
<PAGE>
Twelve Months Ended December 31, 1995 vs. December 31, 1994
Net Income
For the year ended December 31, 1995, the Company's net loss was CDN $1,581,955
compared to net income of CDN $213,166 for the corresponding period in 1994. The
1995 figure includes a reserve of CDN $900,000 for the closing costs and
anticipated legal disputes related to the closure of three locations during the
year. Loss per share was CDN ($0.63), (CDN ($0.27) excluding the reserve),
compared to income per share of CDN $0.09 per share in 1994. See reconciliation
for differences between Canadian and United States Generally Accepted Accounting
Principles.
Sales
Sales increased 1.4% during the twelve months ended December 31, 1995 to CDN
$25,764,339 from CDN $25,414,275 for the comparable period in 1994. The Company
opened three new locations during 1995, at the 445 room Holiday Inn Select in
Philadelphia, Pennsylvania (opened February 28, 1995), at the 275 room Rosedale
on Robson All Suite Hotel in Vancouver, B.C. (opened August 8, 1995) and on the
campus of the 18,000 student British Columbia Institute of Technology in
Burnaby, B.C. (opened September 23, 1995). The Company also closed three
locations during 1995, the 240 seat Elephant & Castle in Toronto, Ontario
(closed July 1, 1995) and two non-branded operations located at Shilo Inns in
Yuma, Arizona (closed March 29, 1995) and Pomona, California (closed June 20,
1995). During 1994, the Company opened one new pub/restaurant in the 400 room
Crowne Plaza Downtown in Winnipeg, Manitoba (opened May 18, 1994). There were no
closings in 1994.
For the eleven Canadian operations open throughout both periods, sales for the
twelve months ended December 31, 1995 totaled CDN $17,214,303 and were up 1.2%
compared to the corresponding period for 1994, reflecting continued cautiousness
on the part of the Canadian customers as related to the economy.
For the one U.S. operation open throughout both periods, sales for the twelve
months ended December 31, 1995 totaled US $914,693 (CDN $1,253,619) and were
down 6.1% compared to the corresponding period for 1994. This location relies
heavily on cross-border shopping by Canadians and the sales decline reflects the
relative low value of the Canadian dollar versus the U.S. dollar and also the
continued cautiousness on the part of Canadian consumers.
For the new Winnipeg Holiday Inn Location, 1995 sales totaled CDN $2,423,542
which far exceeds the average sales of CDN $1,342,500 for mall-based locations,
and continue to grow. The new Philadelphia location's sales annualize at US
$2,400,000 (CDN $3,288,000), which is in line with expectations. The new
Rosedale location's sales were CDN $961,728 for less than five month's activity,
and continue to meet expectations. The Burnaby location operates on limited
hours to reflect student demands, and sales are in line with expectations.
Costs and Expenses
Food and Beverage Costs
Overall, food and beverage costs, as a percentage of sales, increased marginally
to 29.6% for the twelve months ended December 31, 1995 compared to 29.4% for the
corresponding period in 1994. The reluctance in consumer spending added pressure
to margins during 1995. The Company continues to review all purchasing
procedures, recipes and menus in order to bring down the overall food and
beverage cost percentage.
<PAGE>
Labour and Benefit Expenses
Labour costs increased from 31.6% of sales in 1994 to 33.0% for the current
period. The increase in the percentage was attributable to increases in minimum
wages (up to CDN $7.00 per hour) in most Canadian locations, plus the difficulty
in reducing labour relative to sales decreases at locations already operating at
minimal staff levels. The Company is reviewing staff scheduling procedures with
the goal to bring 1996 labour percentages to below those of 1994.
Occupancy and Other Operating Expenses
Occupancy and other expenses decreased as a percentage of sales from 28.9% in
1994 to 26.1% for the current period. This decrease is primarily attributable to
two factors. Firstly, the lease arrangements and higher than average sales
volumes (compared to other operations) at the new locations allow these
locations to operate at lower than average expense percentages. Secondly, the
continued expansion of video lottery terminals at several locations has
generated income that is recorded for presentation purposes as an offset to
other expenses. 1995 is the second consecutive year the Occupancy and Other
Operating Expenses percentage has dropped, reflecting the positive results of
the Company's switch in focus away from mall-based locations.
Depreciation and Amortization
Depreciation and amortization costs increased to 4.8% of sales for the current
period from 2.7% last year. The increase is attributable to depreciation on the
new locations plus the amortization of pre-opening costs at the new locations.
Amortization of pre-opening costs was CDN $344,289 in 1995, compared to CDN
$70,928 in 1994.
General and Administrative
General and administrative expenses increased from 6.4% of sales in 1994 to 8.9%
in 1995. The increase is attributable to numerous factors including the
write-off of CDN $141,722 in expenses related to development of a restaurant in
San Francisco which was terminated in February, 1996; increases in legal,
travel, meeting and promotional costs; plus a major increase in occupancy costs
for the Company's head office. All such costs are under review, with the goal to
bring the General and Administrative expense percentage back to industry
standards. With this in mind, the Company anticipates relocating its corporate
headquarters in 1996 to a location with lower occupancy costs.
Interest on Long Term Debt
During the 1994 period, the Company had virtually no long term debt and had cash
reserves invested in interest bearing accounts. During 1995, the Company
incurred CDN $1,100,000 in long term debt in order to construct its new
locations, and in December, 1995 completed a financing with a U.S. based limited
GEIPPP II. GEIPPP II acquired US $3,000,000 (CDN $4,110,000) in subordinated
convertible notes to the Company's long term debt in December of 1995. As a
result, interest on long term debt increased from CDN $66,516 in 1994 to CDN
84,691 in 1995 and will be significantly higher in 1996. Cash balances not
immediately required are invested in premium grade money market instruments.
<PAGE>
(Loss) Income Before Taxes
The Company incurred a loss from operations, before income taxes, of CDN
($681,955) for the 1995 period compared to income of CDN $213,166 for the 1994
period. As discussed above, increased food, beverage and labour costs, plus
amortization of pre-opening costs for new operations (up CDN $273,361 over
1994), combined with decreased same store sales, had a negative impact on
earnings. Management is reviewing all areas of operations to reverse the cost
increases and the sales decreases.
