As
filed with the Securities and Exchange Commission on December 16,
2009





SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
20-F




o          Registration
statement pursuant to Section 12(b) or 12(g) of the Securities Exchange Act of
1934




OR




x          Annual
report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934




For the fiscal year ended September 30,
2009




OR




o          Transition
report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934




For the transition period from
_____________to___________




OR




o          Shell
company report pursuant to Section 13 or 15 (d) of the Securities Exchange Act
of 1934




Date of event requiring this shell
company report_____________




Commission
file number 0-30082




ENVOY
CAPITAL GROUP INC.


(Exact
name of Registrant as specified in its charter)





(Translation
of Registrant’s name into English)


Ontario,
Canada


(Jurisdiction
of incorporation or organization)




30 St.
Patrick St., Ste. 301, Toronto, Ontario, Canada M5T 3A3


(Address
of principal executive offices)




Andrew
Patient, Tel. 416-593-3725 Fax 416-593-4434, 30 St. Patrick St., Ste.301,
Toronto Ontario, Canada M5T 3A3


(Name,
Telephone, Email and/or Facsimile number and Address of Company Contact
Person)





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




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




COMMON
SHARES


(Title of
Class)




The
Nasdaq Capital Market


(Name of
each exchange on which registered)




Securities
for which there is a reporting obligation pursuant to Section 15(d) of the
Act.





NONE


(Title of
Class)





Indicate
the number of outstanding shares of each of the issuer’s classes of capital or
common stock as of the close of the period covered by the annual report: At September 30, 2009, there
were 8,558,377 common shares outstanding.





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





If this
report is an annual or transition report, indicate by check mark if the
Registrant is not required to file reports pursuant to 13 or 15 (d) of the
Securities Exchange Act of 1934.   YES: o      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: o





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files).   YES:  x  NO: o





Indicate
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, or a non accelerated filer:


Large
accelerated filer o Accelerated filer
o Non-accelerated
filer x





Indicate
by check mark which basis of accounting the Registrant has used to prepare the
financial statements included in this filing:


U.S. GAAP
o  International
Financial Reporting Standards as issued by the International Accounting
Standards Board o  Other x





Indicate
by check mark which financial statement item the Registrant has elected to
follow.Item 17: x         Item
18:o





If this
is an annual report, indicate by check mark whether the Registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act). YES: o    NO:
x


2




TABLE
      OF CONTENTSPART
      IItem
      1.
            Identity of Directors, Senior Management and
      Advisers
            5Item
      2.
            Offer Statistics and Expected Timetable
            5Item
      3.
            Key Information
            5Item
      4.
            Information on the Company
            12Item
      4A.
            Unresolved Staff Comments
            16Item
      5.
            Operating and Financial Review and
    Prospects
            16Item
      6.
            Directors, Senior Management and Employees
            37Item
      7.
            Major Shareholders and Related Party
      Transactions
            49Item
      8.
            Financial Information
            51Item
      9.
            The Offer and Listing
            51Item
      10.
            Additional Information
            54Item
      11.
            Quantitative and Qualitative Disclosures About Market
      Risk
            63Item
      12.
            Description of Securities Other than Equity
      Securities
            65PART
      IIItem
      13.
            Defaults, Dividend Arrearages and
      Delinquencies
            65Item
      14.
            Material Modifications to the Rights of Security Holders and
      Use of Proceeds
            66Item
      15.
            Controls and Procedures
            66Item
      l6A
            Audit Committee Financial Expert
            67Item
      l6B
            Code of Ethics
            67Item
      l6C
            Principal Accountant Fees and Services
            68Item
      16D
            Exemptions from the Listing Standards for Audit
      Committees
            69Item
      16E
            Purchase of Equity Securities by the Issuer and Affiliated
      Purchases
            69PART
      IIIItem
      17.
            Financial Statements
            70Item
      18.
            Financial Statements
            70Item
      19.
            Exhibits
            71SignaturesCertificationsExhibit
      Index


3
 Table of Contents


The
certifications are exhibits, not part of body.





References
in this annual report to “the Company” and ‘Envoy’ mean Envoy Capital Group Inc.
and its subsidiaries, unless otherwise specified.





The
Company presents its consolidated financial statements in Canadian dollars. In
this annual report, except where otherwise indicated, all dollar amounts are
expressed in Canadian dollars. References to “$“ are to Canadian dollars,
references to “U.S.” are to United States dollars, “€” are to Euro dollars and
references to “£“ are to British pounds. See “Selected Financial Data” in Item 3
of this Form 20-F.





Special
Note Regarding Forward-Looking Statements




This
annual report on Form 20-F contains forward-looking statements within the
meaning of the U.S. Private Securities Litigation Reform Act of 1995, including
statements relating to Envoy’s outlook or future economic performance,
anticipated profitability, revenues, commissions and fees, expenses and other
financial items, and Envoy’s plans and expectations relating to its business and
prospects. The words “expect”, “anticipate”, “estimate”, “may”, “will”,
“should”, “intend,” “believe”, and similar expressions, are intended to identify
forward-looking statements. Forward-looking statements are based on estimates
and assumptions made by Envoy in light of its experience and its perception of
historical trends, current conditions and expected future developments, as well
as other factors that the Company believes are appropriate in the circumstances.
Many factors could cause Envoy’s actual results, performance or achievements to
differ materially from those expressed or implied by the forward-looking
statements, including, without limitation, the factors described in Item 3.D
“Risk Factors”. These factors should be considered carefully, and readers should
not place undue reliance on Envoy’s forward-looking statements. The Company has
no intention and undertakes no obligation to update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.


4
 Table of Contents


PART I




Item
1:   Identity of Directors, Senior Management and
Advisers




Not
applicable.





Item
2:   Offer Statistics and Expected
Timetable




Not
applicable.





Item 3:   Key
Information




A. Selected Financial
Data1




The
following tables sets forth selected financial data for Envoy for the fiscal
years indicated below and should be read in conjunction with the more detailed
audited consolidated financial statements and the related notes thereto (the
“Consolidated Financial Statements”) appearing under Item 17 in this Form 20-F
and the discussion under Item 5 “Operating and Financial Review and Prospects”
herein. The selected consolidated financial data does not include statements of
operations data or balance sheet data of any acquired operations prior to their
respective acquisition effective dates. The Company’s historical results are not
necessarily indicative of the results that may be expected for any future
period.





Fiscal
      Years Ended September 30
                
                2009
                
                
                2008
                
                
                2007
                
                
                2006
      (2)
                
                
                2005
      (3)(all
      amounts in thousands exceptper share data)Statement
      of Operations Data:Net
      Revenue
                
                $
                12,318
                
                
                $
                11,260
                
                
                $
                17,551
                
                
                $
                9,672
                
                
                $
                19,567(Loss)
      Earnings From Continuing Operations (4)
                
                
                (10,476
                )
                
                
                (10,158
                )
                
                
                2,641
                
                
                
                (5,392
                )
                
                
                3,074Earnings
      From Discontinued Operations
                
                
                -
                
                
                
                -
                
                
                
                375
                
                
                
                7,528
                
                
                
                2,868(Loss)
      Earnings From Continuing Operations BasicEarnings Per
Share
                
                
                (1.22
                )
                
                
                (1.11
                )
                
                
                0.20
                
                
                
                (0.27
                )
                
                
                0.14(Loss)
      Earnings From Continuing OperationsDiluted Earnings Per
    Share
                
                
                (1.22
                )
                
                
                (1.11
                )
                
                
                0.20
                
                
                
                (0.27
                )
                
                
                0.14Net
      (Loss) Earnings (4)
                
                
                (10,476
                )
                
                
                (10,158
                )
                
                
                3,017
                
                
                
                2,136
                
                
                
                5,942Net
      (Loss) Earnings PerShare Basic
                
                
                (1.22
                )
                
                
                (1.11
                )
                
                
                0.23
                
                
                
                0.10
                
                
                
                0.27Net
      (Loss) EarningsPer Share Diluted (4)
                
                
                (1.22
                )
                
                
                (1.11
                )
                
                
                0.23
                
                
                
                0.10
                
                
                
                0.27





5
 Table of Contents





1The
Consolidated Financial Statements of Envoy have been prepared by management in
accordance with Canadian Generally Accepted Accounting Principles (“Canadian
GAAP”) which vary in certain significant respects from U.S. Generally Accepted
Accounting Principles (“U.S. GAAP”).  Reconciliation to U.S. GAAP for
fiscal 2009, 2008 and 2007 is set forth in Note 24 to the Notes to the
Consolidated Financial Statements. The fol1owing would be the adjustments under
U.S. GAAP to the information provided above as an increase (decrease) to: Net
revenue 2009 ($586), 2008 $4,255, 2007 ($5,148), 2006 $nil and 2005 $nil; (Loss)
earnings from continuing operations 2009 ($283), 2008 $1,686, 2007 ($1,240),
2006 $nil and 2005 $344; (Loss) earnings from continuing operations earnings per
share basic 2009 ($0.04), 2008 $0.18, 2007 ($0.09), 2006 $nil and 2005 $0.01;
(Loss) earnings from continuing operations earnings per share diluted 2009
($0.04), 2008 $0.18, 2007 ($0.09), 2006 $nil and 2005
$0.01; Net  (loss) earnings 2009 ($283), 2008 $4,490, 2007
($1,240), 2006 ($2,700) and 2005 $344; and Net (loss) earnings per share
basic 2009 ($0.04), 2008 $0.49, 2007 ($0.09), 2006 ($0.13) and 2005 $0.01; Net
(loss) earnings per share diluted 2009 ($0.04), 2008 $0.49, 2007 ($0.09), 2006
($0.13) and 2005 $0.01.





At a
meeting held on August 14, 2003, the Company’s shareholders approved the
consolidation of the Company’s common shares on the basis to be determined by
its board of directors (not to exceed a ratio of 1 for 10). On January 15, 2005,
the Company’s board of directors approved the consolidation of the common shares
(a reverse stock split) on the basis of a 1 for 5 ratio. On January 21, 2005 the
Company filed Articles of Amendment consolidating its common shares on the basis
of 1 new common share for every 5 common shares outstanding. Outstanding shares
and earnings per share figures for all periods presented have been adjusted to
give effect to the share consolidation. Information on the number of shares
outstanding, and stock options are disclosed on a post-consolidation
basis.





As
      at September 30
            
            2009
            
            
            2008
            
            
            2007
            
            
            2006
      (2)
            
            
            2005
      (3)(all
      amounts in thousands)Balance
      Sheet Data:Current
      Assets
            
            $
            21,476
            
            
            $
            28,823
            
            
            $
            38,832
            
            
            $
            68,701
            
            
            $
            44,759Total
      Assets (6)
            
            
            23,595
            
            
            
            36,482
            
            
            
            50,792
            
            
            
            81,274
            
            
            
            84,057Total
      Debt(5)
            
            
            -
            
            
            
            70
            
            
            
            157
            
            
            
            252
            
            
            
            361Shareholders’
      Equity (6)
            
            
            21,624
            
            
            
            32,159
            
            
            
            45,157
            
            
            
            75,047
            
            
            
            73,555(Deficit)
      Retained Earnings (7)
            
            
            (17,540
            )
            
            
            (7,064
            )
            
            
            3,094
            
            
            
            (40,266
            )
            
            
            (42,403
            )





2
The exchange rate utilized with respect to the Statement of Operations Data for
the fiscal year ended September 30, 2006 of Watt Gilchrist Limited (“Gilchrist”)
and Parker Williams Design Limited (“PWD”) is £1.00 to $2.0571 and with respect
to the Balance Sheet Data of Gilchrist and PWD is £1.00 to $2.1044. Except as
set forth in footnotes 4 and 6, no other acquisitions by Envoy materially affect
the comparability of the information in the Selected Financial
Data.





3
The exchange rate utilized with respect to the Statement of Operations Data for
the fiscal year ended September 30, 2005 of Watt Gilchrist Limited (“Gilchrist”)
is £1.00 to $2.2641 and with respect to the Balance Sheet Data of Gilchrist is
£1.00 to $2.0648. The exchange rate utilized with respect to the Statements of
Operations Data for the fiscal year ended September 30, 2005 of Parker Williams
Design Limited (“PWD”) is £1.00 to $2.2428. The exchange rate utilized with
respect to the Balance Sheet Data of PWD is £1.00 to $2.0648. Except as set
forth in footnotes 4 and 6, no other acquisitions by Envoy materially affect the
comparability of the information in the Selected Financial
Data.


6
 Table of Contents


4As
reflected in Note 24 to the Consolidated Financial Statements, the net (loss)
earnings from continuing operations for the fiscal years ended September 30,
2009, 2008, 2007, 2006, and 2005 were ($10,759), ($8,472), $1,401, ($5,392) and
$3,418, respectively under U.S. GAAP. The net (loss) earnings for the fiscal
years ended September 30, 2009, 2008, 2007, 2006 and 2005 were ($10,759),
($5,668), $1,777, ($564) and $6,286, respectively under U.S. GAAP. The diluted
net (loss) earnings per share for the years ended September 30, 2009, 2008,
2007, 2006 and 2005 were ($1.26), ($0.62), $0.14, ($0.03) and $0.28,
respectively under U.S. GAAP.





As
described above, on January 21, 2005, Envoy filed Articles of Amendment
consolidating its common shares on the basis of 1 new common share for every 5
common shares outstanding. Outstanding shares and earnings per share figures for
all periods presented have been adjusted to give effect to the share
consolidation.





5  Total
debt includes both the current and long term portion of debt.





6  As
reflected in Note 24 to the Consolidated Financial Statements, the shareholders’
equity as at September 30, 2009, 2008, 2007, 2006, and 2005 was $21,813,
$32,631, $41,140, $72,589, $73,550 and $77,066, respectively under U.S. GAAP.
Total assets as of September 30, 2009 and 2008 under U.S. GAAP would exclude
fair value adjustments of $189 and $472, respectively.  In addition,
total assets as of September 30, 2007, 2006, and 2005 under U.S. GAAP would
exclude the unrealized gain on private equities of $1,147, $nil, and $nil,
respectively, include the unrealized gain (loss) on securities for sale of $nil,
$242 and ($6), respectively, exclude capitalized incorporation costs of $66,
$nil, and $nil, respectively, and exclude cash held in escrow relating to the
sale of the UK operations of $2,803, $2,700, and $nil,
respectively.





7  Retained
earnings as of September 30, 2009, 2008, 2007, 2006, and 2005,excludes the cumulative
foreign currency translation adjustment of $nil, $nil, ($77), ($51) and
($2,153), respectively. See Note 2(f) in the Notes to Consolidated Financial
Statements of Envoy.





Envoy has
never paid any dividends on its common shares and does not anticipate that it
will pay any cash dividends on its common shares in the foreseeable future. Any
decision to pay dividends in the future will be at the discretion of Envoy’s
board of directors, after taking into account such factors as Envoy’s financial
condition, operating results, current and anticipated cash needs and plans for
expansion.


7
 Table of Contents


Exchange
Rates:




On
December 11, 2009, the noon buying rate for Canadian dollars as certified for
customs purposes by the Federal Reserve was $1.00 U.S. to $1.0583. The following
table sets forth for the periods indicated certain information regarding the
exchange rates of Canadian dollars into U.S. currency. The rate of exchange
means the noon buying rate in New York City for cable transfers in foreign
currencies as certified for customs purposes by the Federal
Reserve.




Fiscal
      Year Ended September 30,2009
            
            
            2008
            
            
            2007
            
            
            2006
            
            
            2005Average
      *
            
            $
            1.1787
            
            
            $
            1.0101
            
            
            $
            1.0885
            
            
            $
            1.1151
            
            
            $
            1.2171





* The
Average rate means the average rates each period, calculated by using the
average of the exchange rates on the last day of each month during the fiscal
period.




For
      the Month EndedNovember
              2009
            
            
            October
              2009
            
            
            September
              2009
            
            
            August
              2009
            
            
            July
              2009
            
            
            June
              2009High
            
            $
            1.0742
            
            
            $
            1.0843
            
            
            $
            1.1060
            
            
            $
            1.1097
            
            
            $
            1.1650
            
            
            $
            1.1626Low
            
            $
            1.0458
            
            
            $
            1.0289
            
            
            $
            1.0615
            
            
            $
            1.0650
            
            
            $
            1.0791
            
            
            $
            1.0828








B.   
Capitalization and Indebtedness





Not
applicable.





C.   
Reasons for the Offer and Use of Proceeds





Not
applicable.





D.  Risk
Factors




Envoy’s
business, financial condition and results of operations could be materially
adversely affected by any of the following risks. In addition, risk and
uncertainties not currently known to the Company or that the Company currently
deems to be immaterial may also materially and adversely affect its
business.





Risks
Related to Envoy’s Business and Industry




The
Company has a limited number of large clients.




The
Company receives a significant portion of its revenues from a limited number of
large clients. The loss of any such clients could adversely impact the Company’s
prospects, business, financial condition and results of operations.





The
Company’s results of operations and its business depend on its relationship with
a limited number of large clients. Set forth below is the percentage of net
revenue during the fiscal year ended September 30, 2009 for each of the
Company’s clients that accounted for 10% or more of its net
revenue:




Fiscal
Year Ended September 30, 2009




Client




The
      Great Atlantic and Pacific Tea Company
            
            
            23
            %McDonald’s
      Restaurants of Canada Limited
            
            
            17
            %





The
Company expects its reliance on a limited number of clients will continue in the
future.


8
 Table of Contents


There can
be no assurance that the Company will be able to maintain its historical rate of
growth or its current level of revenue derived from any client in the
future.





The
Company is dependent on its key personnel.




The
Company’s success depends in part upon its ability to hire and retain key senior
management and skilled technical, client service and creative personnel able to
create and maintain solid relationships with clients. An inability to hire or
retain qualified personnel could have a material adverse effect on the
Company.





The
Company is exposed to the risks of doing business internationally.




The
Company’s operations are subject to a number of risks inherent in operating in
different countries. These include, but are not limited to risks
regarding:




•
            currency
      exchange rate fluctuations;


•
            restrictions
      on repatriation of earnings; and


•
            changes
      in the political or economic conditions of a specific country or region,
      particularly in emerging markets.





The
occurrence of any of these events or conditions could adversely affect the
Company’s ability to increase or maintain its operations in various
countries.




Currency
exchange rate fluctuations could adversely affect the Company’s results of
operations.




The
Company is subject to currency risk through its activities in the United States,
Middle East and Europe.  Unfavourable changes in the exchange rate may
affect the operating results of the Company. The Company has begun to actively
use derivative instruments to reduce its exposure to foreign currency
risk.  In addition, dependent on the nature, amount and timing of
foreign currency receipts and payments, the Company may from time to time enter
into foreign currency contracts to mitigate the associated risks.





Market
rate fluctuations could adversely affect the Company’s results of
operations.




The
Company is subject to market risk through the risk of loss of value in Envoy’s
portfolios resulting from changes in interest rates, foreign exchange rates,
credit spreads, and equity prices. The Company is required to mark to market its
held-for-trading investments at the end of each reporting period. This process
could result in significant write-downs of the Company’s investments over one or
more reporting periods, particularly during periods of overall market
instability, which would have a significant unfavourable effect on the Company’s
financial position





The
Company may be unsuccessful in evaluating material risks involved in completed
and future investments.




The
Company regularly reviews investment opportunities and as part of the review,
the Company conducts business, legal and financial due diligence with the goal
of identifying and evaluating material risks involved in any particular
transaction. Despite the Company’s efforts, it may be unsuccessful in
ascertaining or evaluating all such risks. As a result, it might not realize the
intended advantages of any given investment and may not identify all of the
risks relating to the investment. If the Company fails to realize the expected
benefits from one or more investments, or does not identify all of the risks
associated with a particular investment, the Company’s business, results of
operations and financial condition could be adversely affected.


9
 Table of Contents


The
Company is subject to credit risk.




The
Company manages its credit risk with respect to accounts receivable by acting as
an agent for its customers, by dealing primarily with large creditworthy
customers and by billing whenever possible in advance of rendering services or
making commitments. The Company had one customer who represented 23% of accounts
receivable as at September 30, 2009, and one customer who represented 32% of
accounts receivable as at September 30, 2008. Should the Company fail to
efficiently manage its outstanding accounts receivable, the Company’s results of
operations may be adversely affected.