Income Taxes
The Company incurred a loss in 1995 and therefore has no tax liability. The
Company's effective tax rate for 1994 was also zero, due to the deductibility
for tax purposes of a portion of the costs associated with its 1993 public
offering. The Company's effective tax rate will continue to be reduced for the
next two years for this reason. The impact of this reduction as a percentage of
sales is dependent upon earnings and cannot be predicted in advance.
Provision for Closing Costs
During 1995, the Company closed three locations. A one-time provision of CDN
$900,000 was taken during 1995 to provide for the costs of closing these
locations, and to provide for possible disputes arising from these closings. To
date, the costs of the closings total approximately CDN $375,000. The remaining
CDN $525,000 is a provision against future costs and disputes.
Differences between Canadian and United States Generally Accepted
Accounting Principles (Canadian GAAP and U.S. GAAP)
The Company prepares its financial statements in accordance with Canadian GAAP.
(The reader is referred to Note 15 of the Consolidated Financial Statements for
the year ended December 31, 1995 for additional explanation.) The financial
statements, if prepared in accordance with U.S. GAAP would have differed as
follows:
1) Net loss for the year ended December 31, 1995 would have been
increased by CDN $2,557,760 (US $1,890,157) comprised of:
A one-time interest expense of CDN $2,435,760 (US$1,800,000) resulting from the
beneficial conversion feature of convertible subordinated debentures at the time
of issue.
Amortization expense of CDN $122,000 (US $90,157) resulting from exclusion of
the first option period in calculating the amortization of certain leasehold
improvements.
The impact of these adjustments would have been to increase the net loss per
common share from (CDN $0.63)(US $0.47) under Canadian GAAP to
(CDN$1.65)(US$1.22) under US GAAP.
Net income for the year ended December 31, 1994 would have been decreased by CDN
$240,417 (US $178,087) due to the net effect of amortization of leasehold
improvement costs and a reassessment of prior years' income taxes. Income per
share of CDN $0.09 (US 0.07) under Canadian GAAP would have been a loss per
share of (CDN$0.01) (US$0.01) under US GAAP.
<PAGE>
2) Shareholders' Equity at December 31, 1995 under US GAAP would have
been CDN $6,451,921 (US$4,779,201) compared to CDN$7,087,138 (US$5,249,732)
under Canadian GAAP, due to the cumulative effect of reconciliation adjustments.
Shareholders' Equity at December 31, 1994 under US GAAP would have been
CDN $6,832,688 (US $5,061,250), compared to CDN $7,345,905 (US$5,441,441) under
Canadian GAAP.
Twelve Months ended December 31, 1994 vs. December 31, 1993
Net Income
For the year ended December 31, 1994, the Company's Net Income was CDN
$213,166 or CDN $70,000 higher than the CDN $163,789 Net Income reported for the
corresponding period in 1993. Income per share remained constant at CDN $.09 per
share, due to a higher average number of shares outstanding during the 1994
period.
Sales
Sales increased 13.2% during the twelve months ended December 31, 1994,
to CDN $25,414,275 from CDN $22,445,883 for the comparable period in 1993. The
Company operated one new location during 1994, at the 400-room Holiday Inn
Crowne Plaza in Winnipeg, Manitoba (opened May 18, 1994). During 1993 the
Company opened one new location in Pomona, California (opened July 1, 1993).
For the twelve Canadian operations open throughout both periods, sales
for the twelve months ended December 31, 1994 were up 1.9% compared to the
corresponding period for 1993.
For the two U.S. operations which were open throughout both periods,
sales for the twelve months ended December 31, 1994 were down 16.0 from the
corresponding period. For the six months the Pomona location was open in both
periods, sales were down by 18.3% in the 1994 period. The negative impact on net
income for the twelve months ended December 31, 1994 was U.S. $141,334 compared
to the comparable period in 1993. Two of the locations are operated under lease
arrangements with the Shilo Inns and discussions with Shilo management to find a
solution satisfactory to both parties have been unsuccessful. At the third U.S
location, a minor renovation has been completed and "pull-tab" lotteries have
recently been introduced in order to increase customer counts. Early indications
are that these steps have slowed the earnings decrease and management is
confident these efforts will be successful in the long run.
For the Winnipeg Holiday Inn location, sales totaled CDN $1,641,829 and
exceeded expectations. The restaurant has been profitable each month since
opening.
The Company opened a new location in the 445-room City Center Holiday
Inn at 18th and Market in Philadelphia, PA in February 1995. The location was
originally scheduled to open in September 1994. The delayed opening related to
negotiations with third parties and resulted in deferred revenues, and increased
pre-opening expenses. The Company also has plans for a number of other Holiday
Inn sites, tentatively scheduled to open in 1995 and later.
<PAGE>
Costs and Expenses
Food and Beverage Costs
Overall, food and beverage costs, as a percentage of sales, increased to 29.4%
for the twelve months ended December 31, 1994, compared to 28.7% for the
corresponding period in 1993. In the opinion of management, this increase is not
significant. Menu pricing has been adjusted slightly to counteract this
increase.
Labour and Benefit Costs
Labour costs increased from 30.9% of sales in 1993 to 31.6% for the
current period. The increase in the percentage was mainly attributable to the
decline in U.S. sales, with labor expenditures for U.S. locations increasing
from 38.9% in 1993 to 39.9% in 1994. Labor percentages for Canadian operations
open throughout both periods were stable, and labor at the Winnipeg location was
slightly higher than the Canadian average due to the normal learning curve at a
new locations.
Occupancy and Other Operating Expenses
Occupancy and other expenses decreased as a percentage of sales from
30.0% in 1993 to 28.9% for the current period. This decrease is primarily
attributable to two factors. Firstly, the lease arrangements and
higher-than-average sales volumes (compared to other Canadian operations) at the
new Winnipeg location allow it to operate at lower-than-average expense
percentages. As and if the Company expands its Holiday Inn and related
hotel-site locations on a similar basis as current units, occupancy and other
expenses are expected to continue to decrease as percentage of sales. Secondly,
the introduction of video lottery terminals at several locations has generated
income that is recorded for presentation purposes as an offset to other
expenses.
Depreciation and Amortization
Depreciation and amortization costs increased to 2.7% of sales for the
current period from 2.4% last year. The increase is attributable to the
amortization of pre-opening costs at the Winnipeg location.
General and Administrative
General and administrative expenses increased slightly from 6.7% of
sales in 1993 to 6.9% in 1994. The Company is seeking to continue to reduce
general and administrative expense percentages by opening new locations without
adding proportionate administrative costs.
Interest on Long Term Debt
During the 1994 period, the Company had virtually no long-term debt and
had cash reserves invested in interest-bearing accounts. Interest on long term
debt and capital leases amounted to CDN $66,516 for the current period compared
to expense of CDN $135,189 for the corresponding period in 1993.
<PAGE>
Income Before Taxes
Income increased from CDN $163,789 for the 1993 period to CDN $213,166
for the 1994 period. As discussed above, increased losses attributable to the
U.S. operations, located at the Shilo Inn sites in Yuma, Arizona, and Pomona,
California, and, to a lesser extent, at the Elephant & Castle restaurant in
Bellis Fair, Washington, have significantly masked improvements made at other
locations. Results from these three U.S. locations have offset contributions
from the new Winnipeg, Manitoba location, improvements at a number of Canadian
locations and reductions in interest expenses. Management is reviewing the
status of the Yuma and Pomona locations, with the goal of reducing or
eliminating their negative impact on earnings.
Income Taxes
The Company's effective tax rate for 1994 and 1993 is zero, due to the
deductibility for tax purposes of a portion of the costs associated with its
1993 public offering. The Company's effective tax rate will continue to be
reduced for the next three years for the same reason. The impact of this
reduction as a percentage of sales is dependent upon earnings and cannot be
predicted in advance.
Liquidity and Capital Resources
The Company's cash balances at the end of the 1995 period were CDN
$5,031,078. This compares to a cash balance of CDN $1,695,652 at the end of the
1994 period.
Capital expenditures were approximately CDN $3,216,000 for the 1995
period, primarily for construction of the new Philadelphia, Rosedale and British
Columbia Institute of Technology locations.
Changes in non-cash working capital items resulted in a net source of
funds of CDN $272,288 in the twelve months ended December 31, 1995 compared to a
net source of CDN $84,148 in the comparable period for 1994. The principal usage
in 1995 was in accounts receivable, offset by an increase in accounts payable.
During the year the Company completed two financings. The first, for
CDN$1,100,000 with the Toronto Dominion Bank of Canada was used for the new
locations in the Rosedale on Robson Hotel in Vancouver and the British Columbia
Institute of Technology in Burnaby, British Columbia. The second financing was
completed in December 1995 with a major U.S. based pension money manager,
GEIPPP, II. It was for U.S. $1,000,000 in equity and U.S.$3,000,000 in
Convertible subordinated Notes, with up to U.S.$6,000,000 additional notes
available, subject to certain conditions.
The Company plans to open new locations in the 600 room Holiday Inn on
the Embarcadero in San Diego, California and in a heritage site in the
entertainment region of Toronto, Ontario in the first half of 1996. A portion of
the Company's cash reserves will be utilized to complete these locations.
The Company has plans to open additional new units during 1996. The
Company has sufficient funds available to complete these openings. As discussed
above, additional financing is available, subject to certain conditions.
<PAGE>
ITEM 7 FINANCIAL STATEMENTS
ELEPHANT & CASTLE GROUP INC.
Consolidated Financial Statements
December 31, 1995
(Canadian Dollars)
INDEX
Auditors' Report to the Shareholders
Consolidated Financial Statements
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
<PAGE>
AUDITORS' REPORT TO THE SHAREHOLDERS
We have audited the consolidated balance sheets of Elephant & Castle Group Inc.
as at December 31, 1995 and 1994 and the consolidated statements of income,
shareholders' equity and cash flows for the years ended December 31, 1995, 1994
and 1993. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards
in Canada which do not differ in any material respects from auditing standards
generally accepted in the United States. Those standards require that we plan
and perform an audit to obtain reasonable assurance whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 1995
and 1994 and the results of its operations and its cash flows for the years
ended December 31, 1995, 1994 and 1993 in accordance with generally accepted
accounting principles in Canada applied on a consistent basis. Accounting
principles generally accepted in Canada differ in certain significant respects
from accounting principles generally accepted in the United States and are
discussed in Note 15 to the consolidated financial statements.
"Pannell Kerr Forster"
Chartered Accountants
Vancouver, Canada
April 9, 1996, except for notes 15(b), (d) and (e) as
to which the date is January 16, 1998
COMMENTS BY AUDITORS FOR U.S. READERS
ON CANADA-U.S. REPORTING CONFLICT
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph following the opinion paragraph when the consolidated
financial statements are affected by significant uncertainties such as that
referred to in the attached balance sheets as at December 31, 1995 and 1994 and
as described in Note 9 of the consolidated financial statements. Our report to
the shareholders dated April 9, 1996 is expressed in accordance with Canadian
reporting standards which do not permit a reference to such uncertainties in the
auditors' report when the uncertainties are adequately disclosed in the
consolidated financial statements.
"Pannell Kerr Forster"
Chartered Accountants
Vancouver, Canada
April 9, 1996, except for notes 15(b), (d) and (e) as
to which the date is January 16, 1998
<PAGE>
<TABLE>
<CAPTION>
ELEPHANT & CASTLE GROUP INC.
Consolidated Balance Sheets
December 31
(Canadian Dollars)
1995 1994
- -----------------------------------------------------------------------------------------------------
Assets (note 7)
<S> <C> <C>
Current
Cash and term deposits $ 5,031,758 $ 1,695,652
Accounts receivable 540,749 377,855
Inventory 501,699 508,016
Deposits and prepaid expenses 509,543 500,559
- -----------------------------------------------------------------------------------------------------
6,583,749 3,082,082
Fixed (notes 3 and 6) 8,798,738 6,741,200
Other (note 4) 505,613 505,699
- -----------------------------------------------------------------------------------------------------
$15,888,100 $10,328,981
=====================================================================================================
Liabilities
Current
Accounts payable and accrued liabilities (note 5) $ 3,090,167$ 2,316,623
Current portion of obligation under capital leases (note 6) 71,382 53,594
Current portion of long-term debt (note 7) 451,173 54,548
- -----------------------------------------------------------------------------------------------------
3,612,722 2,424,765
Obligation Under Capital Leases (note 6) 23,899 81,240
Long-Term Debt (note 7) 4,933,341 146,071
Deferred Income Tax 231,000 331,000
- -----------------------------------------------------------------------------------------------------
8,800,962 2,983,076
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</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ELEPHANT & CASTLE GROUP INC.