Certain
of the Company’s financial assets, including cash and cash equivalents are
exposed to the risk of financial loss occurring as a result of default of a
counterparty on its obligations to the Company.  The Company may, from
time to time, invest in debt obligations.   The Company is also
exposed, in the normal course of business, to credit risk from the sale of its
investments and advances to investee companies.





The
Company may need to raise additional capital to grow its business, which it may
not be able to do.




The
Company's future liquidity and capital requirements are difficult to predict
because they depend on numerous factors, including the success of its existing
services, attracting and maintaining clients, as well as competing market
developments.  As a result, the Company may not be able to generate
sufficient cash from its operations to meet additional working capital
requirements, support additional capital expenditures or take advantage of
investment or acquisition opportunities.  Accordingly, the Company may
need to raise additional capital in the future.





The
Company's ability to obtain additional financing will be subject to a number of
factors, including market conditions and its operating
performance.  These factors may make the timing, amount, terms and
conditions of additional financing unattractive for the Company.  If
the Company raises additional funds by selling equity securities, the relative
equity ownership of its existing investors could be diluted or the new investors
could obtain terms more favorable than previous investors.  If the
Company raises additional funds through debt financing, it might incur
significant borrowing costs.  If the Company is unable to raise
additional funds when needed, or on terms acceptable to it, the Company's
ability to operate and grow its business could be impeded.





The
Company is subject to recessionary economic cycles.




The
marketing and communications industry is cyclical and as a result it is subject
to downturns in general economic conditions and changes in client business and
marketing budgets. Such downturns in the economic cycle may have material
adverse effects on the Company’s business, results of operations and financial
condition.


10
 Table of Contents


The
Company may be subject to certain regulations that could restrict the Company’s
activities.




From time
to time, governments, government agencies and industry self- regulatory bodies
in Canada, the United States, the European Union and other countries in which
the Company operates have adopted statutes, regulations and rulings that
directly or indirectly affect the activities of the Company and its clients. For
further discussion of such regulations, see the discussion in the Government Regulationssection
under Item 4.B. Though the Company does not expect any existing or proposed
regulations to materially adversely impact the Company’s business, the Company
is unable to estimate the effect on its future operations of the application of
existing statutes or regulations or the extent or nature of future regulatory
action.





The
Company competes for clients in a highly competitive industry, which may reduce
market share and decrease profits.




The
marketing and communication services industry is highly competitive and
fragmented. The Company’s principal competitors are large multinational
communications services companies, as well as regional and national branding and
marketing services firms. Many of the Company’s competitors have larger client
bases and significantly greater financial, marketing, public relations, revenues
and other resources than the Company does. There can be no assurance that the
Company will be able to compete effectively against these companies, and the
competition for clients against such current and future competitors may reduce
the Company’s market share and decrease profits.





Risks
related to the Company’s common shares




Because
the Company is a Canadian company, it may be difficult to enforce liabilities
against the Company based solely upon the federal securities laws of the United
States.




The
Company was organized under the laws of the Province of Ontario, and its
principal executive offices are located in Toronto, Ontario. Many of its
directors, controlling persons and officers are residents of Canada and a
substantial portion of their assets and a majority of the Company’s assets are
located outside the United States. Consequently, it may be difficult to enforce
against the Company or any of its directors, controlling persons, or officers,
liabilities based solely upon the federal securities laws of the United
States.





The
Company believes that it is a Passive Foreign Investment Company, which may have
adverse tax consequences for the Company’s shareholders in the United
States.




Under
U.S. federal income tax laws, the Company believes that it was a passive foreign
investment company (“PFIC”) for the year ending September 30, 2009, and that it
has been a PFIC in prior years, which may have adverse tax consequences for the
Company’s shareholders in the United States. U.S. shareholders are urged to read
the section titled “Certain United States Federal Income Tax Considerations” in
Item 10 of this Form 20-F and to consult their tax advisors concerning the U.S.
federal income tax consequences of holding the common shares of a
PFIC.


11
 Table of Contents


Item
4:   Information on the Company




Envoy’s
businesses include an international consumer and retail branding company and a
merchant banking and financial services company.





Envoy
conducts its branding services through its wholly-owned subsidiary, Watt
International Inc. (“Watt International”), which is one of the world’s leading
brand strategy and design consultancies. Envoy provides consulting, branding,
packaging and retail design services to clients in Canada, the United States,
Mexico, United Arab Emirates, China and South America, as well as project work
for clients in other countries around the globe.  With two offices
located in North America, Watt International’s clients include: The Great
Atlantic and Pacific Company, McDonald’s Restaurants of Canada Limited, and
Wal-Mart Stores Inc.





In 2009,
the top three customers accounted for 23%, 17% and 7% of net
revenue.  In 2008, the top three customers accounted for 22%, 19% and
15% of net revenue.  In 2008, two other customers accounted for 12%
and 10% of net revenue, respectively.





Watt
International subsists under the laws of the Province of Ontario.





In Fiscal
2006, Envoy’s board of directors approved the creation of a merchant banking
operation focused on providing financial services as well as equity and debt
capital to small and mid-cap companies. Envoy Capital Group was officially
launched in fiscal 2007.





The
merchant banking division investments currently consist of a blend of
professionally managed market diversified funds and direct investments in growth
stage public companies.  A certain portion of the portfolio is also
invested in common shares of private companies. The merchant bank business
earnings consist of both realized and unrealized gains in the market value of
its investments, plus dividends and interest income.





The
principal place of business of Envoy is 30 St. Patrick St., Ste. 301, Toronto,
Canada M5T 3A3. Envoy may be reached by telephone at (416) 593-1212 or
facsimile at (416) 593 4434. Envoy’s website is www.envoy.to.
Information contained on Envoy’s website does not constitute a part of this Form
20-F.





A.  History
and Development of the Company





Envoy was incorporated under the laws
of the Province of British Columbia, Canada as “Potential Mines Ltd.” in
December 1973 and was continued under the laws of the Province of Ontario,
Canada in December 1997.At the Company’s annual general meeting held on
March 30, 2007 the shareholders voted to amend the corporation’s articles of
incorporation by changing its name to Envoy Capital Group
Inc.  Envoy’s registered office is located at St. Patrick St., Ste. 301, Toronto,
Canada M5T 3A3 (telephone 416/593-1212).





Since
December 1997, Envoy has shifted the nature of its business to providing
marketing, communications and consumer and retail branding services for
promoting clients’ products, services and business messages utilizing such media
as print, broadcast and the Internet. Envoy has grown, in large part, through
strategic acquisitions. Certain material transactions by Envoy since January 1,
2006 are described below.


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Effective
September 15, 2006, Envoy completed the sale of all of the shares of its wholly
owned UK subsidiary ECGH, including the related business and assets of Gilchrist
and PWD.  The sale price of $27 million was paid in
cash.  Pursuant to the terms and conditions of the sale purchase
agreement, $2.7 million was held in escrow to secure potential third party
claims.  In January, 2008, the Company received $2,834,568,
representing the withheld amount plus accrued interest.





On
September 15, 2006, the Company announced its intention to repurchase its common
shares under a substantial issuer bid in the form of a modified “Dutch Auction”
tender offer. On January 25, 2007, pursuant to this Dutch Auction tender offer,
the Company announced that it would take up and pay for the shares at a purchase
price of US$2.70 (CDN$3.19) per share for a total purchase price of US$24.4
million (CDN$28.7 million).  Costs relating to the offering totaled
approximately $1.5 million.  On January 30, 2007, the Company took up
and paid for 9,002,383 shares.  Payment for the shares was made from
available cash on hand.





B.  Business
Overview




Services
in the Envoy Group:




Consumer
and retail branding — Watt International, a wholly owned subsidiary of Envoy
that management believes to be one of the world’s leading brand strategy and
design consultancies, provides the following services: strategic brand
consulting, corporate identity and communications, retail branding and store
design, and package design.





In Fiscal
2006, Envoy established a merchant banking organization focused on providing
financial services as well as equity and debt capital to small and mid-cap
companies. Envoy Capital Group was officially launched in fiscal
2007.





The
Merchant Bank division investments currently consist of a blend of
professionally managed market diversified funds and direct investments in growth
stage public companies.  A certain portion of the portfolio is also
invested in common shares of private companies. The Merchant Bank business
earnings consist of both realized and unrealized gains in the market value of
its investments, plus dividends and interest income.





Our
Strategic Direction:




At the
Company’s annual general meeting held on March 30, 2007 the shareholders voted
to amend the corporation’s articles of incorporation by changing its name to
Envoy Capital Group Inc. and removing the maximum number of common shares that
the corporation is authorized to issue.  In addition, the shareholders
also voted to reduce the stated capital of the corporation’s common shares by
$40.3 million for the purpose of eliminating the deficit on the consolidated
balance sheet of the corporation as at September 30, 2006.





On
November 25, 2008, the Company established a new foreign subsidiary, Envoy
Capital Group Monaco, S.A.M (“Envoy Monaco”).  Envoy Monaco will be responsible for
carrying on Envoy’s existing merchant banking business. Currently Envoy’s
Merchant Banking Division isa diversified investment, financial advisory
and consulting firm focused on the securities of public
issuers.  Envoy Monaco’s investment portfolio will be comprised of
securities of mostly public and some private issuers in a broad range of
business sectors. It will also continue to try to identify compelling investment
opportunities in energy-related, technology and biotechnology
businesses.  The choice of the Principality of Monaco as the strategic
location for Envoy’s world-wide merchant banking business was based on several
factors, including:


13
 Table of Contents


*
            A
      geographically strategic position, next to southern Mediterranean markets
      and two hours away from major European
cities.


*
            A
      unique political and economic
environment.


*
            A
      straightforward, advantageous fiscal system, for both individuals and
      companies.


*
            The
      density of financial activities.


*
            The
      presence of an efficient and easily accessible administrative
      infrastructure.


*
            Security
      for both assets and people.


*
            Excellent
      infrastructures for free movement of goods and
  people.


*
            Exceptional
      political and social stability.





On
September 15, 2006, the Company announced its intention to repurchase its common
shares under a substantial issuer bid in the form of a modified “Dutch Auction”
tender offer. On January 25, 2007, pursuant to this Dutch Auction tender offer,
the Company announced that it would take up and pay for the shares at a purchase
price of US$2.70 (CDN$3.19) per share for a total purchase price of US$24.4
million (CDN$28.7 million).  Costs relating to the offering totaled
approximately $1.5 million.  On January 30, 2007, the Company took up
and paid for 9,002,383 shares.  Payment for the shares was made from
available cash on hand.





On
September 15, 2006, Envoy sold its wholly owned subsidiary ECGH, including
related assets and business operations.   Envoy believes that the
sale of ECGH, which represented non-core holdings of Envoy, will enhance
shareholder value.





On June
30, 2005, Envoy sold all the shares of its advertising business, John Street, to
the management of John Street.





Industry
Overview:




Consumer and Retail
Branding




In all
areas of marketing and product design, companies are looking to extend their
customer relationships and influence consumer behavior. Consumer and retail
branding services encompass the entire customer experience, from product
packaging to the retail environment, and are a key component of a company’s
marketing communications strategy.





The
consumer and retail branding services sector is rapidly evolving into a global
marketplace, as companies are increasingly looking for expertise in the
development and maintenance of their brands on a global basis. Companies are
looking to firms that can deliver a consistent message to consumers through
packaging and retail design, regardless of geography.





Retail is
the second largest industry in the United States and one of the largest
industries worldwide. Unlike other, more volatile sectors, the retail industry
continues to grow at a steady rate, particularly as developing countries achieve
greater economic stability.




Watt
International has continued to service clients in various segments of the
market.  During fiscal 2008, Watt International continued to focus its
efforts to transform the business model to strategically driven operations and
align itself with the market conditions to retain and service existing clients
and to grow by providing innovative solutions in domestic and international
markets.




14
 Table of Contents





Government
Regulations:




The
marketing communications industry is subject to extensive government regulation,
both domestic and foreign, with respect to the truth in and fairness of
advertising. There are also a number of U.S. federal and state laws and
regulations directed at the advertising and marketing of specific products, such
as food and drug products. In addition, there has been an increasing tendency on
the part of businesses to resort to the judicial system, as well as industry
self-regulatory procedures, to challenge comparative advertising of their
competitors on the grounds that the advertising is false and deceptive. There
can be no assurance Envoy will not be subject to claims against it or Envoy’s
clients by other companies or governmental agencies or that such claims,
regardless of merit, would not have a material adverse effect on Envoy’s future
operating performance.





Merchant
Banking




The
financial services sector is experiencing a period of instability as forces of
change with respect to globalization, regulatory changes, consolidations, and
advances in technology change the entire context of financial services
throughout the world.




Competition
in the financial services sector is increasing both domestically and in the
international marketplace. Within Canada, recent changes to federal law and
regulation have opened up new opportunities for foreign banks to operate and
encouraged the start up of new banks, offering more choice to consumers. New
banks are arriving on the scene virtually every year. Some have established
traditional branches, while others have focused on electronic channels, or
specific products or market segments. Recent entrants have included both global
competitors and domestic newcomers.




Envoy
Capital Group is a merchant banking division of Envoy that focuses on providing
financial services as well as equity and debt capital, to small and mid-cap
companies. Going forward, Envoy will also provide the necessary capital to allow
Envoy Monaco to carry out its mandate.   Envoy Monaco’s
investment portfolio will be comprised of securities of mostly public and some
private issuers in a broad range of sectors.  Currently, Envoy’s
Merchant Banking Division is focused on the North American exchanges (e.g. NYSE,
NASDAQ, TSX, AMEX), due to the liquidity and stability that those investments
provide.  In the future, Envoy Monaco will start to focus on
leveraging value investments on European exchanges as well as private companies
in Europe.





Government
Regulations:




The
banking and financial industry is one of the most regulated industries in the
world.  The Company is required to adhere to extensive rules and
regulations governing both financial services and securities exchanges. Recent
changes to federal law and regulation have opened up new opportunities for
foreign banks to operate in Canada, encouraged the start up of new banks with
new ownership rules, and given certain non-bank financial institutions direct
access to the payments system. Many of the old barriers prohibiting financial
institutions from competing in each other’s business have disappeared over the
past 15 years.




15
 Table of Contents





C.          Organizational
Structure




Envoy has
operations in Monaco, the United States and Canada.  Envoy owns 100%
of Watt International Inc. and 99.8% of Envoy Capital Group Monaco, S.A.M., its’
two operating subsidiaries.






D.          Property,
Plants and Equipment




Envoy
currently operates offices in the principality of Monaco and in Toronto, Canada.
The terms of our principal leases are as follows:




Envoy’s
principal executive offices consist of approximately 1,600 square feet located
at 30 St. Patrick St., Ste. 301, Toronto, Ontario. These premises have been
leased pursuant to a lease with a term that commenced on April 1, 2009 and
expires in March 2014 at a current annual rent of $52,200.  Envoy has
an option to terminate the lease on or after March 31, 2012, upon payment of a
penalty in the amount of $1,000 for each month remaining on the lease at the
time of cancellation.




The
offices of Envoy’s wholly owned subsidiary, Watt International, consist of an
office building of approximately 26,600 square feet located at 300 Bayview,
Toronto, Ontario, Canada. The premises are leased pursuant to a lease with a
current annual rent of $466,836 that expires in March 2010.




The
offices of Envoy Monaco consist of approximately 900 square feet located at Les
Abeilles, 7 Boulevard d’Italie, 8th
floor, Monte Carlo, Monaco.   These premises have been leased
pursuant to lease with a term that commenced on April 1, 2009 and expires March
31, 2012, at a current annual rent of €38,400 (Cdn. $62,511).  The
lease may be terminated on the first and second anniversary dates with three
months written notice.




In
September 2006, Envoy sold all the shares of its United Kingdom subsidiaries,
and has no further lease obligations in the United Kingdom.




Item
4A:   Unresolved Staff
Comments






Not
applicable.




Item
5:   Operating and Financial Review and
Prospects




The
following discussion should be read in conjunction with, and is qualified in its
entirety by, the Consolidated Financial Statements of Envoy and the Notes
relating thereto, included as item 17 in this Form 20-F. The information
contained in this Item 5 refers to Financial Statements of Envoy, which are
presented in Canadian dollars and are prepared in accordance with Canadian
GAAP.


16
 Table of Contents


Canadian
GAAPdiffers in
certain significant respects from U.S. GAAP. Reconciliation to U.S. GAAP is set
forth in Note 24 of the Notes toConsolidated Financial
Statements. Historical results of operations, percentage relationships and any
trends that may be inferred there from are not necessarily indicative of the
operating results of any future period.





Overview




Net
Revenue




The
Company presents as net revenue fee income earned as compensation for its
services, net of pass through costs.  Further, the balance sheet
reflects the following:





(i)
            deferred
      revenue representing fees billed and collected in advance of such fees
      being earned;




(ii)
            unbilled
      accounts receivable representing fees earned but not yet billed as well as
      well as reimbursable pass-through costs;
and





(iii)
              work
      in process represents costs incurred on projects for which revenue has not
      yet been recognized for accounting
purposes.





Included
in work in process are charges for staff time at standard cost and third party
charges. The standard cost rate provides for the recovery of actual labour and
overhead costs incurred.





Net
revenue represents the Company's compensation for its non-agency services and is
recognized only when collection of such net revenue is
probable.    The Company's non-agency projects are
short-term in nature. Fees earned for non-agency services are recognized either
upon the performance of the Company’s services when the Company earns a per-diem
fee, or in the case of a fixed fee, when the Company’s services are
substantially complete and accepted by the client.  Fees earned but
not yet billed are included in accounts receivable.  Fees billed to
clients in excess of fees recognized as net revenue are classified as deferred
revenue.





Securities
transactions are recorded on a trade-date basis.  Changes in fair
value of held-for-trading investments are reflected in the consolidated
statements of operations and are calculated on an average cost
basis.  Dividend income is recorded on the ex-dividend
date.  Interest income is recorded on an accrual basis.





Operating
Expenses




Salaries
and benefits, general and administrative expenses and occupancy costs represent
our operating expenses. Salaries and benefits expenses include salaries,
employee benefits, incentive compensation, contract labour and other payroll
related costs, which are expensed as incurred. General and administrative costs
include business development, office costs, technology, professional services
and foreign exchange. Occupancy costs represent the costs of leasing and
maintaining company premises.





Tax
Matters




With
respect to Envoy’s 2009 fiscal year, Envoy had tax loss carry forwards
sufficient to cover its Canadian income tax liabilities and has approximately
$26.8 million in loss carry forwards. Details on income taxes are set forth in
Note 17 of the Notes to Consolidated Financial Statements.


17
 Table of Contents


A.  Operating
Results




Net
revenue from the continuing operations for the twelve months ended September 30,
2009 was $12.3 million, compared to $11.3 million for the twelve months ended
September 30, 2008, an increase of $1.0 million.  The increase was a
combination of improved returns in the merchant banking segment, offset
partially by diminished revenue in the Consumer and Retail branding
segment  Investment gains for the twelve months ended September 30,
2009 were $0.6 million compared to losses of ($4.3) million in the same period
last year.




Salaries
expense for the twelve months ended September 30, 2009, was $12.7 million,
compared to $12.8 million in the twelve months ended September 30, 2008, a
decrease of $0.1 million.  The labour to net revenue ratio for the
twelve months ended September 30, 2009 was 103.1%, compared to 113.8% in the
twelve months ended September 30, 2008.   The improvement in the
salary ratio was due to an increase in the revenue base as a result of improved
performance in the merchant banking segment.





Occupancy
costs increased to $0.9 million for the twelve months ended September 30, 2009,
from $0.6 million for the twelve months ended September 30, 2008 an increase of
$0.3 million.  The occupancy cost to net revenue ratio was 6.9% for
the twelve months ended September 30, 2009 compared to 4.6% for the twelve
months ended September 30, 2008, due to one-time costs for the new office in
Monaco and the closure of the office in Dubai.





The
Consolidated Financial Statements have been prepared by management in accordance
with generally accepted accounting principles in Canada, which vary in certain
significant respects from generally accepted accounting principles in the United
States.  A description of the significant differences, as applicable
to the Company, is included in note 24 to the Consolidated Financial
Statements.




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 Table of Contents


SELECTED
ANNUAL INFORMATION





Fiscal
      2009
            
            
            Fiscal
      2008
            
            
            Fiscal
      2007Net
      revenue
            
            $12.3
      million
            
            
            $11.3
      million
            
            
            $17.6
      millionNet
      (loss) earnings:From
      continuing operations
            
            (10.5)
      million
            
            
            (10.2)
      million
            
            
            2.6
      millionFrom
      discontinued operations
            
            
            -
            
            
            
            -
            
            
            0.4
      millionTotal
            
            (10.5)
      million
            
            
            (10.2)
      million
            
            
            3.0
      millionNet
      (loss) earnings per shareTotalBasic
            
            $
            (1.22
            )
            
            $
            (1.11
            )
            
            $
            0.23Diluted
            
            $
            (1.22
            )
            
            $
            (1.11
            )
            
            $
            0.23From
      continuing operationsBasic
            
            $
            (1.22
            )
            
            $
            (1.11
            )
            
            $
            0.20Diluted
            
            $
            (1.22
            )
            
            $
            (1.11
            )
            
            $
            0.20From
      discontinued operationsBasic
            
            $nil
            
            
            $nil
            
            
            $
            0.03Diluted
            
            $nil
            
            
            $nil
            
            
            $
            0.03







As
      at:
            
            
            Sep
      30, 2009
            
            
            
            Sep
      30, 2008
            
            
            
            Sep
      30, 2007Total
      assets
            
            
            $23.6
      million
            
            
            
            $36.5
      million
            
            
            
            $50.8
      millionTotal
      long-term financial liabilities
            
            
            $nil
            
            
            
            $nil
            
            
            
            $0.1
      millionCash
      dividends declared
            
            
            $nil
            
            
            
            $nil
            
            
            
            $nil


19
 Table of Contents




FISCAL
YEAR ENDED SEPTEMBER 30, 2009, COMPARED TO FISCAL YEAR ENDED SEPTEMBER 30,
2008





On a
consolidated basis, the net loss for the year ended September 30, 2009 was
($10.5) million compared to a net loss of ($10.2) million for the year ended
September 30, 2008. On a fully diluted per share basis the net loss for fiscal
year 2009 was ($1.22) per share compared to ($1.11) in fiscal 2008.




Consumer
and Retail Branding Segment





Net
revenue for the Branding segment represents compensation for services rendered,
net of any pass-through costs such as production costs incurred on behalf of
clients in acting as agent for them.




Net
revenue for the year ended September 30, 2009 was $11.7 million, compared to
$15.5 million for the year ended September 30, 2008, an decrease of $3.8
million.  The main reason for the decrease was reduced client
spending.





The
geographical breakdown of net revenue is as follows:





Net
      revenue for the year ended September 30
              (in
      millions)By
      customer location:
            
            2009
            
            
            % of total
            
            
            2008
            
            
            % of totalUSA
      and South America
            
            $
            4.9
            
            
            
            42
            %
            
            $
            6.4
            
            
            
            41
            %Canada
            
            
            4.7
            
            
            
            40
            %
            
            
            5.3
            
            
            
            34
            %Middle
      East and Asia
            
            
            2.1
            
            
            
            18
            %
            
            
            3.8
            
            
            
            25
            %$
            11.7
            
            
            
            100
            %
            
            $
            15.5
            
            
            
            100
            %





Net
revenue from the U.S. and South American based customers declined to $4.9
million in fiscal 2009 from $6.4 million in fiscal 2008, a reduction of $1.5
million,  as many of the retail clients scaled back on spending during
a year that was largely affected by the economic downturn.   Net
revenue from Canadian customers declined to $4.7 million in 2009 from $5.3
million in 2008 for many of the same reasons. Net revenue from the Middle East
and Asia region decreased $1.7 million in fiscal 2009 as compared to fiscal
2008, primarily as a result of this region being affected by a slowing economy
as large scale projects were put on hold or delayed indefinitely.





Revenue
from the Middle East and Asia region is expected to decline significantly going
forward as a result of the Company’s decision to close the Dubai branch in late
fiscal 2009.  Signs of economic distress began to show in the region
toward the end of the first quarter, considerably later than other regions of
the globe.  Initially, it was thought that the unique nature of the
region might insulate it somewhat from the problems elsewhere, however, once the
downturn began, it spread rapidly to all sectors in the
region.  Payments from clients slowed significantly and plans were
curtailed on almost all projects on which the Company was working.  It
became clear that the problems were unlikely to be short term in
nature.  New business slowed to a halt and focus turned to collection
of outstanding receivables.  By the fourth quarter of fiscal 2009 it
became apparent that it was no longer economically viable for the Company to
continue to staff and operate a branch office in Dubai and the decision was made
to terminate the staff and close the office.  The impact of closing
the office has been fully reflected in the financial statements for the year
ended September 30, 2009.


20
 Table of Contents


Operating
expenses, excluding depreciation and goodwill impairment, for the twelve months
ended September 30, 2009 were $13.0 million compared with $13.5 million for the
twelve months ended September 30, 2008, a decrease of $0.5
million.  Expressed as a percentage of revenue operating expenses were
110.8% this year compared to 87.3% last year.





Management
made a decision to write down the goodwill associated with the Consumer and
Retail branding division to nil at the end of fiscal 2009.  The
impairment testing conducted at year end suggested that the fair value of the
unit no longer supported the carrying value of goodwill.  While the
closure of the Dubai branch was a factor in the evaluation, there became
additional concerns regarding the health of the North American
operations.  Given market conditions and the continued reluctance on
the part of customers to increase their spending, it was management’s opinion
that there was no remaining value related to goodwill.  While we are
cautiously optimistic that we are nearing the end of the economic down cycle,
the uncertainty surrounding key aspects of the business require that a
conservative approach be taken with respect to goodwill.





Salaries
and benefits expenses for the current fiscal year were $10.2 million compared to
$10.9 million last year, a decrease of $0.7 million or 6.4%.  The
decrease in these costs was a result of the reduction in staff as management
worked on bringing labour costs down in reaction to declining revenues. Salaries
and benefits expense as a percent of net revenue was 87.3% for the fiscal year
2009 compared to 70.7% in the prior year.  The relative reduction in
salaries and benefits is smaller than the decline in net revenue for the same
period mainly as a result of the lag effect of staff reductions in response to
declining revenues.  As most of the staff are full-time, fixed salary
personnel, revenue fluctuations must be seen to be more than temporary before
adjusting staff levels in order to minimize hiring or termination
costs.   Included in salaries and benefits for fiscal 2009 are
severance costs of approximately $0.4 million.  Salaries cost are
continually monitored to align costs with current and expected
revenues.





General
and administrative expenses were $1.8 million for the twelve months ended
September 30, 2009, compared to $1.7 million for twelve months ended September
30, 2008, an increase of $0.1 million.  Losses on foreign currency
translation due to a weaker U.S. dollar were approximately $0.3 million in
fiscal 2009 compared to almost nil in fiscal 2008.  This offset the
decrease of approximately $0.2 million in the other general and administration
expenses for fiscal 2009 as compared to fiscal 2008.  General and
administration expenses as a percent of net revenue were 15.4% for the current
year compared to 11.0% last year.  The Company continues to focus on
ways to reduce or eliminate discretionary expenses while balancing the need to
maintain the quality of its service while investing to grow its net
revenue.





Occupancy
costs for the twelve months ended September 30, 2009 were $0.9 million, compared
to $0.8 million for the same period last year.  The increase was as a
result of additional charges related to closing the office in Dubai. Occupancy
costs as a percent of net revenue were 7.8% this year compared to 5.4% last
year.


21
 Table of Contents


Depreciation
expense for the year ended September 30, 2009 and year ended September 30, 2008
was $0.4 million and $0.3 million, respectively.





Interest
expense was nil for the twelve months ended September 30, 2009 compared to
minimal interest income for the same period last year





Pre-tax
loss from the Branding segment was ($6.0) million in fiscal 2009 compared to
pre-tax earnings of $1.6 million in fiscal 2008.





Merchant
Banking Segment





Investment
income from Merchant Banking activities includes realized and unrealized gains
and losses from the Company’s investments plus interest and dividend income
earned during the period.





The
Merchant Banking segment experienced net investment gains of approximately $0.6
million for the twelve months ended September 30, 2009, compared to net
investment losses of ($4.3) million for the twelve months ended September 30,
2008.  The Company came into fiscal 2009 with a conservative
investment portfolio allocation.  This proved to be a prudent strategy
as the market turmoil which began in the summer of 2008, continued through the
fall and into the new year.  By contrast, the late second quarter and
early third quarter saw markets improve considerably, whereby the conservative
approach to investment became a less productive strategy and returns suffered
compared to the overall market.  Despite the lower-than-average
capital employed, the Merchant Banking segment still outperformed relative to
the major indices for the fiscal year period.  Investment gains going
forward will continue to be a function of general market and economic conditions
as well as the success of individual securities selected for
investment.  Accordingly, the income generated from such investment
activity is unlikely to be consistent from period to period.





For the
twelve months ended September 30, 2009 the Company recognized gains attributable
to the sale of marketable securities or adjustments to market value of $0.3
million. For the same period last year, the Company recognized losses of ($4.9)
million.  Interest and dividend income for the Merchant Banking
segment for the fiscal year 2009 was approximately $0.3 million, compared to
$0.7 million last year.  Interest earned for the period was largely
attributable to cash held in short term interest bearing corporate notes or
discount securities.





For the
twelve months ended September 30, 2009, the Company generated a return of 2.7%
compared to last year when the Company experienced a negative return of (12.2%)
on its invested capital.  Investment returns were significantly
impacted by the unsettled nature of worldwide stock markets.  Late in
the third quarter of fiscal 2008, domestic, U.S. and international markets began
a slide which continued through the end of second quarter of fiscal
2009.  Management made a decision early in the downturn to preserve
capital by divesting from much of its liquid holdings and was able to mitigate a
good portion of the potential downside.  Part of that strategy in
fiscal 2009 involved the use of put option derivatives to take advantage of the
perceived risk.  The historically large premium values on the put
options were attractive as a lower risk method to re-deploy capital in the
market.  However, while the Company was able to earn the bulk of the
option premiums as the markets moved up in mid 2009, the reduced exposure to
long positions lowered the overall return on the portfolio.  In
comparison to other widely-used benchmarks the Company outperformed for the
year, as the Dow Jones Industrial Average lost (10.5%) over the Company’s fiscal
year period, while the S&P 500 and TSX lost (9.3%) and (0.9%),
respectively.


22
 Table of Contents


Operating
expenses for the Merchant Banking business are comprised largely of salaries and
benefits.  Total operating expenses for the twelve months ended
September 30, 2009 were approximately $2.3 million, compared to $1.5 million for
the same period last year.  Approximately $0.3 million of the
increased costs for fiscal 2009 are the result of certain compensation
components being reclassified from general and administrative expenses due to
changes in executive contracts.  In addition there were one-time
start-up costs for the Monaco subsidiary, and higher overall costs as a result
of an increase in foreign currency rates.





Fiscal
2009 pre tax loss from the Merchant Banking segment totaled approximately ($1.7)
million, compared to a loss of ($5.7) million last year.





Corporate





Corporate
expenses include salaries and benefits for the accounting, financial and
administrative functions of Envoy.  In addition, the corporate
expenses include the costs of regulatory compliance such as audit and legal
expenses, listing fees and shareholder relations.  Credit amounts
generated by the corporate segment relate to a recovery in excess of actual
costs as a result of subleasing excess space at the Company’s corporate
office.   As the Company has relocated its corporate office,
there will be no further sublease arrangement and related credits going forward.
For the twelve months ended September 30, 2009 these expenses, excluding
depreciation, totaled approximately $1.5 million, compared to approximately $2.0
million in the prior year.





Income
Taxes





Given the
current operating loss, along with the uncertainty surrounding investment
markets going forward, the Company has increased its valuation allowance on its
future tax assets to reduce the value of the asset to nil.  As a
result of the valuation allowance, the current value of the tax asset reflects
management’s assessment of those timing differences and loss carryforwards which
are more likely than not to be used in future periods.  Income tax
expense for the year was $1.0 million.  All of the expense is a result
of a revaluation of the Company’s future tax asset.





Income
from discontinued operations





Income
from discontinued operations represents income from Envoy’s UK subsidiaries
which were disposed of in the fourth quarter of fiscal 2006. The income from
discontinued operations, net of income taxes and minority interests, for the
fiscal years 2009 and 2008 was $nil and for the fiscal year 2007 was
approximately $0.4 million. Income from discontinued operations in fiscal 2007
represents the settlement of potential liabilities more favourably than
expected.


23
 Table of Contents


Discontinued
operations as detailed in note 23 to the Financial Statements as
follows:


Fiscal
      year:
              
              2009
              
              
              2008
              
              
              2007Net
      revenue
              
              $
              
              
              
              $
              -
              
              
              $
              -Operating
      expenses
              
              
              -
              
              
              
              -
              
              
              
              -Interest
      income
              
              
              -
              
              
              
              -
              
              
              
              -Depreciation
              
              
              -
              
              
              
              -
              
              
              
              -Income
      tax expense
              
              
              -
              
              
              
              -
              
              
              
              -Earnings
      from discontinued operations(excluding gain on
sale)
              
              
              -
              
              
              
              -
              
              
              
              -Minority
      interest
              
              
              -
              
              
              
              -
              
              
              
              -Gain
      on sale of discontinued operations
              
              
              -
              
              
              
              -
              
              
              
              375,514Earnings
      from discontinued operations
              
              $
              -
              
              
              $
              -
              
              
              $
              375,514







Net
earnings (loss)




Net loss
for the twelve months ended September 30, 2009 was ($10.5) million, compared to
a loss of ($10.2) million for the twelve months ended September 30,
2008.  On a per share basis the net loss in the current year was
($1.22) per share compared to ($1.11) last year.




The
earnings per share calculations are based on fully diluted weighted average
shares outstanding of 8,558,466 this year compared to 9,122,688 last
year.






THREE
MONTHS ENDED SEPTEMBER 30, 2009, COMPARED TO THREE MONTHS ENDED SEPTEMBER 30,
2008





On a
consolidated basis, the net loss for the fourth quarter of fiscal 2009 was
($6.4) million, compared to a net loss of ($8.3) million for the fourth quarter
of fiscal 2008.  Excluding the impact of goodwill impairment and
valuation allowances related to future tax assets, the net loss for the fourth
quarter of fiscal 2009 was ($1.0) million, compared to ($4.6) million for the
fourth quarter of fiscal 2008.




Consumer
and Retail Branding Segment





Net
revenue for the Branding segment represents compensation for services rendered,
net of any pass-through costs such as production costs incurred on behalf of
clients in acting as agent for them.




Net
revenue for the three months ended September 30, 2009 was $1.6 million, compared
to $3.5 million for the three months ended September 30, 2008, a decrease of
$1.9 million, or 54.3%.  The principal reason for the decrease in net
revenue from last year to this year was reduced client
spending.


24
 Table of Contents


The
breakdown of net revenue is as follows:





Net
      revenue for the three months ended September 30
              (in
      millions)By
      customer location:
            
            2009
            
            
            % of total
            
            
            2008
            
            
            % of totalUSA
      and South America
            
            $
            0.8
            
            
            
            50
            %
            
            $
            1.5
            
            
            
            44
            %Canada
            
            
            0.5
            
            
            
            33
            %
            
            
            1.3
            
            
            
            37
            %Middle
      East and Asia
            
            
            0.3
            
            
            
            17
            %
            
            
            0.7
            
            
            
            19
            %$
            1.6
            
            
            
            100
            %
            
            $
            3.5
            
            
            
            100
            %







Net
revenue from U.S. and South American customers decreased by approximately $0.7
million for the fourth quarter of fiscal 2009 as compared to the same period
last year, while net revenue from the Canadian based customers decreased by $0.8
million.  Net revenue from the Middle East and Asia region decreased
$0.4 million compared to the same period last year.  As discussed in
the full year results, the Company made the decision to close the Dubai branch
in the fourth quarter of fiscal 2009.  As a result, revenue from the
Middle East and Asia region will likely be significantly lower in future
periods.




Operating
expenses, excluding depreciation and goodwill impairment, for the fourth quarter
of 2009 were $2.3 million, compared to $3.4 million in the fourth quarter of
fiscal 2008, mainly due to reduced labour costs.  Expressed as a
percentage of revenue, operating expenses were 146.7% this year compared to
99.2% last year.





Salaries
and benefits expenses for the fourth quarter of 2009 were $1.8 million compared
to $2.9 million for the fourth quarter last year, a decrease of $1.1 million or
37.9%.  Salaries and benefits levels decreased as a result of staff
reductions related to the decrease in revenue.  Salaries and benefits
expense as a percent of net revenue was 111.4% for this year’s fourth quarter
compared to 83.1% for the same period last year.


General
and administrative expenses were $0.3 million in the current quarter compared to
$0.4 million in the same period last year. General and administrative expenses
as a percent of net revenue were 19.2% for this year’s fourth quarter compared
to 11.1% in the same period last year.





Occupancy
costs for both the current quarter were $0.3 million compared to $0.2 million in
the fourth quarter of fiscal 2008.  Occupancy costs as a percent of
net revenue were 16.0% in the fourth quarter of fiscal 2009 compared to 5.9% in
the same period last year.





Depreciation
expense for the three months ended September 30, 2009 and three months ended
September 30, 2008 was $0.1 million.




There was
a no interest income or expense for the three months ended September 30, 2009
and a small amount of interest income for the same period last
year.





Pre-tax
losses from the Branding segment were ($5.2) million in the fourth quarter of
fiscal 2009 compared to ($0.1) million in the fourth quarter of fiscal
2008.  Excluding goodwill impairment, pre-tax losses from the Branding
segment were ($0.8) million for the fourth quarter of fiscal
2009.


25
 Table of Contents


Merchant
Banking Segment





For the
fourth quarter ended September 30, 2009 the Merchant Banking segment generated
net investment gains of $0.8 million, compared to investment losses of ($3.8)
million in the same period last year.  As financial markets improved
considerably in the fourth quarter of fiscal 2009, the Merchant Banking segment
was able to generate acceptable returns on its invested assets.  The
Company continues to maintain an overall relatively conservative strategy as
management feels there may still be considerable ongoing volatility, given that
the economic stimulus employed by governments around the world to assist in
recovery were of historic proportions.  While the Company believes
that the economy is on its way to recovery, there will likely be some lingering
effects for the next several quarters.  Management will continue to
employ a blended strategy of long positions and related derivatives in an
attempt to maximize returns while limiting downside risk.





Operating
expenses for the Merchant Banking business were comprised largely of salaries
and benefits.  Total operating expenses for the quarter were
approximately $0.5 million, compared to $0.2 million for the same period last
year.





During
the fourth quarter of fiscal 2009 pre tax income from the Merchant Banking
business totaled approximately $0.3 million, compared to pre-tax losses of
($4.0) million in the same period last year.





Corporate





Corporate
expenses include salaries and benefits for the accounting, financial and
administrative functions of Envoy.  In addition, the corporate
expenses include the costs of regulatory compliance such as audit and legal
expenses, listing fees and shareholder relations.  During the current
quarter and the same period last year, these expenses totaled approximately $0.5
million.





Income
Taxes





The
income tax expense for the period was $1.0 million.  The reason for
the disparity from the substantially enacted tax rate of 32% was an adjustment
to the value of the future tax asset based on the Company’s results for the
fourth quarter along with the overall volatility in the market and economic
uncertainty at year end.  The current value of the future tax asset
reflects management’s assessment of those timing differences and loss
carryforwards which are more likely than not to be used in future
periods.





Net
loss




Net loss
for the three months ended September 30, 2009 was ($6.4) million, compared to a
loss of ($8.3) million for the three months ended September 30,
2008.  On a per share basis the net loss in the current quarter was
($0.74) per share compared to ($0.95) last year. The earnings per share
calculations are based on fully diluted weighted average shares outstanding of
8,558,377 for the current quarter compared to 8,688,245 in the same period last
year.