Consolidated Balance Sheets
December 31 (continued)
(Canadian Dollars)
1995 1994
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Shareholders' Equity
Capital Stock (note 8)
Authorized
10,000,000 Common shares without par value
Issued
2,604,611 (1994 - 2,493,500) Common shares 8,092,065 6,772,665
Retained Earnings (Deficit) (996,067) 585,888
Foreign Exchange Translation Adjustment (8,860) (12,648)
- -----------------------------------------------------------------------------------------------------
7,087,138 7,345,905
- -----------------------------------------------------------------------------------------------------
$15,888,100 $10,328,981
=====================================================================================================
Contingencies and Commitments (notes 9 and 10)
</TABLE>
Approved on behalf of the Board:
/s/J.M. Barnett Director /s/P.J. Barnett Director
- --------------- ---------------
J.M. Barnett P.J. Barnett
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
ELEPHANT & CASTLE GROUP INC.
Consolidated Statements of Income
Years Ended December 31
(Canadian Dollars)
1995 1994 1993
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales $ 25,764,339 $ 25,414,275 $ 22,445,883
- -------------------------------------------------------------------------------------------------------
Restaurant Expenses
Food and beverage 7,622,183 7,470,248 6,429,822
Operating
Labour 8,511,442 8,042,819 6,934,122
Occupancy and other 6,716,129 7,334,993 6,743,502
Restaurant closing costs 900,000 0 0
Depreciation and amortization 1,223,934 673,756 545,962
- -------------------------------------------------------------------------------------------------------
24,973,688 23,521,816 20,653,408
- -------------------------------------------------------------------------------------------------------
Income from Restaurant
Operations 790,651 1,892,459 1,792,475
- -------------------------------------------------------------------------------------------------------
General and Administrative Expenses 2,287,915 1,612,777 1,493,497
Interest on Long-Term Debt 84,691 66,516 135,189
- -------------------------------------------------------------------------------------------------------
2,372,606 1,679,293 1,628,686
- -------------------------------------------------------------------------------------------------------
Income (Loss) Before Income Tax (1,581,955) 213,166 163,789
- -------------------------------------------------------------------------------------------------------
Income Tax
Current 0 54,000 0
Income tax reduction arising from utilization of
loss carry forwards 0 (54,000) 0
- -------------------------------------------------------------------------------------------------------
0 0 0
- -------------------------------------------------------------------------------------------------------
Net Income (Loss) For Year $ (1,581,955 $ 213,166 $ 163,789
=======================================================================================================
Earnings (Loss) Per Common Shares $ (0.63) $ 0.09 $ 0.09
- -------------------------------------------------------------------------------------------------------
Weighted Average Number of Shares Outstanding 2,502,759 2,440,583 1,865,000
=======================================================================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
ELEPHANT & CASTLE GROUP INC.
Consolidated Statements of Shareholders' Equity
Years Ended December 31
(Canadian Dollars)
Foreign Total
Retained Exchange Shareholders'
Common Shares Earnings Translation Equity
Number Amount (Deficit) Adjustment (Deficit)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance,
December 31, 1992 1,300,000 $ 4,237 $ 208,933 $ 1,383 $ 214,553
Shares of subsidiaries 0 (4,237) 0 0 (4,237)
Issue of shares, net 1,130,000 6,770,686 0 0 6,770,686
Net income 0 0 163,789 0 163,789
Loss for year on translation 0 0 0 (4,972) (4,972)
- ---------------------------------------------------------------------------------------------------------------------------
Balance,
December 31, 1993 2,430,000 6,770,686 372,722 (3,589) 7,139,819
Issue of shares 63,500 412,979 0 0 412,979
Less: Unpaid shares 0 (411,000) 0 0 (411,000)
Net income 0 0 213,166 0 213,166
Loss for year on translation 0 0 0 (9,059) (9,059)
- ---------------------------------------------------------------------------------------------------------------------------
Balance,
December 31, 1994 2,493,500 6,772,665 585,888 (12,648) 7,345,905
Issue of shares, net 111,111 1,319,400 0 0 1,319,400
Net loss 0 0 (1,581,955) 0 (1,581,955)
Gain for year on translation 0 0 0 3,788 3,788
- ---------------------------------------------------------------------------------------------------------------------------
Balance,
December 31, 1995 2,604,611 $ 8,092,065 $ (996,067 $ (8,860 $ 7,087,138
===========================================================================================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
ELEPHANT & CASTLE GROUP INC.
Consolidated Statements of Cash Flows
Years Ended December 31
(Canadian Dollars)
1995 1994 1993
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Provided By Operating Activities
Net income (loss) $ (1,581,955 $ 213,166 $ 163,789
Items not involving cash
Depreciation and amortization 1,223,934 673,756 545,962
Deferred income tax (100,000) 0 0
Loss on disposal of fixed assets 282,391 10,352 7,312
- ---------------------------------------------------------------------------------------------------------
(175,630) 897,274 717,063
- ---------------------------------------------------------------------------------------------------------
Changes in Non-Cash Working Capital
Accounts receivable (162,895) 23,545 (212,507)
Inventory 6,317 (37,565) (79,842)
Deposits and prepaid expenses (8,985) (118,524) (249,458)
Accounts payable and accrued liabilities 773,544 216,692 279,646
Other 0 0 (30,000)
- ---------------------------------------------------------------------------------------------------------
607,981 84,148 (292,161)
- ---------------------------------------------------------------------------------------------------------
432,351 981,422 424,902
- ---------------------------------------------------------------------------------------------------------
Investing Activities
Acquisition of fixed assets (3,216,156) (1,382,219) (229,763)
Acquisition of other assets (385,769) (423,324) 0
Cash surrender value of life insurance 45,000 45,000 45,000
Acquisition of trademark (6,850) 0 (93,313)
- ---------------------------------------------------------------------------------------------------------
(3,563,775) (1,760,543) (278,076)
- ---------------------------------------------------------------------------------------------------------
Financing Activities
Proceeds from long-term debt 5,233,992 0 0
Repayment of long-term debt (50,097) (52,556) (1,548,963)
Issuance of shares, net 1,319,400 1,979 6,770,686
Obligation under capital leases (39,553) (46,447) (40,391)
Repayment of shareholders' loans 0 0 (2,848,563)
- ---------------------------------------------------------------------------------------------------------
6,463,742 (97,024) 2,332,769
- ---------------------------------------------------------------------------------------------------------
Effect of Exchange Rate Changes on Cash 3,788 (9,059) (4,972)
- ---------------------------------------------------------------------------------------------------------
Increase (Decrease) in Cash 3,336,106 (885,204) 2,474,623
Cash and Term Deposits, Beginning of Year 1,695,652 2,580,856 106,233
- ---------------------------------------------------------------------------------------------------------
Cash and Term Deposits, End of Year $ 5,031,758 $ 1,695,652 $ 2,580,856
=========================================================================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
ELEPHANT & CASTLE GROUP INC.
Notes to Consolidated Financial Statements
Years Ended December 31
(Canadian Dollars)
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
These financial statements include the accounts of Elephant & Castle
Group Inc. and its wholly- owned subsidiaries
(a) The Elephant & Castle Canada Inc. ("the Canadian subsidiary")
which owns and operates English style restaurants across
Canada under the name "The Elephant & Castle Restaurant and
Pub", an upscale coffee bar under the name "E & C Express",
and a New York style deli under the name "Rosie's".
(b) Elephant & Castle Inc. ("the U.S. subsidiary" incorporated in
Texas) which owns and operates English style restaurants in
Washington and Pennsylvania.
All significant inter-company balances and transactions are eliminated.
The consolidated financial statements are prepared in accordance with
Canadian generally accepted accounting principles and all figures are
in Canadian dollars unless otherwise stated. Canadian generally
accepted accounting principles differ in certain respects from
accounting principles generally accepted in the United States. The
significant differences and the approximate related effect on the
consolidated financial statements are set forth in Note 15.
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
(a) Inventory
Inventory consists of food and beverages and is recorded at
the lower of cost or market. Cost is determined using the
first-in, first-out method.
(b) Fixed assets
Fixed assets are recorded at cost and are depreciated annually
as follows:
Furniture and fixtures - 10% straight-line method
Point of sale hardware - 10% straight-line method
Computer software - 20% straight-line method
Automobile - 20% straight-line method
Improvements to leased premises and property under capital
leases are being amortized on the straight-line method over
the term of the lease plus the first renewal option. For
locations opened subsequent to January 1, 1993, such
improvements are being amortized on a straight-line basis over
the term of the lease.
China, glassware and cutlery are not depreciated and
replacements are charged directly to operations.
<PAGE>
ELEPHANT & CASTLE GROUP INC.
Notes to Consolidated Financial Statements
Years Ended December 31
(Canadian Dollars)
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (Continued)
(c) Foreign currency translation
Amounts recorded in foreign currency are translated into
Canadian dollars as follows
(i) Monetary assets and liabilities at the rate of
exchange in effect at the balance sheet date;
(ii) Non-monetary assets and liabilities at the exchange
rates prevailing at the time of the acquisition of
the assets or assumption of the liabilities; and,
(iii) Revenues and expenses (excluding depreciation and
amortization which are translated at the same rate as
the related asset), at the average rate of exchange
for the year.
Gain and losses arising from translation of foreign currency
are deferred and included as a separate component of
shareholders' equity.
(d) Earnings per share
Earnings per share computations are based on the weighted
average number of common shares outstanding during the year.
There is no dilutive effect on earnings per share in 1995
after the assumed exercise of stock options.
(e) Deferred Income Taxes
Deferred income taxes arose in prior years from claiming
depreciation for income tax purposes in excess of depreciation
recorded for accounting purposes.
<PAGE>
ELEPHANT & CASTLE GROUP INC.
Notes to Consolidated Financial Statements
Years Ended December 31
(Canadian Dollars)
- --------------------------------------------------------------------------------
3. FIXED ASSETS
<TABLE>
<CAPTION>
1995
- ------------------------------------------------------------------------------------------
Accumulated
Depreciation
and
Cost Amortization Net
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Furniture and fixtures $ 5,818,990 $ 2,805,708 $ 3,013,282
Computer software 70,652 60,719 9,933
Automobile 28,298 24,843 3,455
Leasehold improvements 8,069,310 2,652,604 5,416,706
China, glassware and cutlery 355,362 0 355,362
- ------------------------------------------------------------------------------------------
$ 14,342,612 $ 5,543,874 $ 8,798,738
==========================================================================================
<CAPTION>
1994
- ------------------------------------------------------------------------------------------
Accumulated
Depreciation
and
Cost Amortization Net
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Furniture and fixtures $ 4,736,364 $ 2,558,880 $ 2,177,484
Computer software 69,560 47,362 22,198
Automobile 28,298 22,427 5,871
Leasehold improvements 6,905,270 2,651,408 4,253,862
China, glassware and cutlery 281,785 0 281,785
- ------------------------------------------------------------------------------------------
$ 12,021,277 $ 5,280,077 $ 6,741,200
==========================================================================================
</TABLE>
<PAGE>
ELEPHANT & CASTLE GROUP INC.
Notes to Consolidated Financial Statements
Years Ended December 31
(Canadian Dollars)
- --------------------------------------------------------------------------------
4. OTHER ASSETS
<TABLE>
<CAPTION>
1995 1994
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Accumulated fund value of life insurance $ 63,139 $ 108,139
Less: Amount required to fund subsequent year's
premium 45,000 45,000
- --------------------------------------------------------------------------------------------
18,139 63,139
Trademark 99,592 93,313
Pre-opening costs 171,584 182,796
Other 216,298 166,451
- --------------------------------------------------------------------------------------------
$ 505,613 $ 505,699
============================================================================================
</TABLE>
5. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
<TABLE>
<CAPTION>
1995 1994
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Trade payables $ 1,088,615 $ 1,097,447
Occupancy costs 311,702 209,555
Accrued salaries, wages and related tax 371,731 348,922
Sales tax 198,545 298,146
Other 1,119,574 362,553
- ----------------------------------------------------------------------------------------------
$ 3,090,167 $ 2,316,623
==============================================================================================
</TABLE>
<PAGE>
ELEPHANT & CASTLE GROUP INC.