26
 Table of Contents


SUMMARY
OF QUARTERLY RESULTS





Q4
      2009
            
            
            
            Q3
      2009
            
            
            
            Q2
      2009
            
            
            
            Q1
      2009Net
      revenue
            
            $2.4
      million
            
            
            $2.9
      million
            
            
            $3.3
      million
            
            
            $3.7
      millionNet
      loss:From
      continuing operations
            
            ($6.38)
      million
            
            
            ($1.81)
      million
            
            
            ($1.24)
      million
            
            
            ($1.04)
      millionIncluding
      discontinued operations
            
            ($6.38)
      million
            
            
            ($1.81)
      million
            
            
            ($1.24)
      million
            
            
            ($1.04)
      millionNet
      loss per share:From
      continuing operationsBasic
            
            $
            (0.74
            )
            
            $
            (0.21
            )
            
            $
            (0.15
            )
            
            $
            (0.12
            )Diluted
            
            $
            (0.74
            )
            
            $
            (0.21
            )
            
            $
            (0.15
            )
            
            $
            (0.12
            )Including
      discontinued operationsBasic
            
            $
            (0.74
            )
            
            $
            (0.21
            )
            
            $
            (0.15
            )
            
            $
            (0.12
            )Diluted
            
            $
            (0.74
            )
            
            $
            (0.21
            )
            
            $
            (0.15
            )
            
            $
            (0.12
            )





Q4
      2008
            
            
            
            Q3
      2008
            
            
            
            Q2
      2008
            
            
            
            Q1
      2008Net
      revenue
            
            ($0.3)
      million
            
            
            $3.5
      million
            
            
            $3.3
      million
            
            
            $4.7
      millionNet
      earnings (loss):From
      continuing operations
            
            ($8.25)
      million
            
            
            ($1.28)
      million
            
            
            ($0.98)
      million
            
            
            $0.36
      millionIncluding
      discontinued operations
            
            ($8.25)
      million
            
            
            ($1.28)
      million
            
            
            ($0.98)
      million
            
            
            $0.36
      millionNet
      earnings (loss) per share:From
      continuing operationsBasic
            
            $
            (0.95
            )
            
            $
            (0.14
            )
            
            $
            (0.10
            )
            
            $
            0.04Diluted
            
            $
            (0.95
            )
            
            $
            (0.14
            )
            
            $
            (0.10
            )
            
            $
            0.04Including
      discontinued operationsBasic
            
            $
            (0.95
            )
            
            $
            (0.14
            )
            
            $
            (0.10
            )
            
            $
            0.04Diluted
            
            $
            (0.95
            )
            
            $
            (0.14
            )
            
            $
            (0.10
            )
            
            $
            0.04




27
 Table of Contents


RECONCILIATION
TO U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES





Summary
of material adjustments to net (loss) earnings for the years ended September 30,
2009, 2008 and 2007 required to conform to US GAAP.  Detailed
information can be found in note 24 to the Financial
Statements.


2009
            
            
            2008
            
            
            2007Net
      (loss) earnings - Canadian GAAP
            
            $
            (10,475,810
            )
            
            $
            (10,158,145
            )
            
            $
            3,016,719Cash
      held in escrow
            
            
            -
            
            
            
            2,803,549
            
            
            
            (103,549
            )Capitalized
      incorporation costs
            
            
            -
            
            
            
            66,339
            
            
            
            (66,339
            )Income
      recognized on reclassification of investments
            
            
            -
            
            
            
            -
            
            
            
            77,416Gains
      on privately-held securities
            
            
            -
            
            
            
            -
            
            
            
            (1,147,500
            )Fair
      value adjustment on restricted securities
            
            
            (283,411
            )
            
            
            1,619,615
            
            
            
            -Net
      (loss) earnings based on U.S. GAAP
            
            $
            (10,759,221
            )
            
            $
            (5,668,642
            )
            
            $
            1,776,747Net
      (loss) earnings from continuing operations
            
            $
            (10,759,221
            )
            
            $
            (8,472,191
            )
            
            $
            1,401,233Net
      earnings from discontinued operations (Note 23)
            
            $
            -
            
            
            $
            2,803,549
            
            
            $
            375,514









The
following adjustments are required in order to conform total assets based on
Canadian GAAP to total assets based on U.S. GAAP:


2009
            
            
            2008Total
      assets based on Canadian GAAP
            
            $
            23,595,204
            
            
            $
            36,482,044Fair value adjustment on restricted
      securities
            
            
            188,704
            
            
            
            472,115Total
      assets based on U.S. GAAP
            
            $
            23,783,908
            
            
            $
            36,954,159




The
following adjustments are required in order to conform shareholders’ equity
based on Canadian GAAP to shareholders’ equity based on U.S.
GAAP:


2009
            
            
            2008Shareholders’
      equity based on Canadian GAAP
            
            $
            21,624,034
            
            
            $
            32,159,321Fair value adjustment on restricted
      securities
            
            
            188,704
            
            
            
            472,115Shareholders’
      equity based on U.S. GAAP
            
            $
            21,812,738
            
            
            $
            32,631,436





The
Company's comprehensive income represents U.S. GAAP net earnings plus the
results of certain changes in shareholders’ equity during a period from
non-owner sources that are not reflected in the consolidated statements of
operations.


2009
            
            
            2008
            
            
            2007Net
      (loss) earnings for the year in accordance with U.S. GAAP
            
            $
            (10,759,221
            )
            
            $
            (5,668,642
            )
            
            $
            1,776,747Less:  reclassification
      adjustment for gains realized in net income
            
            
            -
            
            
            
            -
            
            
            
            (242,378
            )Change
      in cumulative translation adjustment account
            
            
            -
            
            
            
            76,519
            
            
            
            (25,514
            )$
            (10,759,221
            )
            
            $
            (5,592,123
            )
            
            $
            1,508,855


28
 Table of Contents




B.
Liquidity and Capital Resources





As at
September 30, 2009, Envoy had working capital of $19.5 million, compared to
September 30, 2008, when it had a working capital of $24.5 million. Included in
working capital is an investment portfolio of marketable securities, the current
portion of which was $5.1 million at September 30, 2009 and $14.4 million at
September 30, 2008.   The principal reasons for the decrease were
the conscious decision by the Company to maintain a large portion of its capital
in cash, as well as the deterioration in market value of the
investments.





Approximately
$9.2 million in cash was generated from operations during the twelve months
ended September 30, 2009, compared to $5.3 million for the twelve months ended
September 30, 2008.  The main sources of funds were the collection of
accounts receivable and the sale of investments held for trading.  The
accounts receivable balance at September 30, 2008 was particularly high due to
several large invoices not collected until October 2009.





In recent
prior years, the Company has used significant working capital to repurchase
shares of the Company pursuant to the normal course issuer
bid.   In fiscal 2009, it was determined that the working capital
would be better used elsewhere.  Purchases under the issuer bid were
$2.9 million in fiscal 2008 and only $0.1 million in fiscal 2009.





The
Company used funds not otherwise invested in the market to pay down its
operating line of credit in fiscal 2009 in order to minimize interest
charges.  The revolving credit facility is available up to a maximum
of $1.0 million.  At September 30, 2009, there were no borrowings
under the credit facility.





Despite
the current economic conditions, the Company has access to significant liquid
capital resources and is not exposed to any investments with distressed
credit.







CRITICAL
ACCOUNTING POLICIES AND ESTIMATES





The
significant accounting policies used by Envoy in preparing its Financial
Statements are described in Note 2 to the Financial Statements and should be
read to ensure a proper understanding and evaluation of the estimates and
judgements made by management in preparing those Financial
Statements.  Envoy’s Financial Statements are prepared in accordance
with Canadian generally accepted accounting principles.  Envoy also
prepared a reconciliation to United States generally accepted accounting
principles, which is included in Note 24 to the Financial
Statements.




29
 Table of Contents





Inherent
in the application of some of these policies is the judgment by management as to
which of the various methods allowed under generally accepted accounting
principles is the most appropriate to apply in the case of Envoy.  As
well, management must take appropriate estimates at the time the Financial
Statements are prepared.




Although
all of the policies identified in Note 2 to the Financial Statements are
important in understanding the Financial Statements, the policies discussed
below are considered by management to be central to understanding the Financial
Statements, because of the higher level of measurement uncertainties involved in
their application.




Goodwill





Goodwill
represents the price paid for acquisitions in excess of the fair market value of
net tangible and intangible assets acquired.  Goodwill is carried at
cost, less impairment losses if any.





The
Company uses a two-step impairment test on an annual basis, or when significant
business changes have occurred that may have had an adverse impact on the fair
value of the goodwill.  To determine whether impairment has occurred,
the fair value of the reporting unit is compared to its carrying amounts,
including goodwill.  When the fair value is in excess of its carrying
amount, the goodwill is not considered to be impaired, and the second step of
the impairment test is not necessary.





When the
carrying amount of the reporting unit as determined in the first step exceeds
the fair value, then the fair value of the goodwill is determined in the same
manner as followed on a business combination.    An
impairment loss is recognized when the carrying amount of the goodwill of a
reporting unit exceeds its fair value.  It is not reversed in the
event that the fair value subsequently increases.





Income
Taxes




Envoy
accounts for income taxes using the asset and liability method.  Under
this method, future income taxes are recognized at the enacted or substantially
enacted tax rate expected to be applicable at the anticipated date of the
reversal for all significant temporary differences between the tax and
accounting bases of assets and liabilities and for certain tax carryforward
items.  Future income tax assets and liabilities are recognized only
to the extent that, in the opinion of management, it is more likely than not
that the future income tax assets will be realized.  Future operating
results and future tax rates could vary materially, and accordingly the value of
income tax assets and liabilities could change by material amounts.




30
 Table of Contents


Revenue
Recognition – Branding segment





The
Company presents as net revenue its net commission and fee income earned as
compensation for its services.  Further, the balance sheet reflects
the following:




(i)
            deferred
      revenue representing fees billed and collected in advance of such fees
      being earned;




(ii)
            unbilled
      accounts receivable representing fees earned but not yet billed as well as
      well as reimbursable pass-through costs;
and




(iii)
            work in process represents costs incurred on projects for which revenue
      has not yet     been recognized for accounting
      purposes.




Included
in work in process are charges for staff time at standard cost and third party
charges. The standard cost rate provides for the recovery of actual labour and
overhead costs incurred. The third party charges are for actual costs related to
outsourced goods and services for specific projects.




The
Company recognizes net revenue and profits for Consumer and Retail Branding on
the completed contract basis, and accordingly revenue and profit are recognized
only when the contract or contract milestone is substantially
complete.  Anticipated losses are provided for when the estimate of
total costs on a contract indicates a loss.





Net
revenue for the Consumer and Retail Branding segment represents compensation for
services rendered, net of any pass-through costs such as production costs
incurred on behalf of clients in acting as agent for them.  In
circumstances where the Company retains subcontractors, such as architects or
engineers, to perform services as an agent to the Company, the revenue for such
services is included in net revenue and the cost of the subcontractor’s services
is included in salaries and benefits expense or general and administrative
expenses, as appropriate.





Revenue
Recognition – Merchant banking segment




Securities
transactions are recorded on a trade-date basis.  Changes in fair
value of held-for-trading investments are reflected in the consolidated
statements of operations.  Dividend income is recorded on the
ex-dividend date.  Interest income is recorded on an accrual
basis.





Financial
Instruments





Financial
assets and financial liabilities are initially recognized at fair value and
their subsequent measurement is dependent on their classification as described
below.  Their classification depends on the purpose for which the
financial instruments were acquired or issued, their characteristics and the
Company’s designation of such instruments.  The standards require that
all financial assets be classified either as held-for-trading (“HFT”),
available-for-sale (“AFS”), held-to-maturity (“HTM”), or loans and
receivables.  The standards require that all financial assets,
including all derivatives, be measured at fair value with the exception of loans
and receivables, debt securities classified as HTM, and AFS financial assets
that do not have quoted market prices in an active market.





HFT
financial assets are financial assets typically acquired for resale prior to
maturity.  They are measured at fair value at the balance sheet
date.  Interest and dividends earned, gains and losses realized on
disposal and unrealized gains and losses from market fluctuations are included
in net revenue for the period.





HTM
financial assets are those non-derivative financial assets with fixed or
determinable payments and a fixed maturity, other than loans and receivables
that an entity has the positive intention and ability to hold to
maturity.  These financial assets are measured at amortized
cost.


31
 Table of Contents


AFS
financial assets are those non-derivative financial assets that are designated
as AFS, or that are not classified as loans and receivables, HTM investments or
HFT.  AFS financial assets are carried at fair value with unrealized
gains and losses included in Other Comprehensive Income (OCI) until realized
when the cumulative gain or loss is recognized in net income.





Loans and
receivables are accounted for at amortized cost using the effective interest
method.


At each
financial reporting period, the Company’s management estimates the fair value of
investments based on the criteria below and reflects such valuations in the
consolidated financial statements.





(i)
      Publicly-traded investments:





Securities
which are traded on a recognized securities exchange and for which no sales
restrictions apply are recorded at fair values based on quoted market prices at
the consolidated balance sheet dates or the closing price on the last day the
security traded if there were no trades at the consolidated balance sheet
dates.





Securities
which are traded on a recognized securities exchange but which are escrowed or
otherwise restricted as to sale or transfer may be recorded at amounts
discounted from market value. In determining whether a discount is appropriate
for such investments, the Company considers the nature and length of the
restriction, the business risk of the investee company, its stage of
development, market potential, relative trading volume and price volatility and
any other factors that may be relevant to the ongoing and realizable value of
the investments.





(ii)
      Privately-held investments:





Securities
in privately-held companies designated as HFT are recorded at fair value based
on objective evidence including recent arm’s length transactions between
knowledgeable, willing parties, such as significant subsequent equity financing
by an unrelated, professional investor, discounted cash flow analysis,
operational results, forecasts and other developments since
acquisition.





Discontinued
operations





The
results of operations of a business that has either been disposed of, or is held
for sale, is reported as discontinued operations if the operations and cash
flows of the component have been (or will be) eliminated from the Company’s
ongoing operations, and the Company will not have any significant continuing
involvement in the operations of the component after the disposal transaction.
The results of discontinued operations, less applicable taxes are reported as a
separate element of income or loss before extraordinary items for both current
and prior periods.


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Recently
Adopted Accounting Policies





Effective
October 1, 2007, the Company adopted prospectively the following Canadian
Institute of Chartered Accountants’ Handbook (“CICA Handbook”) new accounting
standards for interim and annual financial statements for fiscal years beginning
on or after October 1, 2007:





(i) CICA
Handbook Section 1535, Capital Disclosures, which requires the disclosure of
both qualitative and quantitative information that enables users of financial
statements to evaluate the entity's objectives, policies and processes for
managing capital including disclosures of any externally imposed capital
requirements and the consequences of noncompliance;





(ii) CICA
Handbook Section 3862, Financial Instruments – Disclosure, which requires
disclosure of information related to the significance of financial instruments
to a company’s financial position and performance. A company is also required to
disclose information related to the risks of its use of financial instruments
and how those risks are managed;





(iii)
CICA Handbook Section 3863, Financial Instruments – Presentation, which
establishes standards for presentation of financial instruments. It deals with
the presentation of financial instruments and the circumstances in which
financial assets and financial liabilities are offset. Effective
October 1, 2008, the Company adopted prospectively CICA Handbook Section 3064,
Goodwill and Intangible Assets, which clarifies that costs can be deferred only
when they relate to an item that meets the definition of an asset. As a result,
start-up costs must be expensed as incurred.  Section 1000, Financial
Statement Concepts, was also amended to provide consistency with this new
standard.





Also on
October 1, 2008, the Company adopted prospectively CICA Handbook Section 3031,
“Inventories”, which sets forth the requirements for measuring and presenting
inventories. It requires the measurement of inventories at the lower of cost and
net realizable value and includes guidance on the determination of cost,
including allocation of overhead and other costs incurred in bringing the
inventories to their present location and condition.





The
initial adoption of these standards did not have a material effect on the
financial position or earnings of the Company.





IMPACT
OF RECENTLY ISSUED ACCOUNTING STANDARDS





On
February 13, 2008 the Canadian Accounting Standards Board (“AcSB”) confirmed
January 1, 2011 as the official changeover date for publicly listed Canadian
companies to start using International Financial Reporting Standards (IFRS). The
transition will affect interim and annual financial statements relating to years
beginning on or after January 1, 2011. Management has commenced its IFRS
conversion project, which consists of several phases, commencing with a review
of the Company’s significant accounting policies relative to current and
proposed IFRS.   Management has completed its assessment of the differences
between IFRS and Canadian GAAP and is currently in the process of assessing the
impact IFRS has on accounting policies and implementation decisions; information
technology and data systems; financial statement presentation and disclosures;
internal control over financial reporting; disclosure controls and procedures
and all business activities. Following this assessment, an implementation plan
will be developed to transition the Company’s financial reporting process,
including internal controls and information systems to IFRS.  The
impact these differences may have on the financial results has not yet been
determined and will be an ongoing process as the International Accounting
Standards Board and the AcSB issue new standards and
recommendations.


33
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In
January 2009, the CICA issued Handbook Section 1601, “Consolidated Financial
Statements”, and Section 1602, “Non-controlling Interests”, which together
replace Section 1600, “Consolidated Financial Statements”. Section 1601
establishes standards for the preparation of consolidated financial statements.
Section 1602 establishes standards for accounting for a non-controlling interest
in a subsidiary in consolidated financial statements subsequent to a business
combination. It is equivalent to the corresponding provisions of International
Accounting Standard 27 (Revised), “Consolidated and Separate Financial
Statements”. These changes are effective for interim and annual financial
statements beginning on January 1, 2011. Earlier adoption is permitted as of the
beginning of a fiscal year. The Company is evaluating the impact of the adoption
of these new accounting standards on its consolidated financial
statements.





In
September 2006, the Financial Accounting Standards Board (“FASB”) issued a
standard that defines fair value, establishes a framework for measuring fair
value and requires enhanced disclosures about fair value
measurements.  The standard requires companies to disclose the fair
value of their financial instruments according to a fair value hierarchy (i.e.,
levels 1, 2, and 3, as defined). Additionally, companies are required to provide
enhanced disclosure regarding instruments in the level 3 category, including a
reconciliation of the beginning and ending balances separately for each major
category of assets and liabilities.  The standard became effective for
the Company’s fiscal year that began on October 1, 2008.  Other than
the additional disclosure requirements, the adoption of the standard did not
have a material impact on the Company’s consolidated financial
statements.





In
February 2008, the FASB issued changes to fair value accounting, which permits a
one-year deferral of the application of fair value measurements for all
non-financial assets and non-financial liabilities, except those that are
recognized or disclosed at fair value in the financial statements on a recurring
basis (at least annually).  The guidance partially defers the
effective date of fair value measurement to fiscal years beginning after
November 15, 2008, and interim periods within those fiscal years for items
within the scope of this change.  Management is currently evaluating
the potential impact of the adoption of this standard on the Company’s
consolidated financial statements.


In
December 2007, the FASB issued a standard regarding business combinations. This
standard establishes principles and requirements for how the acquirer in a
business combination (i) recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquiree, (ii) recognizes and measures the
goodwill acquired in the business combination or a gain from a bargain purchase,
and (iii) determines what information to disclose to enable users of the
financial statements to evaluate the nature and financial effects of the
business combination. This standard is effective for fiscal years beginning
after December 15, 2008 and, as such, the Company will adopt this standard
in fiscal 2010. The impact of the standard on the Company’s consolidated
financial statements will be dependent upon the number of and magnitude of the
acquisitions that are consummated once the pronouncement is
effective.


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In
December 2007, the FASB issued a standard on the accounting for noncontrolling
interests in a subsidiary and for the deconsolidation of a subsidiary. The
standard clarifies that a noncontrolling interest in a subsidiary (minority
interest) is an ownership interest in the consolidated entity that should be
reported as equity in the consolidated financial statements and separate from
the parent company’s equity. Among other requirements, this statement requires
consolidated net income to be reported at amounts that include the amounts
attributable to both the parent and the noncontrolling interest. It also
requires disclosure, on the face of the consolidated statement of operations, of
the amounts of consolidated net income attributable to the parent and to the
noncontrolling interest.  This standard is effective for fiscal years
beginning after December 15, 2008.  The Company will adopt this
standard in fiscal 2010, which will require retrospective application of the
presentation and disclosure requirements of this standard for all of the
Company’s minority interest.