Notes to Consolidated Financial Statements
Years Ended December 31
(Canadian Dollars)
- --------------------------------------------------------------------------------
6. OBLIGATION UNDER CAPITAL LEASES
The following is a schedule of future minimum lease payments under
capital leases
<TABLE>
<CAPTION>
1995 1994
- -------------------------------------------------------------------------------------------
<S> <C> <C>
1995 $ 0 $ 72,907
1996 80,109 72,907
1997 20,100 12,898
1998 3,601 0
- ------------------------------------------------------------------------------------------
Total minimum lease payments 103,810 158,712
Less: Amount representing interest and
executory costs 8,529 23,878
- ------------------------------------------------------------------------------------------
95,281 134,834
Less: Current portion 71,382 53,594
- ------------------------------------------------------------------------------------------
Obligation under capital leases $ 23,899 $ 81,240
==========================================================================================
</TABLE>
Assets under capital leases consist of certain equipment, point of sale
hardware and computer software.
<PAGE>
ELEPHANT & CASTLE GROUP INC.
Notes to Consolidated Financial Statements
Years Ended December 31
(Canadian Dollars)
- --------------------------------------------------------------------------------
7. LONG-TERM DEBT
<TABLE>
<CAPTION>
1995 1994
- -----------------------------------------------------------------------------------
<S> <C> <C>
GE Investment Private Placement Partners II, a limited
partnership, $3,000,000 U.S. convertible subordinated
debentures, interest only at 4% per annum to November
1996, 5% per annum to November 1997, 6% per annum to
November 1998, 7% per annum to November 1999 and 8% per
annum thereafter, repayable in equal semi-annual
instalments of one eighth of the principal amount
outstanding commencing November 2001. In consideration
for the below market interest rates, the agreement
provides for the issuance to the lender of 70,555
common shares in 1996 and 15,000 common shares in each
of 1997, 1998 and 1999. The lender may exercise its
conversion privilege at any time on the basis of one
share for each $8 U.S. of principal $ 4,110,000 $ 0
Toronto-Dominion Bank term loans repayable in monthly
instalments of $23,611 including interest at prime plus
0.75% and $10,000 plus interest at prime plus 0.75%,
beginning May 1996, due May 1999, secured by a general
security agreement with a first fixed and floating
charge over all the Canadian subsidiary's assets, an
assignment of the Canadian subsidiary's accounts
receivable, inventory and certain leasehold
improvements 1,123,992 0
Camdev Properties Inc. - repayable in monthly
instalments of $3,002 including interest at 13%, due
August 1, 1999, secured by a charge on certain
leasehold improvements 104,389 125,221
Viking Rideau Corporation - without interest, repayable
in monthly instalments of $1,000, due October, 1998,
secured by a charge on certain leasehold improvements
34,000 46,000
Oxford Development Group Inc. - repayable in monthly
instalments of $1,943 including interest at 8%, due
April, 1996 12,133 29,398
- -----------------------------------------------------------------------------------
5,384,514 200,619
Less: Current portion 451,173 54,548
- -----------------------------------------------------------------------------------
$ 4,933,341 $ 146,071
===================================================================================
</TABLE>
<PAGE>
ELEPHANT & CASTLE GROUP INC.
Notes to Consolidated Financial Statements
Years Ended December 31
(Canadian Dollars)
- --------------------------------------------------------------------------------
7. LONG-TERM DEBT (Continued)
Long-term debt principal repayments due in each of the next five years
are approximately as follows
1996 $ 451,000
1997 349,000
1998 351,000
1999 123,000
2000 0
Thereafter 4,110,000
==========
8. CAPITAL STOCK
(a) During 1995, 111,111 shares were issued at $9 U.S. per share
in conjunction with the convertible subordinated debenture
financing (note 7).
(b) During 1994, 63,500 shares were issued to a director at $4.75
U.S. per share. At December 31, 1995, $300,000 U.S. of these
proceeds were unpaid. The Company holds security in excess of
the unpaid amount.
(c) During 1993, stock option plans were adopted as follows:
(i) Founders were granted options to acquire up to
100,000 common shares at $6.60 U.S. per share on the
5th through 9th anniversary date of granting of the
options. Exercising of the options may be accelerated
if defined net income levels are achieved.
(ii) 100,000 common shares have been set aside for
granting of options to key personnel. All options
expire on the fifth anniversary date of the grant.
Options have been granted for 63,000 common shares.
(iii) 20,000 common shares have been set aside for granting
of options to independent directors of the Company.
During 1993, options to purchase an aggregate 10,000
shares at $6.00 U.S. per share were granted to two
directors.
None of the options have been exercised to date.
(d) During 1995, the Company issued warrants entitling holders
thereof to purchase a total of 295,000 common shares at prices
ranging from $4.75 U.S. to $6.00 U.S. per share. The warrants
expire from June 30, 1998 to November 1, 2000. None of the
warrants have been exercised to date.
<PAGE>
ELEPHANT & CASTLE GROUP INC.
Notes to Consolidated Financial Statements
Years Ended December 31
(Canadian Dollars)
- --------------------------------------------------------------------------------
9. CONTINGENCIES
(a) The Company was a party to two ten year lease agreements with
Shilo Hotels ("Shilo") relating to facilities located at Yuma,
Arizona and Pomona, California respectively. The Company
asserted certain claims against Shilo by reason of the lease
agreements. Shilo, in turn, asserted claims against the
Company, and commenced litigation, still pending, in the
Superior Court, State of Arizona, County of Yuma. In the
action, Shilo seeks general and special damages amounting to
approximately $2,560,000 U.S. for alleged breach of the lease
agreements at Yuma and Pomona. In management's opinion, the
Company has potential valid defenses and mitigation of damage
claims against Shilo, as well as potential counterclaims. A
provision of $646,979 Cdn. has been made for potential damages
from this action along with legal and closing costs (note 11).