In April
2009, FASB issued changes regarding interim disclosures about fair value of
financial instruments.  The changes enhance consistency in financial
reporting by increasing the frequency of fair value disclosures from annually to
quarterly.  The changes require disclosures on a quarterly basis of
qualitative and quantitative information about fair value estimates for all
those financial instruments not measured on the balance sheet at fair value. The
disclosure requirements are effective beginning with the first interim reporting
period ending after June 15, 2009. The adoption of these changes is not expected
to have a material impact on the Company’s consolidated financial
statements.





In May
2009, the FASB issued a standard related to subsequent events.  The
standard is effective for interim or annual periods ending after June 15, 2009
and establishes general standards of accounting for and disclosure of events
that occur after the balance sheet date but before financial statements are
issued or are available to be issued.  Entities are also required to
disclose the date through which subsequent events have been evaluated and the
basis for that date.  The Company has evaluated subsequent events
through the date of issuance of these financial statements, December 16,
2009.





In June
2009, the FASB issued the FASB Accounting Standards Codification (the
“Codification”). The Codification became the single source for all authoritative
accounting principles recognized by the FASB to be applied for financial
statements issued for periods ending after September 15, 2009. The
Codification does not change GAAP and did not have an effect on the Company’s
financial position, results of operations or liquidity.





In June
2009, the FASB issued a standard which will be effective for all variable
interest entities and relationships with variable interest entities existing as
of January 1, 2010.  This standard amends previous guidance to require
an enterprise to determine whether its variable interest or interest give it a
controlling financial interest in a variable interest entity.  The
primary beneficiary of a variable interest entity is the enterprise that has
both (1) the power to direct the activities of a variable interest entity that
most significantly impact the entity’s economic performance and (2) the
obligation to absorb losses of the entity that could potentially be significant
to the variable interest entity or the right to receive benefits from the entity
that could potentially be significant to the variable interest
entity.  This standard also amends previous guidance to require
ongoing reassessments of whether and enterprise is the primary beneficiary of a
variable interest entity.  Management is currently evaluating what
impact, if any, the adoption of this standard will have on the Company’s
consolidated financial statements.


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FORWARD
LOOKING STATEMENTS





All
statements in this annual report on Form 20-F that do not directly and
exclusively relate to historical facts constitute “forward-looking statements”
within the meaning of that term in Section 27A of the United States Securities
Act of 1933, as amended (the “1933 Act”), and Section 21E of the United States
Securities Exchange Act of 1934, as amended (the “Exchange Act”). These
statements represent Envoy’s intentions, plans, expectations and beliefs, and
are subject to risks, uncertainties and other factors, many of which are beyond
the control of Envoy. These factors could cause actual results to differ
materially from such forward-looking statements. These factors include but are
not restricted to the timing and size of contracts, acquisitions and other
corporate developments; the ability to attract and retain qualified employees;
market competition in our industry; general economic and business conditions,
foreign exchange and other risks identified in the MD&A, in this Annual
Report or Form 20-F filed with the U.S. Securities and Exchange Commission (the
“SEC”), or Envoy’s Annual Information Form filed with the Canadian securities
authorities. The words “believe”, “estimate”, “expect”, “intend”, “anticipate”,
“foresee”, “plan”, and similar expressions identify certain of such forward
looking statements, which are valid only as of the date on which they are made.
In particular, statements relating to future growth are forward looking
statements. Envoy disclaims any intention or obligation to publicly update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise. Readers are cautioned not to place undue reliance on
these forward-looking statements





C.            Research
and Development, Patents and Licenses, etc.




Not applicable.




D.            Trend
Information




Not applicable.





E.            Off-Balance
Sheet Arrangements




None.





F.  Commitments
and Contractual Commitments




Set out
below is a summary of the amounts due and committed under contractual cash
obligations at September 30, 2009:




Total
            
            
            Due
      in year 1
            
            
            Due
      in year 2
            
            
            Due
      in year 3Operating
      leases
            
            $
            568,345
            
            
            $
            393,593
            
            
            $
            89,186
            
            
            $
            85,566Long
      term debt
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Total
      contractual cash obligations
            
            $
            568,345
            
            
            $
            393,593
            
            
            $
            89,186
            
            
            $
            85,566




36
 Table of Contents


G.  Safe
Harbor




See
“Special Note Regarding Forward-Looking Statements” in the introduction to this
Form 20-F.





Item
6:   Directors and Senior Management and Employees




A.            Directors
and Senior Management




The
following table sets forth certain information regarding the directors and
senior managers of Envoy as of November 30, 2009. Each director is elected at
the annual meeting of shareholders to serve until the next annual meeting or
until a successor is elected or appointed.




NameAge
            Positions Held with
EnvoyJ.
      Joseph Leeder
            President
      and Chief Executive Officer55Andrew
      Patient
            Chief
      Financial Officer39Geoffrey
      B. Genovese
            President
      and Director, Envoy Capital Group55
            Monaco
      S.A.M and DirectorJohn
      H. Bailey
            Director,
      Envoy Capital Group64
            Monaco
      S.A.M and DirectorDavid
      Hull1 2 3
            Director53Linda
      Gilbert1 2 3
            Director41David
      Parkes1 2 3
            Director53








1  Member
of the Audit Committee


2  Member
of the Compensation Committee


3  Member
of the Nominating and Corporate Governance Committee





The
principal occupations, business experiences and positions for the past five
years and, in certain cases, prior years of the directors and executive officers
of Envoy are as follows:





J. Joseph
Leeder,CA:Mr. Leeder
joined Envoy in 1998 as Vice President and Chief Financial Officer. Prior to
joining Envoy, Mr. Leeder was a partner of KPMG LLP in Canada, an accounting
firm, and an Executive Vice President of KPMG Corporate Finance Inc., a
subsidiary of KPMG LLP.
Mr. Leeder left Envoy on May 30, 2003 and joined USC Forest Group as its Chief
Financial Officer. Mr. Leeder rejoined Envoy as Vice President, Mergers and
Acquisitions on October 24, 2005 and became the Chief Financial Officer on
January 1, 2006. On January 1, 2009, Mr. Leeder resigned as Chief Financial
Officer and Vice President, Mergers and Acquisitions and was appointed President
and Chief Executive Officer of Envoy.


37
 Table of Contents


Andrew Patient,
CA:Mr. Patient joined the Envoy group in 2001, initially
serving as controller at the Company’s wholly-owned subsidiary, Watt
International Inc.  In February 2006, Mr. Patient moved to the
corporate head office in the role of Director of Finance, responsible for all
aspects of the Company’s financial reporting.  Prior to joining Envoy,
Mr. Patient spent six years at BDO Dunwoody LLP in Canada and five years in
financial roles at startup internet technology companies in San Diego,
CA.  On January 1, 2009, Mr. Patient resigned as Director of Finance
and was appointed Chief Financial Officer of Envoy.




Geoffrey B.
Genovese:Mr.
Genovese founded The Incentive Design Company Ltd. (“IDC”), a business and
marketing communications company, in 1981. Envoy acquired IDC in July 1991. Mr.
Genovese was elected a Director of Envoy in July 1991 and Chairman in September
2001. On January 1, 2009, Mr. Genovese resigned as Chairman, President and Chief
Executive Officer of Envoy and was appointed a Director and President of Envoy
Monaco. Mr. Genovese is Chairman of the Board of Watt
International.





John H.
Bailey:Until October of 2008, Mr. Bailey was a lawyer who had
been in private practice since 1973. Mr. Bailey earned a Bachelor of Commerce
and a Bachelor of Laws degree from the University of Toronto and a Master of
Laws degree from York University. Mr. Bailey has been a Director of Envoy since
April 1994, Corporate Secretary since August 1997 and Executive Vice-President
since February 2004. On January 1, 2009, Mr. Bailey resigned as Executive Vice
President and Corporate Secretary and was appointed a Director, Executive Vice
President and Corporate Secretary of Envoy Monaco.





David
Hull:Mr. Hull has
been the President of Hull Life Insurance Agencies Inc. since May 1991. Hull
Life Insurance Agencies Inc. specializes in estate planning and life and
disability insurance. Prior thereto, Mr. Hull served as Executive Vice President
of Hull Life Insurance Agencies Ltd. and Thomas I. Hull Insurance Ltd., members
of The Hull Group of Companies. Mr. Hull has been a Director of Envoy since
January 1995 and was appointed Chairman of the Board of Envoy on January 1,
2009.





Linda Gilbert,
CA:Ms. Gilbert, a chartered accountant with over 10 years experience
working in a public company environment, is currently a consultant to
public companies on corporate reporting and compliance issues. Ms.
Gilbert previously served as Envoy’s Director of Finance from 1999 to 2003 and
Vice President and Chief Financial Officer from 2003 to 2005. Prior to
joining Envoy in 1999, Ms. Gilbert was a manager of KPMG LLP in Canada. Ms.
Gilbert was appointed a Director of Envoy on August 5, 2009.





David
Parkes:  Mr. Parkes is currently working for his Consulting
Company David Parkes & Assoc. Mr. Parkes was President and CEO of Freefone
Inc. until 2005. Prior to joining Freefone Inc. in 2003, Mr. Parkes founded
David Parkes & Assoc. in 2001. Mr. Parkes was President and CEO of Look
Communications Inc. until 2001 and President and CEO of TeleSpectrum Canada Inc.
until 1999. Mr. Parkes has been a Director of Envoy since October 2002. Mr.
Parkes is a director of SelectCore Ltd., a prepaid telecommunications provider
based in Ontario, Canada, and Mitec Telecom Inc., a Quebec, Canada based
designer and manufacturer of radio and amplifier equipment.


38
 Table of Contents


The Business Corporations Act
(Ontario) (“OBCA”) requires that at least 25% of Envoy’s directors be Canadian
residents. There are no arrangements or understandings between any director or
executive officer of Envoy with major shareholders, customers or others,
pursuant to which he or she was selected as such.





There are
no family relationships between any of the persons named above.





B.            Compensation




The
following table sets forth in, Canadian dollars all compensation for the fiscal
year ended September 30, 2009 paid to the principal executive officer of Envoy,
the principal financial officer of Envoy and the three other most highly
compensated officers who served as executive officers of the Company (the “Named
Executive Officers”):





Annual
      Compensation
            Long-Term
      Compensation
            All
      Other
              Compensation
              ($)Awards
            PayoutsName
      and
              Principal
              Position
            Salary
              ($)
            Bonus
              ($)
            Other
              Annual
              ($)
            Securities
              Under
              Option/SARs
              Granted
              (#)
            Restricted
              Shares
      or
              Restricted
              Share
      Units
              ($)
            LTIP
              Payouts
              ($)J.
      Joseph Leeder,
              President
      and Chief Executive Officer
            $329,167
            ---
            $18,000
            ---
            ---
            ---
            ---Andrew
      Patient,
              Chief
      Financial Officer
            $290,000
            ---
            $6,000
            ---
            ---
            ---
            ---Geoffrey
      B. Genovese,
              President
      and Director, Envoy Capital Group Monaco S.A.M.
            $1,172,076
      1
            ---
            ---
            ---
            ---
            ---
            ---John
      H. Bailey,
              Executive
      Vice President, Corporate Secretary and Director, Envoy Capital Group
      Monaco S.A.M.
            $545,030
      1
            ---
            ---
            ---
            ---
            ---
            ---Patrick
      Rodmell,
              President
      and Chief Executive Officer, Watt International Inc.
            $349,346
            $45,000
            ---
            ---
            ---
            ---
            ---





Notes:





1.   The
compensation of Messrs Genovese and Bailey are paid in Euros. During fiscal
2009, the average rate of exchange for the conversion of one Euro into Canadian
dollars was $1.6279 (Cdn $1.00 equals Euro 0.6143).


39
 Table of Contents


There
were no options granted under the Stock Option Plan to the Named Executive
Officers of the Company in the most recently completed fiscal year.





The
following table sets forth options exercised under the Stock Option Plan to the
Named Executive Officers of the Company in the most recently completed fiscal
year and the value of unexercised options held by them as at the most recent
fiscal year:





Stock
      Options Exercised During 2009 Fiscal YearName
            Number
      of Shares
              Acquired
      on
              Exercise
            Aggregate
              Value
      Realized
              ($)
            Unexercised
      Options at
              FY-End
      Exercisable/
              Unexercisable
              (#)
            Value
      of Unexercised In
              the
      Money Options at
              FY-End
              Exercisable/Unexercisable
              ($)Joseph
      Leeder
            Nil
            Nil
            nil/nil
            nil/nilAndrew
      Patient
            Nil
            Nil
            nil/nil
            nil/nilGeoffrey
      B. Genovese
            Nil
            Nil
            nil/nil
            nil/nilJohn
      H. Bailey
            Nil
            Nil
            nil/nil
            nil/nilPatrick
      Rodmell
            Nil
            Nil
            nil/nil
            nil/nil








The
Company does not provide any pension, retirement plan or other remuneration to
its directors or officers that constitutes an expense to the
Company.





Employment
Contracts and Termination Agreements:


The
Company and its subsidiaries, Watt International and Envoy Monaco, have entered
into employment contracts with the Named Executive Officers.





Joseph J.
Leeder has agreed to act as the Company’s President and Chief Executive Officer
at an annual base salary of $300,000, together with an annual bonus of up to
100% of salary, based on pre-set specific performance criteria approved
annually, in advance, by the Compensation Committee. This agreement also
provides for a severance payment equal to the greater of $800,000 and two times
the total remuneration and other compensation earned by Mr. Leeder during the
twelve month fiscal period of the Corporation immediately preceding the date of
termination, if Mr. Leeder’s employment is terminated, without cause, by the
Corporation. If there is a change of control (as defined) of the Corporation and
Mr. Leeder elects to resign within twelve months of the date on which the change
of control occurs, Mr. Leeder is entitled to receive a severance payment equal
to the same amount to which he would have been entitled if his employment had
been terminated by the Corporation, without cause.





Andrew
Patient has agreed to act as the Company’s Chief Financial Officer at an annual
base salary of $290,000.  This agreement also provides for a severance
payment equal to the greater of $290,000 and the total remuneration and other
compensation earned by Mr. Patient during the twelve month fiscal period of the
Corporation immediately preceding the date of termination, if Mr. Patient’s
employment is terminated, without cause, by the Corporation. If there is a
change of control (as defined) of the Corporation and Mr. Patient elects to
resign within twelve months of the date on which the change of control occurs,
Mr. Patient is entitled to receive a severance payment equal to the same amount
to which he would have been entitled if his employment had been terminated by
the Corporation, without cause.


40
 Table of Contents


Geoffrey
B. Genovese has agreed to act as the President and Chief Executive Officer of
Envoy Monaco at an annual base salary of 720,000 Euros (Cdn $1,172,088),
together with an annual bonus of up to 100% of salary, based on pre-set specific
performance criteria approved annually, in advance, by the Compensation
Committee of the Company. This agreement provides for a severance payment equal
to the greater of (1) 3,950,000 Euros (Cdn $6,430,205) and (2) an amount equal
to 200,000 Euros (Cdn $325,580) plus an amount equal to three times the total
remuneration and other compensation paid to Mr. Genovese during (a) the 12 month
fiscal period of Envoy Monaco immediately preceding termination (the “First 12
Month Fiscal Period”) or (b) the 12 month fiscal period of Envoy Monaco
immediately preceding the First 12 Month Fiscal Period (the “Second 12 Month
Fiscal Period”) or (c) the 12 month fiscal period of Envoy Monaco immediately
preceding the Second 12 Month Fiscal Period, whichever is greater, if Mr.
Genovese’s employment is terminated, without cause, by Envoy Monaco or if there
is a change of control of the Company and Mr. Genovese elects to terminate his
employment with Envoy Monaco. In addition, if there is a change of control of
the Company, Mr. Genovese is entitled to receive, at the sole discretion of the
Compensation Committee of the Company, a one-time bonus of up to a maximum of
700,000 Euros (Cdn $1,139,530). All amounts payable to Mr. Genovese by Envoy
Monaco under this agreement have been guaranteed by the Company.





John H.
Bailey has agreed to act as Executive Vice President and Corporate Secretary of
Envoy Monaco at an annual base salary of 350,000 Euros (Cdn $569,765). Mr.
Bailey is also eligible to receive, in the total discretion of the Compensation
Committee of the Company, an annual bonus, based on pre-set specific performance
criteria approved annually, in advance, by the Compensation Committee. This
agreement provides for a severance payment of an amount equal to three times the
total remuneration and other compensation paid to Mr. Bailey during (a) the 12
month fiscal period of Envoy Monaco immediately preceding termination (the
“First 12 Month Fiscal Period”) or (b) the 12 month fiscal period of Envoy
Monaco immediately preceding the First 12 Month Fiscal Period (the “Second 12
Month Fiscal Period”) or (c) the 12 month fiscal period of Envoy Monaco
immediately preceding the Second 12 Month Fiscal Period, whichever is greater,
if Mr. Bailey’s employment is terminated, without cause, by Envoy Monaco or if
there is a change of control of the Company and Mr. Bailey elects to terminate
his employment with Envoy Monaco. The severance payment will not be less than
1,050,000 Euros (Cdn $1,709,295) if the First 12 Month Fiscal Period is less
than 12 full months. All amounts payable to Mr. Bailey by Envoy Monaco under
this agreement have been guaranteed by the Company.


Patrick
Rodmell has agreed to act as the President and Chief Executive Officer of Watt
International Inc. at an annual base salary of $350,000.00, together with an
annual cash bonus based on the performance of Watt International Inc. This
agreement provides for a severance payment equivalent to his base salary for a
period of one year, if his employment is terminated, without cause, by Watt
International Inc.


41
 Table of Contents


Compensation
of Directors:




All
non-executive directors of the Company or any of its affiliates are compensated
for their services as directors and members of a committee through a combination
of annual and meeting attendance fees. The non-executive directors, David Hull,
David Parkes and Linda Gilbert, are each entitled to receive an annual
director’s/committee member’s fee of $30,000. The Chair of each of the Audit
Committee, the Compensation Committee and the Nominating and Corporate
Governance Committee receives an additional annual fee of $40,000, $20,000 and
$5,000, respectively. In addition, each non-executive director receives an
attendance fee of $1,000 for each Board or committee meeting attended. No
compensation is paid to the other directors who are also executive officers, for
their services as directors. Directors are also entitled to participate in the
Company’s Stock Option Plan.





In the
fiscal year ended September 30, 2009, the Company paid approximately $7,500 to
John H. Bailey Professional Corporation for legal services provided to the
Company. John H. Bailey Professional Corporation is wholly-owned by John H.
Bailey.





Directors’
and Officers’ Liability Insurance:





The
Company maintains liability insurance for the benefit of the directors and
officers of the Company and its subsidiaries against liability incurred by them
in their respective capacities. The current annual policy limit is $5,000,000.
Under the policy, individual directors and officers are reimbursed for losses
incurred in their capacities as such, subject to a deductible of $250,000 for
claims arising in the United States and $150,000 for all other claims. The
deductible is the responsibility of the Company. The Company paid the annual
premium of $50,000.





C.            Board
Practices




Corporate
Governance:




The
Company is subject to a variety of corporate governance guidelines and
requirements enacted by the CSA, The Nasdaq Capital Market (“Nasdaq”) and by the
SEC under its rules and those mandated by the United States Sarbanes-Oxley Act
of 2002. During the recent past, there were several changes to the corporate
governance and corporate governance disclosure requirements applicable to the
Company. Specifically, the Canadian Securities Administrators introduced in
final form National Instrument 58-101 - Disclosureof Corporate Governance Practices(“NI 58-101”) and National Policy 58-201 - Corporate Governance Guidelines(“National Policy 58-201”), both of which came into force on
June 30, 2005 and effectively replaced the Corporate Governance Guidelines
of the Toronto Stock Exchange.





The
Company is required to disclose certain specified corporate governance
information under NI 58-101. The disclosure required addresses items such as the
constitution and independence of corporate boards, the functions to be performed
by boards and their committees, the orientation and education of directors,
ethical business conduct and compensation matters. Set out below is a
description of certain corporate governance practices of the Company, required
by NI 58-101.


42
 Table of Contents


As new
regulations come into effect, the Nominating and Corporate Governance Committee
and the Company’s Board of Directors (the “Board”) will continue to review the
Company’s corporate governance practices and make appropriate
changes.





Board
of Directors:




The
articles of the Company provide that there shall be a Board of not less than
three or more than ten directors. There are currently five directors on the
Board. National Policy 58-201 recommends that boards of directors of reporting
issuers be composed of a majority of “independent” directors (within the meaning
of such term in NI 58-101).





The
Board, on the recommendation of the Nominating and Corporate Governance
Committee, is responsible for determining whether or not each director is
independent. To achieve this, the Board analyses all of the relationships each
director has with the Company and its subsidiaries in light of the concept of
independence in NI 58-101 and director independence standards adopted by the
Board. These standards are available in the Governance section of the Company’s
website at www.envoy.to. In general, a director who meets these standards and
who does not otherwise have a material relationship with the Company would be
considered independent. Based on the information provided by each director, and
having considered the independence standards mentioned above, the Board
determined that three of the Company’s five directors are independent within the
meaning of such term in NI 58-101. Therefore, the Board is composed of a
majority of independent directors.





The three
independent directors are: David Hull, David Parkes and Linda Gilbert. Two
directors have material relationships with the Company and are therefore not
independent. Mr. Geoffrey Genovese, President and Chief Executive Officer of
Envoy Monaco, is considered to have a material relationship with the Company by
virtue of his executive officer position. Mr. John Bailey is considered to have
a material relationship with the Company by virtue of his position as Executive
Vice President and Corporate Secretary of Envoy Monaco.





The
current Chairman of the Board is David Hull, who is an independent director. The
Chairman chairs meetings of directors without management present. The Board has
determined that the Chairman shall be appointed by the Board based on the
recommendations of the Nominating and Corporate Governance Committee. On January
1, 2009, David Hull was appointed the Chairman of the Board.





Where
appropriate, the directors meet without management following Board meetings and
at meetings of independent directors. The Board also meets without the President
and Chief Executive Officer when his performance and compensation are being
discussed. Since October 1, 2008, the independent directors have held five
meetings without non-independent directors present.  In addition, the
Compensation Committee held three meetings, the audit committee held ten
meetings and the Nominating and Corporate Governance Committee held one meeting
since October 1, 2008.


43
 Table of Contents


Between
October 1, 2008 and November 30, 2009, inclusive, the Board held 11 meetings.
The attendance of the directors at such meetings was as follows:




Director
            Board Meetings Attended2Hugh
      Aird 1
            8  of  9John
      Bailey
            11  of  11Geoff
      Genovese
            11  of  11Linda
      Gilbert 1
            2  of  2David
      Hull
            10  of  11David
      Parkes
            11  of  11





Note:




1. Mr.
Hugh Aird resigned as a Director and member of the three Board Committees on
July 28, 2009 and was replaced as a Director and a member of the three Board
Committees on August 5, 2009 by Ms. Linda Gilbert.





2. In
addition, Messrs. David Hull and David Parkes attended five meetings of the
independent directors (at which Messrs. Genovese and Bailey were not eligible to
attend), ten meetings of the Audit Committee, three meetings of the Compensation
Committee and one meeting of the Nominating and Corporate Governance Committee.
Mr. Hugh Aird also attended three meetings of the independent directors, six
meetings of the Audit Committee and three meetings of the Compensation
Committee. Ms. Linda Gilbert also attended two meetings of the independent
directors and  four meetings of the Audit Committee.





Mandate
of the Board:




The Board
has adopted a Board Mandate, under the title “Envoy Capital Group Inc. —
Corporate Governance Guidelines”. A copy of this Board Mandate is available in
the Governance section of the Company’s website at www.envoy.to, and is
incorporated by reference herein as Exhibit 11.3 to this Form 20-F.





The Board
has the responsibility for the overall stewardship of the Company, establishing
the overall policies and standards for the Company in the operation of its
businesses, and reviewing and approving the Company’s strategic plans. In
addition, the Board monitors and assesses overall performance and progress in
meeting the Company’s goals. Day-to-day management is the responsibility of the
President and Chief Executive Officer and senior management.





In
addition to the Board’s statutory responsibilities under the OBCA, the Board’s
“stewardship” responsibilities include the following: (a) assessing the
principal risks arising from or incidental to the business activities of the
Company; (b) appointing all senior executives of the Company and, through the
Compensation Committee of the Board, developing and implementing the executive
compensation policies and reviewing the performance of the President and Chief
Executive Officer with reference to the Company’s policies, stated budget and
other objectives; (c) overseeing the Company’s policies regarding public
communications, investor relations and shareholder communications; and (d)
monitoring and assessing, through the Audit Committee of the Board, the scope,
implementation and integrity of the Company’s internal information, audit and
control systems.


44
 Table of Contents


Board
Committees:




The
directors have established the Audit Committee, the Compensation Committee and
the Nominating and Corporate Governance Committee to focus resources and
expertise in certain areas of the Board’s mandate.





(a)  Audit
Committee




The Audit
Committee is comprised of three directors, David Parkes (Chair), David Hull and
Linda Gilbert. All three members of the Audit Committee are independent
directors of the Company. Among other things, the Audit Committee is responsible
for reviewing the Company’s annual and quarterly consolidated financial
statements and reporting to the Board in connection therewith. On September 22,
2004 (amended on December 4, 2009), the Audit Committee adopted a new Audit
Committee Charter, which specifies the auditor’s accountability to the Board and
the authority and responsibilities of the Audit Committee in compliance with
National Instrument 52-110 – Audit Committees. A copy of the Audit Committee
Charter is available in the Governance section of the Company’s website at
www.envoy.to, and is incorporated by reference herein as Exhibit 15.1 to this
Form 20-F.





(b)  Compensation
Committee




The
purpose of the Compensation Committee is to assist the Board in its oversight
responsibilities relating to the compensation, nomination, evaluation and
succession of the executive officers of the Company; the administration of the
Company’s Stock Option/Stock Appreciation Right Plan; and the review of
executive compensation disclosure. The Compensation Committee is comprised of
three directors, David Hull (Chair), Linda Gilbert and David Parkes, all of whom
are independent directors. A copy of the Compensation Committee Charter is
available in the Governance section of the Company’s website at www.envoy.to,
and is incorporated by reference herein as Exhibit 15.2 to this Form
20-F.





(c)  Nominating and Corporate Governance
Committee




The Board
has delegated to the Nominating and Corporate Governance Committee of the Board
responsibility for co-coordinating and managing the process of recruiting,
interviewing and recommending candidates to the Board; developing and
recommending standards of performance of the Board as a whole, its committees
and individual directors; assessing the effectiveness of the Board as a whole
and its committees and the contribution of individual directors; making
recommendations to the Board regarding the composition of committees of the
Board; providing new directors with an orientation program through a review of
past Board materials and other public and private documents concerning the
Company; reviewing and making recommendations to the Board with respect to
developments in the area of corporate governance and the structure and practices
of the Board; and reviewing and assessing compliance by the Company with
applicable corporate governance rules and guidelines established by securities
regulators and stock exchanges. The Nominating and Corporate Governance
Committee is comprised of three independent directors, Linda Gilbert (Chair),
David Hull and David Parkes. A copy of the Nominating and Corporate Governance
Committee Charter is available in the Governance section of the Company’s
website at www.envoy.to, and is incorporated by reference herein as Exhibit 15.3
to this Form 20-F.


Position
Descriptions:


45
 Table of Contents


The Board
has a broad responsibility for supervising the management of the business and
affairs of the Company. The Chairman of the Board is responsible for
establishing the Agenda for each Board meeting and ensuring agenda items are
dealt with. The Board has not found it necessary to develop specific position
descriptions for the Chair of Board committees. The Board is currently of the
view that the general mandates of committees on which such directors may sit are
sufficient to delineate the role and responsibilities of the Chair of each
committee.





The
Company’s by-laws state that the Chief Executive Officer of the Company shall
exercise general supervision over the affairs of the Company. The Board has not
found it necessary to develop a specific position description for the Chief
Executive Officer beyond this description.





Orientation
and Continuing Education:




New
directors are given the opportunity to individually meet with members of senior
management to improve their understanding of the Company’s business. All
directors have regular access to senior management to discuss Board
presentations and other matters of interest.





The
Company also gives directors a reference manual, which contains information
about the Company’s history and current status, corporate governance materials,
its investments and its shareholders. This reference manual is updated
regularly. It includes the Company’s Code of Business Conduct, which also
applies to the directors, as well as governance and responsibilities of the
Board and its committees, and a description of the duties and obligations of
directors. As part of its mandate, the Nominating and Corporate Governance
Committee is also responsible for providing orientation and continuing education
for all board members, including reimbursing costs of attending certain outside
director education programs. During their regular scheduled Board meetings,
directors are given presentations on various aspects of the Company’s
business.





Nomination
of Directors:




The
members of the Company’s Nominating and Corporate Governance Committee are all
independent directors. The Nominating and Corporate Governance Committee has the
responsibility for assessing potential Board nominees, screening their
qualifications and making recommendations for approval by the Board of nominees
for election or appointment to the Board. To help achieve this task, the
Nominating and Corporate Governance Committee develops qualifications and
criteria for the selection of directors.





The Board
aims to have a sufficient range of skills, expertise and experience to ensure
that it can carry out its responsibilities effectively. Directors are chosen for
their ability to contribute to the broad range of issues that the Board must
deal with. The Board reviews each director’s contribution through the Nominating
and Corporate Governance Committee and determines whether the Board’s size
allows it to function efficiently and effectively. The Nominating and Corporate
Governance Committee is mandated to review the size of the Board from time to
time and recommend changes in size when appropriate.


46
 Table of Contents


Each
year, the Nominating and Corporate Governance Committee reviews how directors
are compensated for serving on the Board and its committees. It compares their
compensation to that of similar companies and recommends any changes to the
Board. In 2004, the Board conducted a review of the compensation of
non-management directors. This was partly to address the risks and
responsibilities associated with being an effective director. As a result, a new
compensation arrangement was adopted for these non-management directors, which
came into effect on October 1, 2004. All non-management directors of the Company
are compensated for their services as directors and members of a committee
through a combination of annual and meeting attendance fees. Messrs. Hull and
Parkes and Ms. Gilbert are each entitled to receive an annual
director’s/committee member’s fee of $30,000.00. The Chair of each of the Audit
Committee, the Compensation Committee and the Nominating and Corporate
Governance Committee receives an additional annual fee of $40,000, $20,000 and
$5,000, respectively. In addition, each director receives an attendance fee of
$1,000 for each Board or committee meeting attended. No compensation is paid to
the other directors, who are also executive officers, for their services as
directors. Directors are also entitled to participate in the Company’s Stock
Option Plan.





Other
Board Committees:




The Board
has not established any committees other than the Audit Committee, the
Compensation Committee and the Nominating and Corporate Governance
Committee.





Assessments:




As part
of its charter, the Nominating and Corporate Governance Committee is required to
survey every year all directors on the effectiveness and performance of the
Board and the Board’s committees, as well as individual directors. This is done
primarily by distributing questionnaires to each director and will often include
individual interviews with the Chair of the Nominating and Corporate Governance
Committee.





The
Company’s Board Mandate states that the Nominating and Corporate Governance
Committee will report to the Board annually on the evaluation of the performance
of the Board, each of its committees and that of individual directors, based on
the results of the directors’ annual questionnaire.





Shareholder
Communication:




The
objective of the Company’s shareholder communication policy is to ensure open
and timely exchange of information relating to the Company’s business, affairs
and performance, subject to the requirements of applicable securities
legislation and other statutory and contractual obligations limiting the
disclosure of such information. Information material to the Company’s business
is released through news wire services, the general media, telephone conferences
and shareholder mailings, thereby ensuring timely dissemination. Additionally,
individual queries, comments or suggestions can be made at any time directly to
the Company’s secretarial department located at its head office.




D.  Employees




As at
November 30, 2009, Envoy had 67 full-time employees based in Toronto, Canada, 2
employees based in Monaco and 1 based in the United States. Of this total, 65
employees were engaged in consumer and retail branding and 5 were engaged in
merchant banking.


47
 Table of Contents


As at
November 30, 2008, Envoy had 87 full-time employees based in Toronto, Canada, 12
employees based in Dubai, UAE and 2 based in the United States. Of this total,
97 employees were engaged in consumer and retail branding and 4 were engaged in
merchant banking.





As at
November 30, 2007, Envoy had 77 full-time employees based in Toronto, Canada and
1 based in the United States. Of this total, 73 employees were engaged in
consumer and retail branding and 4 were engaged in merchant
banking.





E.  Share
Ownership




As of
September 30, 2009, there were no options or other rights to purchase common
shares of Envoy.





Options





Stock
Option Plan





The
Company has established a Stock Option Plan pursuant to which options to
purchase common shares and stock appreciation rights may be granted to
directors, officers, employees or certain consultants to the Company or any of
its subsidiaries, as determined by the Board, at prices to be fixed by the
directors, subject to limitations imposed by any Canadian stock exchange on
which the common shares are listed for trading and any other regulatory
authority having jurisdiction in such matters. The common shares subject to each
option shall become purchasable at such time or times as may be determined by
the directors. Stock appreciation rights (“SARs”) may only be granted in
conjunction with an option and, when exercised, entitle the holder to receive an
amount equal in value to the excess of the market value of the common shares
over the price of the related option. The excess amount is payable in common
shares having a market value equal to such excess. Options are non-assignable
and non-transferable by the option-holder and shall be exercisable during the
option-holder’s lifetime only by the option-holder. Stock appreciation rights
are non-transferable and terminate when the related option
terminates.





The
maximum number of common shares currently reserved for issuance upon exercise of
options under the Stock Option Plan is 800,000 common shares. As at September
30, 2009 there are no outstanding options to purchase common shares under the
Stock Option Plan. There are no SARs outstanding under the Stock Option Plan.
The aggregate number of common shares reserved for issuance to any one
individual under the Stock Option Plan may not exceed 5% of the issued and
outstanding common shares.





The
following table sets forth shares owned by the Named Executive Officers and
Directors as of November 30, 2009:





Number
      of Common
            
            Percent
      ofIdentity of Person
            Shares Owned
            
            Outstanding ClassGeoffrey
      Genovese
            1,691,083
            
            
            19.8%Joseph
      Leeder
            nil
            
            
            nilAndrew
      Patient
            nil
            
            
            nilPatrick
      Rodmell
            13,333
            
            
            0.2%John
      H. Bailey
            1,085,233
            
            
            12.7%Linda
      Gilbert
            1,000
            
            
            0.1%David
      Hull
            55,700
            
            
            0.7%David
      Parkes
            10,000
            
            
            0.1%


48
 Table of Contents


Item 7:  Major
Shareholders And Related Party Transactions




A.          Major
Shareholders




Ownership
of Envoy’s securities are recorded on the books of its transfer agent in
registered form, however the majority of such shares are registered in the name
of intermediaries such as brokerage firms and clearing houses on behalf of their
respective clients and in general Envoy does not have knowledge of the
beneficial owners thereof, except for the beneficial ownership by officers and
directors of Envoy. Envoy is not directly or indirectly owned or controlled by
another corporation or entity or by any foreign government. Envoy is not a party
to any arrangement, and does not know of any other arrangements, the operation
of which may at a subsequent date result in a change in control of
Envoy.





At a
special meeting of the shareholders Envoy held on March 30, 2007, the
shareholders approved an amendment to the Articles of the Company to increase
its authorized share capital from 40,000,000 common shares to an unlimited
number of common shares.





As of
November 30, 2009, Envoy had an authorized share capital of unlimited common
shares without par value, of which 8,558,377 common shares were issued and
outstanding.





On
January 15, 2005, the Company’s board of directors approved the consolidation of
the common shares (a reverse stock split) on the basis of a 1 common share for
every 5 common shares outstanding. On January 21, 2005 the Company filed
Articles of Amendment consolidating its common shares on the basis of 1 new
common share for every 5 common shares outstanding. The effective date for post
consolidation trading of the shares was February 10, 2005. Amounts shown for
shares and earnings per share figures for all periods presented have been
adjusted to give effect to the share consolidation.





As of
November 30, 2009, there were no outstanding common share purchase
warrants.  The Company previously had 5,526,317 transferable common
share purchase warrants outstanding, however, these expired February 20,
2009.


49
 Table of Contents


The
following table sets forth certain information regarding the ownership of
outstanding common shares of Envoy as of November 30, 2009 with respect to each
person known by Envoy to be the beneficial owner or, in the case of Envoy
directors or Executive Officers, the beneficial owner of more than 2.5% of
Envoy’s outstanding common shares.  As used in this table, “beneficial
ownership” refers to the sole or shared power to vote or direct the voting or to
dispose or direct the disposition of any security. A person is deemed to be the
beneficial owner of securities that can be acquired within 60 days from the date
of this Form 20-F through the exercise of any option, warrant or right. Common
shares subject to options, warrants or rights which are currently exercisable or
exercisable within 60 days are deemed outstanding for computing the ownership
percentage of the person holding such options, warrants or rights, but are not
deemed outstanding for computing the ownership percentage of any other person.
During fiscal 2009, two of Envoy’s executives and directors acquired significant
positions in the common shares of the Company.  On September 3, 2009,
Geoffrey B. Genovese filed Form 13D with the Securities and Exchange Commission
indicating ownership of 1,691,083 common shares, representing 19.8% of the total
outstanding.  In addition, on September 8, 2009, John H. Bailey filed
a Form 13D indicating that he owned 1,085,233 of the Company’s common shares,
representing 12.7% of the total outstanding.  To the best of our
knowledge, no other significant change in the percentage ownership of any major
shareholder of the Company has taken place during the past three years, with the
exception of Messrs. Steven N. Bronson and Richard L. Scott, who owned 10.2% and
9.8% of the common shares at November 30, 2006, respectively.  Both
Messrs. Bronson and Scott tendered their shares under the Company’s substantial
issuer bid, as discussed in Item 16E,




Number
      ofIdentity
      of
            Common
      Shares
            Percent
      ofPerson or Group
            Beneficially Owned
            Outstanding ClassGeoffrey
      B. Genovese
            1,691,083
            19.8%John
      H. Bailey
            1,085,233
            12.7%







See also
Item 6.E “Share Ownership” for information regarding outstanding stock options
to purchase common shares.





As of
November 30, 2009 there were 8,558,377 outstanding common shares of Envoy of
which 1,232,149 were held of record by 4 Non-U.S. residents and 7,326,228 were
held of record by 19 U.S. residents. The foregoing information regarding the
number and the country of residence of Envoy’s shareholders does not reflect
those shareholders whose shares are being held of record by brokerage clearing
houses and in general the ultimate beneficial owners of these shares are not
known to Envoy. The Company’s major shareholders do not have different voting
rights.




B.            Related
Party Transactions




As
disclosed in Note 8 to the Financial Statements, the following are transactions
that took place during fiscal 2009 and prior that involved related
parties:





During
fiscal 2009, the Company paid $7,500 (2008 - $215,000; 2007 - $244,786) for
legal services to a director of the Company.  In November 2008, this
director became an employee of the Company.





In
November, 2008, the company established a new subsidiary in the principality of
Monaco, Envoy Monaco.  As part of the local requirements of
incorporation, the two directors of Envoy Monaco, who are residents of Monaco,
acquired a 0.1% share interest in ECGM (total of 0.2%) at a cost 5,000 Euros
each.


50
 Table of Contents


In April
2007, Envoy founded Sereno Capital Corporation (“Sereno”), a Capital Pool
Company, under the specific provisions of the TSX-V program.  During
the year, the Company invested $200,000 in Sereno and at September 30, 2009
Envoy owned an approximate 28% interest.  Members of Envoy’s
management group are also officers and directors of Sereno and exercise
significant influence. The investment in Sereno has been accounted for using the
equity method.





These
transactions were recorded at the exchange amount, being the amount agreed to by
the related parties, as the transactions were considered to be in the ordinary
course of business.





Except as
disclosed above, no director or executive officer, and no relative or spouse of
the foregoing persons (or relative of such spouse) who has the same house as
such person or is an executive officer or director of any parent or subsidiary
of Envoy has, or during the last fiscal year of Envoy had, any material
interest, direct or indirect, in any transactions, or in any proposed
transaction, which in either such case has materially affected or will
materially affect Envoy.





There are
no outstanding loans currently owed to Envoy by any director or executive
officer.