Should any recovery or further loss result from the resolution
of this claim, such loss or recovery will be accounted for in
that period.
(b) In 1989 and 1990, the Canadian subsidiary received Notices of
Reassessment from Revenue Canada and the Ontario Ministry of
Revenue regarding a construction allowance received in 1984
from the landlord for its former Sarnia, Ontario location. The
reassessment has been under appeal since 1989. The amount of
tax reassessed was $209,000. Including interest accrued
retroactively since 1984, the total amount disputed at
December 31, 1995 approximates $640,000.
Legal counsel is of the opinion Revenue Canada's position will
not likely be upheld by the courts.
When the outcome of the appeal is resolved, the tax liability,
if any, will be recorded as an element of the income tax
expense for the year it is settled.
(c) The Canadian subsidiary is guarantor on a lease agreement
covering the former Sarnia, Ontario restaurant location.
Monthly rentals approximate $9,000 each to the end of the
lease in 1998.
<PAGE>
ELEPHANT & CASTLE GROUP INC.
Notes to Consolidated Financial Statements
Years Ended December 31
(Canadian Dollars)
- --------------------------------------------------------------------------------
10. COMMITMENTS
The subsidiaries are committed to leases on their sixteen restaurant
locations extending into the 2007 fiscal year. Minimum annual rentals
for the restaurants excluding realty taxes, common area maintenance and
other charges are as follows:
1996 $ 1,872,517
1997 1,781,455
1998 1,455,830
1999 1,381,030
2000 1,408,566
2001 to 2007 inclusive 5,846,269
-----------
$13,745,667
===========
Each of the aforementioned leases provide for the payment of additional
rent based on percentages of gross annual revenue in excess of minimum
rents, or other graduated formulae derived from gross revenue as defined
in the particular lease agreements. The percentages range from 6% to
11%.
11. OTHER ITEMS
<TABLE>
<CAPTION>
1995 1994 1993
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Abandonment of assets and demolition costs
relating to restaurant lease not renewed $ 353,021 $ 0 $ 0
Less: Deferred income tax effect (100,000) 0 0
- -------------------------------------------------------------------------------------------------
253,021 0 0
Provision for potential damages, abandonment of
assets, legal and other costs relating to restaurant
leases in dispute (note 9) 646,979 0 0
- -------------------------------------------------------------------------------------------------
$ 900,000 $ 0 $ 0
=================================================================================================
</TABLE>
<PAGE>
ELEPHANT & CASTLE GROUP INC.
Notes to Consolidated Financial Statements
Years Ended December 31
(Canadian Dollars)
- --------------------------------------------------------------------------------
12. INCOME TAX
(a)
<TABLE>
<CAPTION>
1995 1994 1993
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory rates 43% 43% 43%
Income tax at statutory rates $ 0 $ 216,000 $ 135,000
Income tax effect related to the following 0
Amortization of share issue costs 0 (164,000) (112,000)
Amortization of construction
allowances 0 (30,000) (30,000)
Non-deductible items 0 32,000 7,000
Benefit of loss carry-forward application 0 (54,000) 0
- -------------------------------------------------------------------------------------------
Effective Rate of Income Tax 0% 0% 0%
===========================================================================================
</TABLE>
(b) The Company has the following available tax losses, the
benefits of which have not been recorded in these finanical
statements
(i) Non-capital losses of approximately $260,000 which
can be applied against future income for Canadian tax
purposes up to and including 2002.
(ii) Net capital losses of approximately $270,000 which
can be applied against future capital gains income
for Canadian tax purposes indefinitely.
(iii) Operating losses of approximately $1,300,000 U.S.
which may be carried forward to apply against future
years' income for United States income tax purposes
expiring in 1998, 1999, 2003 and 2004.
<PAGE>
ELEPHANT & CASTLE GROUP INC.
Notes to Consolidated Financial Statements
Years Ended December 31
(Canadian Dollars)
- --------------------------------------------------------------------------------
13. RELATED PARTY TRANSACTIONS
(a) Three officers of the Company utilize personal service
corporations to receive the income from their employment with
the Company. Payments to these corporations totalled $264,000
(1994 - $248,000). In addition, direct payments to these
officers totalled $79,000 (1994 - $80,000).
(b) A director of the Company provides legal and consulting
services to the Company. Fees for these services totalled
$61,000 (1994 - $39,440).
(c) Accounts receivable include $50,000 (1994 - $51,000) due from
directors of the Company. An additional $60,000 (1994 -
$40,000) of accounts receivable is due from a Company that is
related to a director and which shares office premises with
the Company.
(d) Other assets include $115,000 (1994 - $115,000) receivable
from an entity in which a director of the Company has
significant influence.
14. GEOGRAPHIC SEGMENTED DATA
<TABLE>
<CAPTION>
1995 1994 1993
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales to unaffiliated customers
Canada $ 19,776,365 $ 19,612,304 $ 17,567,178
United States 5,987,974 5,801,971 4,878,705
- ----------------------------------------------------------------------------------------------
$ 25,764,339 $ 25,414,275 $ 22,445,883
==============================================================================================
Income before income tax and other items
Canada $ (149,458) $ 503,427 $ 312,716
United States (532,497) (290,261) (148,927)
- ----------------------------------------------------------------------------------------------
$ (681,955) $ 213,166 $ 163,789
==============================================================================================
Identifiable assets
Canada $ 12,948,148 $ 8,229,799 $ 8,608,819
United States 2,939,952 2,099,182 1,396,387
- ----------------------------------------------------------------------------------------------
$ 15,888,100 $ 10,328,981 $ 10,005,206
==============================================================================================
</TABLE>
<PAGE>
ELEPHANT & CASTLE GROUP INC.
Notes to Consolidated Financial Statements
Years Ended December 31
(Canadian Dollars)
- --------------------------------------------------------------------------------
15. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CANADIAN GAAP AND U.S. GAAP)
(a) Income tax
The Financial Accounting Standards Board ("FASB") issued a
revised statement on "Accounting for Income Tax", SFAS No.
109, which requires companies to recognize current changes in
tax rates in recording their deferred income tax liabilities
effective for fiscal years beginning after December 15, 1992.
The effect of applying this statement is not significant.