Under the
applicable Canadian provincial securities laws, insiders (generally officers and
directors of Envoy and its subsidiaries) are required to file individual insider
reports of changes in their ownership in Envoy’s securities within 10 days from
the day on which the change takes place.  Copies of such reports may
be accessed by the public via the System for Electronic Disclosures by Insiders
at www.sedi.ca.





C.        Interests
of Experts and Counsel





Not
applicable.








Item 8:  Financial
Information





See Item
17 “Financial Statements”.








Item 9:  The Offer
and Listing





A.          Price
History




Envoy’s
common shares are listed for trading on the TSX under the symbol “ECG” and on
Nasdaq under the symbol “ECGI”. The common shares began trading on Nasdaq on
June 6, 2000 and on the TSX on September 3, 1997. From March 1984 until
September 2, 1997 Envoy’s shares traded on the Vancouver Stock
Exchange.





On
February 10, 2005, Envoy’s common shares were consolidated (reverse stock split)
on the basis of 1 new common share for every 5 common shares outstanding. The
data presented for periods prior to that date are adjusted accordingly for
comparability.




51
 Table of Contents





The
following table sets forth the reported high and low sale prices in Canadian
dollars for the common shares on the TSX for the fiscal, quarterly and monthly
periods indicated.





High
            
            
            LowFiscal
      2005
            
            $
            4.50
            
            
            $
            2.30Fiscal
      2006
            
            
            2.70
            
            
            
            1.50Fiscal
      2007
            
            
            4.71
            
            
            
            2.35Fiscal
      2008
            
            
            3.24
            
            
            
            2.00Fiscal
      2009
            
            
            2.34
            
            
            
            1.10Quarterly
      2009First
      Quarter
            
            
            2.15
            
            
            
            1.10Second
      Quarter
            
            
            1.75
            
            
            
            1.10Third
      Quarter
            
            
            2.34
            
            
            
            1.43Fourth
      Quarter
            
            
            2.33
            
            
            
            1.33High
            
            
            LowQuarterly
      2008First
      Quarter
            
            
            3.24
            
            
            
            2.72Second
      Quarter
            
            
            3.05
            
            
            
            2.00Third
      Quarter
            
            
            3.14
            
            
            
            2.37Fourth
      Quarter
            
            
            2.60
            
            
            
            2.00For
      the month endingNovember
      30, 2009
            
            
            1.32
            
            
            
            1.22October
      31, 2009
            
            
            1.49
            
            
            
            1.23September
      30, 2009
            
            
            1.74
            
            
            
            1.33August
      31, 2009
            
            
            1.85
            
            
            
            1.57July
      31, 2009
            
            
            2.33
            
            
            
            1.70June
      30, 2009
            
            
            2.34
            
            
            
            1.59




52
 Table of Contents


The
following table sets forth the reported high and low sale prices in U.S. dollars
of trading for the common shares as reported on Nasdaq for the fiscal, quarterly
and monthly periods indicated.




High
            
            
            LowFiscal
      2005
            
            $
            U.S.
      3.75
            
            
            $
            U.S.
      1.80Fiscal
      2006
            
            
            2.36
            
            
            
            1.31Fiscal
      2007
            
            
            4.07
            
            
            
            2.13Fiscal
      2008
            
            
            3.39
            
            
            
            1.90Fiscal
      2009
            
            
            2.09
            
            
            
            0.82Quarterly
      2009First
      Quarter
            
            
            2.04
            
            
            
            0.82Second
      Quarter
            
            
            1.59
            
            
            
            1.02Third
      Quarter
            
            
            2.09
            
            
            
            1.16Fourth
      Quarter
            
            
            2.00
            
            
            
            1.22Quarterly
      2008First
      Quarter
            
            
            3.39
            
            
            
            2.71Second
      Quarter
            
            
            3.04
            
            
            
            2.23Third
      Quarter
            
            
            3.22
            
            
            
            2.37Fourth
      Quarter
            
            
            2.66
            
            
            
            1.90High
            
            
            LowFor
      the month ending.November
      30, 2009
            
            
            1.24
            
            
            
            1.13October
      31, 2009
            
            
            1.40
            
            
            
            1.15September
      30, 2009
            
            
            1.59
            
            
            
            1.22August
      31, 2009
            
            
            1.79
            
            
            
            1.43July
      31, 2009
            
            
            2.00
            
            
            
            1.55June
      30, 2009
            
            
            2.09
            
            
            
            1.38





On
November 30, 2009 the closing price of the common shares as reported on the TSX
was $1.26 and on NASDAQ was U.S. $1.20.


53
 Table of Contents


B.  Plan
of Distribution




Not
applicable.





C.  Markets




See above
Item 9.A. “Price History” for disclosure on Markets.





D.  Selling
Shareholders




Not
applicable.





E.  Dilution




Not
applicable.





F.  Expenses
of the Issue




Not
applicable.





Item
10:  Additional Information




A.  Share
Capital




Not
applicable.





B.  Memorandum
and Articles of Association




Envoy’s
Articles of Incorporation and By-Laws were previously filed as an Exhibit to its
Annual Report on Form 20-F, dated May 15, 2000 for the fiscal year ended
September 30, 1999.  Subsequent amendments to Envoy’s Articles of
Incorporation, dated January 9, 2004 and January 21, 2005, were previously filed
as an Exhibit to its Annual Report on Form 20-F, dated December 29, 2005 for the
fiscal year ended September 30, 2005. A subsequent amendment to Envoy’s Articles
of Incorporation dated March 30, 2007 were previously filed as an Exhibit to its
Annual Report on Form 20-F, dated December 24, 2008 for the fiscal year ended
September 30, 2008.





C.  Material
Contracts




None.





D.  Exchange
Controls and Other Limitations Affecting Security Holders




In
general, there is no governmental law, decree or regulation in Canada that
restricts the export or import of capital, or that affects the remittance of
dividends, interest or other payments to a non-resident holder of common shares
of Envoy, other than withholding tax requirement.  See Item l0.E.
“Taxation”.





There is
no limitation imposed by the laws of Canada, the laws of Ontario or British
Columbia or by the charter or other constituent documents of Envoy on the right
of a non-resident to hold or vote common shares of Envoy, other than as provided
in the Investment Canada Act (Canada) (the “Investment Act”) . The following
discussion summarizes the material provisions of the Investment Act which relate
to the acquisition by a non-resident of common shares of Envoy. This summary is
not a substitute for independent advice from an investor’s own advisor, and it
does not take into account any future statutory or regulatory
amendments.


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The
Investment Act generally prohibits implementation of a reviewable investment by
an individual, government or an entity (corporate or non-corporate) that is not
a “Canadian” as defined in theInvestment Act (a
“non-Canadian”) , unless after review the minister responsible for the
Investment Act (the “Minister’) is satisfied that the investment is likely to be
of net benefit to Canada. An acquisition of control (as defined in the
Investment Act) of Envoy by a non-Canadian, other than a WTO investor (as
defined in the Investment Act) at any time Envoy is not controlled by a WTO
investor, is reviewable under the Investment Act if the value of the assets of
Envoy is over $5,000,000 for a direct acquisition and over $50,000,000 for an
indirect acquisition or if an order for review is made by the Federal Cabinet on
the grounds that the investment relates to Canadian
culture.  Acquisition of control  (as defined by the
Investment Act) of Envoy by a WTO investor, or by a non-Canadian at any time
Envoy is controlled by a WTO investor, is reviewable under the Investment Act if
the value of the assets of Envoy exceeds the threshold of $312,000,000 in
2009.  There are also special provisions of the Investment Act
applicable to transactions that may be injurious to national
security.





Certain
transactions relating to common shares of Envoy would be exempt from the
Investment Act including:





(a)  an
acquisition of common shares of Envoy by a person in the ordinary course of that
person’s business as a trader or dealer in securities;




(b)  an
acquisition of control of Envoy in connection with the realization of security
granted for a loan or other financial assistance and not for a purpose related
to the provision of the Investment Act;




(c)  an
acquisition of control of Envoy by reason of an amalgamation, merger,
consolidation or corporate reorganization following; which the ultimate direct
or indirect control in fact of Envoy through the ownership of common shares,
remained unchanged;




(d)  an
acquisition of voting interests by any person in the ordinary course of a
business carried on by that person that consists of providing, in Canada,
venture capital on terms and conditions not inconsistent with such terms and
conditions as may be fixed by the Minister; and




(e)  an
acquisition of control of a Canadian business for the purpose of facilitating
its financing and not for any purpose related to the provisions of the
Investment Act on the condition that the acquirer divest itself of control
within two years after it is acquired or within such longer period as is
approved by the Minister.





E.        Taxation




Certain
Canadian Federal Income Tax Considerations




The
following discussion is intended to be a general summary of certain material
Canadian federal income tax considerations applicable to holders of common
shares described below and is not intended to be, nor should it be construed to
be, legal or tax advice to any particular person, and no opinion or
representation with respect to income tax considerations is hereby given or
made. It does not take into account the particular circumstances of any investor
and does not address considerations applicable to an investor to whom special
provisions of Canadian income tax law apply. Each person should consult their
own tax advisors with respect to the tax consequences of an investment in the
common shares in their own particular circumstances.


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The
following summary is based upon the current provisions of the Income Tax Act
(Canada) (the “ITA”), and the regulations thereunder and the Canada- United
States Income Tax Convention (1980) as amended (the “Convention”), all proposed
amendments to the ITA and the regulations thereunder publicly announced by the
Department of Finance, Canada prior to the date hereof, and the current
published administrative policies and assessing practices of the Canada Revenue
Agency. Except for the foregoing, this summary does not take into account or
anticipate any changes in the law or the Convention or the administrative
policies or assessing practices of the Canada Revenue Agency whether by
legislative, governmental or judicial action or decision, and does not take into
account or anticipate provincial, territorial or foreign tax legislation or
considerations, which may differ significantly from the Canadian federal income
tax considerations described herein.





The
summary discusses the principal Canadian federal income tax considerations under
the ITA and the regulations thereunder generally applicable to purchasers of
common shares who at all times:  (i) for purposes of the ITA, are not,
have not been and will not be or be deemed to be resident in Canada while they
held or hold common shares, deal at arm’s length with Envoy, are not affiliated
with Envoy, hold their common shares as capital property, do not use or hold,
and will not and will not be deemed to use or hold their common shares in, or in
the course of carrying on a business in Canada, and are not “financial
institutions” for the purposes of the mark-to-market rules; and (ii) for
purposes of the Convention, are residents of the U.S. and not residents of
Canada, are “qualifying persons” entitled to the benefits of the Convention, and
will not hold their common shares as part of the business property of, or so
that their common shares are effectively connected with, a permanent
establishment in Canada or in connection with a fixed base in Canada (a “U.S.
Holder”).  Special rules, which are not discussed in this summary, may
apply to a U.S. Holder that is an insurer carrying on a business in Canada and
elsewhere.





Amounts
in respect of common shares paid or credited or deemed to be paid or credited
as, on account or in lieu of payment of, or in satisfaction of, dividends to a
U.S. Holder will generally be subject to Canadian non-resident withholding tax.
Such withholding tax is levied at a rate of 25%, which may be reduced pursuant
to the terms of the Convention. Under the Convention, the rate of Canadian
non-resident withholding tax on the gross amount of dividends beneficially owned
by a U.S. Holder is generally 15%. However, in certain circumstances, the rate
of such withholding is 5%.





A U.S.
Holder will not be subject to tax under the ITA in respect of any disposition of
common shares (other than a disposition to Envoy) unless at the time of such
disposition such common shares constitute “taxable Canadian property” of the
holder for purposes of the ITA. If the common shares are listed on a designated
stock exchange for the purposes of the ITA, such as the TSX, at the time they
are disposed of, they will generally not constitute “taxable Canadian property”
of the U.S. Holder at the time of disposition of such shares unless at any time
during the 60-month period immediately preceding the disposition of the common
shares, 25% or more of the issued shares of any class or series of Envoy was
owned by the U.S. Holder, by persons with whom the U.S. Holder did not deal at
arm’s length or by the U.S. Holder and persons with whom the U.S. Holder did not
deal at arm’s length. The common shares may also be taxable Canadian property in
certain other circumstances. Under the Convention, gains derived by a U.S.
Holder from the disposition of common shares will generally not be taxable in
Canada unless the value of the common shares is derived principally from real
property situated in Canada. If the common shares are listed on a recognized
stock exchange for the purposes of the ITA at the time they are disposed of by a
U.S. Holder, the U.S. Holder will generally not be required to comply with the
provisions of section 116 of the ITA, which requires notification to be given to
the Canada Revenue Agency when certain property is disposed of.


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Certain
United States Federal Income Tax Considerations




The
following is a general discussion of certain material anticipated United States
federal income tax considerations relevant to U.S. Holders, defined below, of
Envoy’s common shares who hold such shares as capital assets (as defined in
Section 1221 of the United States Internal Revenue Code of 1986, as amended (the
“Code”)).  This discussion is based on the Code, U.S. Treasury
regulations thereunder (the “Treasury Regulations”), administrative rulings, and
court decisions, all as in effect as of the date hereof and all of which are
subject to differing interpretations and may change at anytime (possibly with
retroactive effect).  This discussion is intended to be a general
description of the United States federal income tax considerations material to a
purchase, ownership and a disposition of common shares. Readers are cautioned
that this discussion does not address all relevant tax consequences relating to
an investment in the common shares, nor does it take into account tax
consequences peculiar to persons subject to special provisions of United States
federal income tax law, such as financial institutions, tax-deferred accounts,
tax-exempt organizations, qualified retirements plans, real estate investment
trusts, regulated investment companies or brokers, dealers or traders in
securities, persons actually or constructively owning 10% or more of the voting
power of Envoy’s stock, persons that hold common shares through a partnership or
other pass through entity, or persons that hold common shares that are a hedge
against, or that are hedged against, currency risk or that are part of a
straddle or conversion transaction, or persons whose functional currency is not
the United States dollar. Therefore, investors should consult a tax advisor
regarding the particular consequences of purchasing common shares.





U.S.
HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE APPLICATION OF
THE UNITED STATES FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL
AS ANY TAX CONSEQUENCES ARISING UNDER THE UNITED STATES FEDERAL ESTATE OR GIFT
TAX RULES OR UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING JURISDICTION
OR UNDER ANY APPLICABLE TAX TREATY.





Except as
otherwise described, this discussion applies to investors that are (i) citizens
or individual residents of the United States; (ii) corporations (or other
entities taxable as corporations), that are created or organized in or under the
laws of the United States, any state of the United States or the District of
Columbia; (iii) estates, the income of which is subject to federal income
taxation, regardless of its source; or (iv) trusts (a), if a court within
the United States is able to exercise primary supervision over the
administration of such trust and one or more United States persons as described
in Section 7701(a)(30) of the Code has the authority to control all substantial
decisions of such trust, or (b) that was in existence on August 20, 1996, was
treated as a U.S. person under the code on the previous day and has a valid
election in effect under applicable Treasury Regulations to be treated as a
United States person (a “U.S. Holder”).


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The
United States federal income tax treatment of a holder of common shares that is
a partnership (or other entity taxable as a partnership for United States
federal tax purposes) generally will depend on the status of the partner and the
activities of the partnership. Partners in partnerships holding common shares
should consult their tax advisors about the United States federal income tax
consequences of the purchase, ownership and disposition of common
shares.





Passive
Foreign Investment Company Rules




Special
United States federal income tax rules apply to U.S. Holders owning shares of a
passive foreign investment company (a “PFIC”). A non-United States corporation
generally will be classified as a PFIC for United States federal income tax
purposes in any taxable year in which, after applying relevant look-through
rules with respect to the income and assets of subsidiaries, either at least 75%
of its gross income is “passive income,” (the “income test”), or on average at
least 50% of the gross value of its assets, as determined on a quarterly
average, is attributable to assets that produce passive income or are held for
the production of passive income (the “asset test”). For this purpose, passive
income generally includes, among other things, dividends, interest, certain
rents and royalties, and gains from the disposition of passive assets. Envoy
believes that it was a PFIC for the taxable year ended September 30, 2009, and
has been a PFIC in prior tax years.  Depending on its income, assets
and activities, Envoy believes that it may be a PFIC in the current taxable year
and in subsequent taxable years.





If Envoy
is classified as a PFIC for any taxable year during which a U.S. Holder holds
common shares, Envoy will continue to be treated as a PFIC with respect to such
U.S. holder in all succeeding years, regardless of whether Envoy continues to
meet the income test or asset test described above in such succeeding years.
However, under the Treasury Regulations, such U.S. Holder will not be treated as
holding stock in a PFIC, if in a subsequent taxable year in which Envoy is not a
PFIC, such holder elects to recognize any unrealized gain in such common shares
as of the last day of the last taxable year during which Envoy qualified as a
PFIC (a “deemed sale” election). Any gain so recognized will be subject to the
adverse ordinary income and any special interest charge consequences described
below. Any loss realized on the deemed sale is not recognized.





If a U.S.
Holder holds common shares of Envoy in any year in which it is classified as a
PFIC, unless a U.S. Holder has a valid “qualified electing fund” (“QEF”)
election or a mark-to-market election, described below, in effect with respect
to the common shares, the following income tax consequences will result to the
U.S. Holder:





1.  Distributions
with respect to Envoy’s common shares made by Envoy during the taxable year to a
U.S. Holder that are “excess distributions” (generally distributions that exceed
125% of the average amount of distributions in respect of such common shares
received during the preceding three years or, if shorter, during the U.S.
Holder's holding period prior to the distribution year) must be allocated
ratably to each day of the U.S. Holder’s holding period. The amounts allocated
to the current taxable year and to taxable years prior to the first year in
which Envoy was classified as a PFIC are included as ordinary income in a U.S.
Holder’s gross income for that year. The amount allocated to each other prior
taxable year is taxed as ordinary income at the highest tax rate in effect for
the U.S. Holder in that prior year and the tax is subject to an interest charge
at the rate applicable to deficiencies in income taxes (the “special interest
charge”), and


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2.  The
entire amount of any gain realized upon the sale or other disposition of Envoy’s
common shares will be treated as an excess distribution made in the year of sale
or other disposition and as a consequence will be treated as ordinary income
and, to the extent allocated to years prior to the year of sale or disposition,
will be subject to the interest charge described above.  No portion of
any excess distribution will be eligible for the favorable 15% United States
federal income tax rate applicable to so-called “qualified dividend
income.”





QEF
Election




A U.S.
Holder that owns common shares may elect to have Envoy treated as a QEF,
provided that Envoy provides such person with certain information. A QEF
election must be made by a U.S. Holder before the due date (with regard to
extensions) for such person’s U.S. federal income tax return for the taxable
year for which the election is made and once made, is effective for all
subsequent taxable years ofsuch U.S. Holder unless
revoked with the consent of the IRS. A U.S. Holder that has a QEF election in
effect with respect to all years that such holder holds Envoy’s stock and that
Envoy is a PFIC is referred to herein as an “Electing U.S. Holder.” Envoy has
made available to U.S. Holders, and expects to continue to make available to
U.S. Holders, in accordance with applicable procedures, the annual information
statement currently required by the IRS, which will include information as to
the allocation of Envoy’s ordinary earnings and net capital gain among the
common shares and as to distributions on such common shares. Such statement may
be used by Electing U.S. Holders for purposes of complying with the reporting
requirements applicable to the QEF election.





An
Electing U.S. Holder’s gain or loss on the sale or other disposition of such
common shares generally will be a capital gain or loss. Such capital gain or
loss generally will be long-term if such Electing U.S. Holder held the common
shares for more than one year at the time of the disposition. For non-corporate
U.S. Holders, long-term capital gain is generally subject to a maximum federal
income tax rate (currently imposed at a rate of 15%) for taxable years beginning
on or before December 31, 2010 (and, possibly, a higher rate
thereafter).





A U.S.
Holder holding common shares with respect to which a QEF election is not in
effect for any taxable year in which Envoy is a PFIC may avoid the adverse
ordinary income and special interest charge consequences (described above) upon
any subsequent disposition of such common shares if such person elects to
recognize any unrealized gain in such common shares as of the first day in the
first year that the QEF election applies to such common shares (a “deemed sale”
election). Any gain so recognized, however, will be subject to the adverse
ordinary income and special interest charge consequences described
above.