(b) Reconciliation of earnings reported in accordance with
Canadian GAAP and U.S. GAAP
<TABLE>
<CAPTION>
1995 1994 1993
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Income (loss) - Canadian
GAAP $ (1,581,95 $ 213,16 $ 163,789
Adjustments to net income
(loss)
Cost of beneficial conversion
feature of convertible
subordinated debentures
(note 7) (2,435,760) 0 0
Prior years' income tax
reassessment 0 (167,417) 0
Amortization of leasehold
improvement costs (122,000) (128,000) (128,000)
Income tax effect of
adjustments 0 55,000 55,000
- -------------------------------------------------------------------------------------------
Net income (loss) U.S. GAAP $ (4,139,715) $ (27,251) $ 90,789
===========================================================================================
Net income (loss) per common share
Canadian GAAP $ (0.63) $ 0.09 $ 0.09
===========================================================================================
U.S. GAAP $ (1.65) $ (0.01) $ 0.05
===========================================================================================
Average number of shares
outstanding 2,502,759 2,440,583 1,865,000
===========================================================================================
</TABLE>
The beneficial conversion feature of convertible subordinated debenture
is accounted for as an interest expense at the date of issue of the
security. This policy conforms to the accounting for these transactions
announced by the SEC staff in March, 1997.
<PAGE>
ELEPHANT & CASTLE GROUP INC.
Notes to Consolidated Financial Statements
Years Ended December 31
(Canadian Dollars)
- --------------------------------------------------------------------------------
The fiscal 1995 differences between earnings under Canadian and U.S.
GAAP have been adjusted to comply with the SEC staff's position of
retroactive application of this accounting practice. As a result,
fiscal 1995 U.S. GAAP net loss per common share has been increased from
($0.68) to ($1.65).
15. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CANADIAN GAAP AND U.S. GAAP) (Continued)
The reconciliation of stockholders' equity reported in accordance with
Canadian GAAP and U.S. GAAP has been adjusted by CDN $2,435,760 to
reflect this charge to income and increase in capital in 1995.
Under U.S. GAAP, amortization of leasehold improvement costs would be
restricted to the term of the lease.
Under U.S. GAAP, interest expense would be imputed with respect to a
non-interest bearing loan $34,000 (1994 - $46,000) received in 1983
from a landlord to assist in financing leasehold improvements. The
effect on net income of not recording imputed interest and related
income tax is negligible. If the imputed interest had been recorded
when the loan originated, the effect on the balance sheet at December
31, 1995 would have been to decrease fixed assets and long-term debt by
approximately $26,000 (1994 - $31,000).
(c) Statements of Cash Flows
The Statements of Cash Flows have been prepared in accordance with
Canadian GAAP.
Under Canadian GAAP, Cash and Equivalents is defined as cash net of
short-term borrowings. Under U.S. GAAP, short-term borrowings are
considered a financing activity.
Under U.S. GAAP, financing and investing activities that do not result
in cash flow would be excluded from the statement and disclosed
separately. The following items included in the Statements of Cash
Flows would be disclosed separately under U.S. GAAP
<TABLE>
<CAPTION>
1995 1994 1993
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash surrender value of life
insurance $ 45,000 $ 45,000 $ 45,000
Acquisition of fixed assets (20,000) 0 0
Obligation under capital
leases 1,800 0 0
==============================================================================
</TABLE>
Under U.S. GAAP, the following supplemental disclosure of cash flow
information would be made
<PAGE>
ELEPHANT & CASTLE GROUP INC.
Notes to Consolidated Financial Statements
Years Ended December 31
(Canadian Dollars)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest $ 78,570 $ 45,237 $ 135,189
Income tax 75,000 92,417 32,003
==============================================================================
</TABLE>
15. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CANADIAN GAAP AND U.S. GAAP) (Continued)
(d) Reconciliation of stockholders' equity reported in accordance
with Canadian GAAP and U.S. GAAP
<TABLE>
<CAPTION>
1995 1994 1993
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Stockholders' equity, December 31,
under Canadian GAAP $ 7,087,138 $ 7,345,905 $ 7,139,819
Cumulative adjustments reducing
net income reported under
Canadian GAAP to net income
under U.S. GAAP (3,070,977) (513,217) (272,800)
Beneficial conversion feature of
convertible subordinated
debentures (note 8 and 17(b)(i) 2,435,760 0 0
- ----------------------------------------------------------------------------------------
Stockholders' equity, U.S. GAAP $ 6,451,921 $ 6,832,688 $ 6,867,019
========================================================================================
</TABLE>
(e) Stock option plans
The Company adopted an employee, a founder's and a director's stock
option plan in 1993. Stock option activity under these plans is
summarized as follows
<TABLE>
<CAPTION>
Number Exercise Price
of Shares (U.S.$) (Cdn.$)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Granted 1993 (inception) 160,000 $ 6.19* $ 8.48
1995
- - Granted 18,000 4.75 6.51
- - Cancelled (4,200) 5.40 7.40
- -----------------------------------------------------------------------------------------
Outstanding December 31, 1995 173,800 $ 6.06* $ 8.30
=========================================================================================
</TABLE>
* Weighted average exercise price.
<PAGE>
ELEPHANT & CASTLE GROUP INC.
Notes to Consolidated Financial Statements
Years Ended December 31
(Canadian Dollars)
- --------------------------------------------------------------------------------
In 1995 the FASB issued SFAS No. 123 "Accounting for Stock-Based
Compensation", which contains a fair value-based method for valuing
stock-based compensation that entities may use. This measures
compensation cost at the grant date based on the fair value of the
award. Compensation is then recognized over the service period, which
is usually the vesting period for U.S. GAAP purposes. Management
accounts for options under APB opinion No. 25. As option exercise
prices approximated market price on the dates of grants no compensation
expense has been recognized. If the alternative accounting-related
provisions of SFAS No. 123 had been adopted as of the beginning of
1995, the effect on 1996 and 1995 U.S. GAAP net loss per share would
have been immaterial.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this 10-KSB/A-1 for the fiscal year ended December 31, 1995 to
be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Elephant & Castle Group, Inc.
By: /s/Daniel DeBou
---------------
Daniel DeBou,
Vice President/Chief Accounting Officer
Date: January 28, 1998