In any
year that Envoy is treated as a PFIC, an Electing U.S. Holder will be required
to include currently in gross income such U.S. Holder’s pro rata share of
Envoy’s annual ordinary earnings and annual net capital gains. Such inclusion
will be required whether or not such U.S. Holder owns common shares for an
entire year or at the end of Envoy’s taxable year. The amount so includable will
be determined without regard to the amount of cash distributions, if any,
received from Envoy. Electing U.S. Holders will be required to pay United States
federal income tax currently on such imputed income, unless, as described below,
an election is made to defer such payment. The amount currently included in
income will be treated as ordinary income to the extent of the Electing U.S.
Holder’s allocable share of Envoy’s ordinary earnings and generally will be
treated as long-term capital gain to the extent of such U.S. Holder’s allocable
share of Envoy’s net capital gains. Such net capital gains ordinarily would be
subject to a maximum 15% United States federal income tax rate for taxable years
beginning on or before December 31, 2010 (and, possibly, a higher rate
thereafter) in the case of non-corporate U.S. Holders, unless Envoy elects to
treat the entire amount of its net capital gain as ordinary income. No portion
of such ordinary earnings will be eligible for the favorable 15% United States
federal income tax rate applicable to so-called “qualified dividend
income.”


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If an
Electing U.S. Holder demonstrates to the satisfaction of the IRS that amounts
actually distributed to him have been previously included in income as described
above by such U.S. Holder or a previous U.S. Holder, such distributions
generally will not be taxable. An Electing U.S. Holder’s adjusted tax basis in
his common shares will be increased by any amounts currently included in income
under the QEF rules and will be decreased by any subsequent distributions from
Envoy that are treated as non-taxable distributions of previously-included
income (as described in the preceding sentence). For purposes of determining the
amounts includable in income by Electing U.S. Holders, the tax bases of Envoy’s
assets, and Envoy’s ordinary earnings and net capital gains, will be computed on
the basis of United States federal income tax principles. Accordingly, it is
anticipated that such tax bases and such ordinary earnings and net capital gains
may differ from the figures set forth in Envoy’s financial
statements.





An
Electing U.S. Holder who sells his common shares prior to the end of Envoy’s
taxable year will be required to include in income, as of the last day of
Envoy’s taxable year, a portion of Envoy’s ordinary earnings and net capital
gains attributable on a pro rata basis to the period during which such common
shares were held during such taxable year. However, the amount of such U.S.
Holder’s taxable gain on the sale should be reduced, or the amount of his
taxable loss increased, by the amount of such income inclusion. If an Electing
U.S. Holder sells his common shares in a taxable year of such U.S. Holder ending
during Envoy’s then current taxable year, such U.S. Holder may nevertheless have
to include his proportionate share of Envoy’s ordinary earnings and net capital
gains in gross income for his taxable year which includes the last day of
Envoy’s above referred taxable year. While the matter is unclear, such U.S.
Holder should be able to claim a loss in his subsequent taxable year equal to
the amount by which such holder’s adjusted tax basis in the common shares would
have increased to reflect the imputed income under the QEF rules.





An
Electing U.S. Holder may elect to defer, until the occurrence of certain events,
payment of the United States federal income tax attributable to amounts
includable in income for which no current distributions are received, but will
be required to pay interest on the deferred tax computed by using the statutory
rate of interest applicable to an extension of time for payment of
tax.





Under
temporary Treasury Regulations, an individual is required to include in income a
proportionate share of the investment expenses of certain “pass-through”
entities. It is not clear under such Treasury Regulations whether a PFIC for
which a QEF election is in effect may be treated as a “pass-through” entity. If
these provisions were to apply to Envoy, each individual Electing U.S. Holder
would be required to include in income an amount equal to a portion of Envoy’s
investment expenses and would be permitted an offsetting deduction (if otherwise
allowable under the Code) to the extent that the amount of such expenses
included in income, plus certain other miscellaneous itemized deductions of such
U.S. Holder, exceed 2% of such U.S. Holder’s adjusted gross
income.


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Generally,
a QEF election that is made with respect to Envoy will remain in effect
throughout an Electing U.S. Holder’s holding period for Envoy’s shares, even if
Envoy does not qualify as a PFIC in every taxable year following the taxable
year in which the election is made.  In any year in which Envoy is not
treated as a PFIC, an Electing U.S. Holder will have the tax consequences
described below, under the heading, “Ownership and Disposition of Common Shares
if Envoy is Not a PFIC.”





Mark-to-Market
Election





A U.S.
Holder generally may make a mark-to-market election with respect to shares of
“marketable stock” of a PFIC. Under the Code and the Treasury Regulations, the
term “marketable stock” includes stock of a PFIC that is “regularly traded” on a
“qualified exchange or other market.” Because Envoy’s common shares are traded
on a qualified exchange or other market, a market-to-market election will be
available with respect to the common shares.





As a
result of a mark-to-market election, a U.S. Holder will generally be required to
report gain annually in an amount equal to the excess of the fair market value
of such common shares at the end of the taxable year over the adjusted tax basis
of such common shares at that time and will generally be required to report loss
annually in an amount equal to the excess of the adjusted tax basis of such
common shares at the end of the taxable year over the fair market value of the
common shares at that time, but only to the extent of any net market-to market
gains for prior years. Any gain under this computation and any gain on an actual
sale or other disposition of the common shares will be treated as ordinary
income. Any loss under this computation will be treated as ordinary loss. Any
loss on an actual sale or other disposition will be treated as an ordinary loss
to the extent of the prior net mark-to-market gain and thereafter will be
considered capital loss. Thus, a U.S. Holder that makes a mark-to-market
election will be taxed on appreciation with respect to the U.S. Holder’s common
shares even though such U.S. Holder has no corresponding receipt of cash. In
addition, unlike the case of a QEF election, a U.S. Holder that has made a
mark-to-market election generally cannot obtain any favorably-taxed long-term
capital gains with respect to the common shares. The U.S. Holder’s adjusted tax
basis in the common shares is adjusted for any gain or loss taken into account
under the mark-to-market election. Under the Treasury Regulations, if a U.S.
Holder has made a QEF election and subsequently makes a mark-to-market election
with respect to the same stock, the mark-to-market election will automatically
terminate the QEF election, and such U.S. Holder may not make another QEF
election with respect to the stock before the sixth taxable year thereafter.
Unless either (i) the mark-to-market election is made as of the first taxable
year in which Envoy is a PFIC during the U.S. Holder’s holding period for the
common shares, or (ii) a QEF election has been in effect with respect to such
U.S. holder’s common stock for all years in which Envoy was a PFIC during such
U.S. holder’s holding period, any mark-to-market gain for the election year
generally will be subject to the excess distribution rules applicable to
dispositions described above.


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U.S.
Holders are urged to consult their tax advisors concerning the United States
federal income tax consequences of holding and disposing of stock of a
PFIC.




Ownership and Disposition of
Common Shares if Envoy is Not a PFIC





U.S.
Holders who do not hold common shares during any taxable year in which Envoy is
classified as a PFIC will not be subject to the rules described above, under the
heading “Passive Foreign Investment Company Rules.” Instead, such U.S. Holders
will be required to include the gross amount of any distribution on common
shares (without reduction for Canadian tax withheld) in their gross income as a
taxable dividend, to the extent such distribution is paid out of Envoy’s current
or accumulated earnings and profits as determined under United States federal
income tax principles. U.S. Holders must include in income an amount equal to
the United States dollar value of such dividends on the date of receipt, based
on the exchange rate on such date. Provided that Envoy is not treated as a PFIC,
described above, during any year in which a U.S. Holder holds Envoy’s common
shares in the case of a non-corporate U.S. Holder, including individuals, such
dividends generally will be eligible for a maximum rate of tax of 15% under
current law for dividends received in a taxable year beginning before January 1,
2011, provided certain conditions are satisfied. To the extent that
distributions paid by Envoy exceed Envoy’s current or accumulated earnings and
profits, they will be treated first as a return of capital up to the U.S.
Holder’s adjusted tax basis in the shares, and then as a gain from the sale or
exchange of the shares.





U.S.
Holders will generally be entitled to a foreign tax credit, or deduction, for
United States federal income tax purposes, in an amount equal to the Canadian
tax withheld from a distribution on common shares. For taxable years beginning
on or before December 31, 2006, dividends paid by Envoy generally will
constitute foreign source “passive income” or “financial services income” for
foreign tax credit purposes.  For taxable years beginning after
December 31, 2006, such dividends generally will be treated as “passive category
income” or “general category income”, for United States foreign tax credit
purposes. The Code applies various limitations on the amount of foreign tax
credit that may be claimed by a United States taxpayer. Because of the
complexity of those limitations, U.S. Holders should consult their own tax
advisors with respect to the amount of foreign taxes they may claim as a credit.
Dividends paid by Envoy on the common shares will not generally be eligible for
the “dividends received” deductions.





A U.S.
Holder that sells common shares will generally recognize a gain or loss in an
amount equal to the difference, if any, between the amount realized on the sale
and the U.S. Holder’s adjusted tax basis in the shares. Unless Envoy is treated
as a PFIC during any year in which the U.S. Holder holds Envoy’s common shares
(described above), any gain or loss recognized upon the sale of shares held as
capital assets will be a long-term or short-term capital gain or loss, depending
on whether the common shares have been held for more than one year. Such gain or
loss generally will be treated as United States source income or loss for United
States foreign tax credit purposes.





Backup Withholding and
Information Reporting




United
States backup withholding tax and information reporting requirements generally
apply to certain payments to certain non-corporate holders of the common shares.
Information reporting generally will apply to payments of dividends on, and to
proceeds from the sale or disposition of, common shares by a payor within the
United States to a U.S. Holder (if such person is other than an exempt
recipient, including a corporation, not a United States person that provides an
appropriate certification or certain other persons).


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A payor
within the United States will be required to withhold tax (currently imposed at
a rate of 28%) on any payments made to a common shareholder (if that common
shareholder is not an exempt recipient) consisting of dividends on, or proceeds
from the sale or disposition of, the common shares, if the selling common
shareholder fails to timely furnish a correct taxpayer identification number on
IRS Form W-9 or otherwise fails to comply with, or establish an exemption from,
such backup withholding tax requirements. Moreover, a payor or middleman may
rely on a certification provided by a payee that is not a United States person
only if such payor or middleman does not have actual knowledge or a reason to
know that any information or certification stated in such certificate is
incorrect. Investors will be allowed a refund or a credit equal to any amounts
withheld under the United States backup withholding tax rules against their
United States federal income tax liability, provided that they furnish the
required information to the IRS.





F.  Dividend
and Paying Agents




Not
applicable.





G.  Statement
by Experts




Not
applicable.





H.  Documents
on Display




Any
statement in this Annual Report about any of our contracts or other documents is
not necessarily complete. If the contract or document is filed as an exhibit to
this Annual Report, the contract or document is deemed to modify our
description. You must review the exhibits themselves for a complete description
of the contract or document.





The
Company is subject to the informational reporting requirement of the Exchange
Act and files reports and other information with the SEC. You may examine all
reports and other information filed by Envoy with the SEC, including the
documents that are exhibits to this Annual Report, without charge, at the public
reference facilities maintained by the SEC at 100 F Street, N.E.,
Washington, D.C., 20549. For more information on the public reference rooms,
call the SEC at l.800.SEC.0330. Envoy’s reports and other information filed with
the SEC are also available to the public from commercial document retrieval
services and the website maintained by the SEC at http://www.sec.gov.





I.        Subsidiary
Information




Not
applicable.





Item
11:  Quantitative and Qualitative Disclosures about
Market Risk




Except as
described below, Envoy does not have a material position or exposure with
respect to any market risk sensitive instruments (as defined in Item 11 in Form
20-F).


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The
investment operations of the Company’s business involve the purchase and sale of
securities and, accordingly, the majority of the Company’s assets are currently
comprised of financial instruments. The use of financial instruments can expose
the Company to several risks, including market, credit and liquidity risks.
Apart from the risks listed below, management is of the opinion that they are
not exposed to any other significant risks. A discussion of the Company’s use of
financial instruments and its risk management is provided below.




(i)    Liquidity
risk





Liquidity
risk is the risk that the Company will have sufficient cash resources to meet
its financial obligations as they come due. The Company’s liquidity and
operating results may be adversely affected if the Company’s access to the
capital markets is hindered, whether as a result of a downturn in stock market
conditions generally or related to matters specific to the Company, or if the
value of the Company’s investments declines, resulting in losses upon
disposition.





The
Company generates cash flow primarily from its financing activities and proceeds
from the disposition of its investments, in addition to interest and dividend
income earned on its investments. From time to time, the Company will invest in
private equities which have no immediate market and would be illiquid until one
is created.  Investments in private equities tend to be relative
small, comprising less than 5% of available capital and the Company has
sufficient marketable securities which are freely tradable and relatively liquid
to fund its obligations as they become due under normal operating
conditions.





(ii)   Market
risk:





Market
risk is the risk that the fair value of, or future cash flows from, the
Company’s financial instruments will significantly fluctuate because of changes
in market prices. The value of the financial instruments can be affected by
changes in interest rates, foreign exchange rates, and equity and commodity
prices. The Company is exposed to market risk in trading its investments and
unfavourable market conditions could result in acquisitions or dispositions of
investments at less than favourable prices. The Company manages market risk by
having a portfolio which is not singularly exposed to any one issuer or class of
issuers. The Company also has set thresholds on purchases of investments over
which the approval of the board of directors is required.




(iii)  Currency
risk:





The
Company is subject to currency risk through its activities in the United States
and overseas.  The Company invoices a substantial portion of its
consumer branding customers in foreign currency and, as such, changes in the
exchange rate affect the operating results of the Company.  The
Company does not actively use
derivative  instruments  to  reduce  its
exposure to foreign currency risk.  However, dependent on the nature,
amount and timing of foreign currency receipts and payments, the Company may
from time to time enter into foreign currency contracts to mitigate the
associated risks.  At September 30, 2009, the Company had outstanding
foreign exchange contracts to sell 2,100,000 US dollars at an average rate of
1.0799 expiring in November and December 2009.  The Company also had a
liability for the net settlement on a contract to sell 800,000 Euros at 1.4920
which expired September 30, 2009.  The net liability of $41,580
arising from these contracts has been included in accounts payable and accrued
liabilities.  The gains and losses from these contracts have been
included in investment income for the period.


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(iv)  Credit
risk:





The
Company manages its credit risk with respect to accounts receivable by dealing
primarily with large creditworthy customers and by billing whenever possible in
advance of rendering services.  As at September 30, 2009, two
customers represented 43% of accounts receivable (2008 - one customer
represented 32% of accounts receivable).





The
Company records an allowance for doubtful accounts when the likely recovery is
less than the outstanding amount.  There are several amounts due from
customers which are more than 90 days overdue but are not included in the
allowance.  These amounts are not allowed for as they are balances
with large customers for which the Company has transacted business for many
years.  The relationships with these customers are such that
management is confident that the full amount will ultimately be
collected.





Certain
of the Company’s financial assets, including cash and cash equivalents are
exposed to the risk of financial loss occurring as a result of default of a
counterparty on its obligations to the Company.  The Company may, from
time to time, invest in debt obligations.   The Company is also
exposed, in the normal course of business, to credit risk from advances to
investee companies.





(v)  Interest
rate risk:





Interest
risk is the impact that changes in interest rates could have on the Company’s
earnings and liabilities.  All of the Company’s interest-bearing
investments are at fixed rates, hence   there is no exposure to
interest rate fluctuations while investments are held.  As at
September 30, 2009, the Company had no liabilities which bore interest at rates
fluctuating with the prime rate or overnight lending rate. The Company has a
credit facility which can be repaid by the Company at any time, without notice
or penalty, which provides the Company with some ability to manage and mitigate
its interest risk. It is management’s opinion that the Company is not exposed to
significant interest rate risk.





Item
12:  Description of Securities Other Than Equity
Securities




Not
applicable





PART II





Item
13:  Defaults, Dividends Arrearages and
Delinquencies




A.  There has been
no material default in the payment of principal, interest, a sinking or purchase
fund installment or any other material default relating to the indebtedness of
the Company its significant subsidiary.





B.There is no
preferred stock of Envoy its significant subsidiary and accordingly there has
been no material arrearage in the payment of dividends or any other material
delinquency not cured within 30 days, with respect to any class of preferred
stock of Envoy or of its significant subsidiary.


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Item 14:  Material
Modifications to the Rights of Security Holders and Use of
Proceeds




A.  There have been
no material modifications in the constituent instruments defining any class of
registered securities of Envoy.





B.  There has been
no material limitation or qualification of the rights evidenced by any class of
registered securities of Envoy by the issuance or modification of any other
class of securities of Envoy.





C.There has been no
material withdrawal or substitution of assets securing any class of registered
securities of Envoy.





D.  Not
applicable.





E.  Not
applicable.





Item 15:  Controls
and Procedures




The
Company maintains disclosure controls and procedures that are designed to ensure
that the information required to be disclosed in the Company’s Exchange Act
reports is recorded, processed, summarized and reported within the time periods
specified in the SEC’s rules and forms, and that such information is accumulated
and communicated to our management, including our Chief Executive Officer and
Chief Financial Officer, as appropriate, to allow timely decisions regarding
required disclosure. After evaluating the effectiveness of the Company’s
disclosure controls and procedures (as defined in Exchange Act Rules l3a - 15(e)
and 15d- 15(e)) as of September 30, 2009, our Chief Executive Officer and Chief
Financial Officer have concluded that as of such date, the Company’s disclosure
controls and procedure were effective.





There
were no changes in our internal controls or in other factors that could
significantly affect these disclosure controls and procedures during the 2009
fiscal year, including any significant deficiencies or material weaknesses of
internal controls that would require corrective action.





Management
is responsible for establishing and maintaining adequate internal control over
financial reporting for the Company.  Management has designed such
internal control over financial reporting to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with Canadian GAAP, and
reconciled to US GAAP, as applicable.





Because
of its inherent limitations, the Company’s internal control over financial
reporting may not prevent or detect all possible misstatements or frauds. Also,
projections of any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with policies or procedures may
deteriorate.


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Management
has assessed the effectiveness of the Company’s internal control over financial
reporting and concluded that such internal control over financial reporting is
effective as of September 30, 2009.





This
annual report does not include an attestation report of our independent auditors
regarding internal control over financial reporting. Management's report was not
subject to attestation by our independent auditors pursuant to temporary rules
of the SEC that permit our Company to provide only management's report in this
annual report.





Item 16A:  Audit
Committee Financial Expert




The
Company’s Board of Directors has determined that David Parkes, an independent
director of the Company, is an audit committee financial expert. The Audit
Committee has determined that all three members of the Audit Committee are
Financially Literate. “Financially Literate” means that a member has the ability
to read and understand a set of financial statements that present a breadth and
level of complexity of accounting issues that are generally comparable to the
breadth and complexity of the issues that can reasonably be expected to be
raised by the Company’s financial statements. David Parkes was determined to be
Financially Literate based on his experience as the President and CEO of a
number of telecommunications companies where he was responsible for supervising
the preparation of financial statements of a similar breadth and complexity to
the Company’s financial statements, where he was responsible for making
judgments and decisions related to accounting matters on behalf of management
and where he was accountable for internal controls and financial reporting
procedures.  Linda Gilbert was determined to be Financially Literate
based on her qualifications as a Canadian Chartered Accountant and her previous
experience as Vice-President and Chief Financial Officer of
Envoy.  David Hull was determined to be Financially Literate based on
his experience as the President of an insurance agency where he has been
responsible for supervising the preparation of financial statements and where he
has been responsible for making judgments and decisions related to accounting
matters on behalf of management and where he was accountable for internal
controls and financial reporting procedures. The particulars of each member’s
experience can be found in the biographies under Item 6A.





Item
16B:   Code of Business
Conduct




The Board
has adopted a Code of Business Conduct (the “Code”). All of the Company’s
employees, directors and officers must follow the Code, which provides
guidelines for ethical behaviour. A copy of the Code is available in the
Governance section of the Company’s website at www.envoy.to, and is incorporated
by reference herein as Exhibit 11.1 to this Form 20-F.





The Code
sets out in detail the principles and general business tenets and ethics and
compliance policies applicable to the Company’s business and activities. The
Code addresses topics such as: honest and ethical conduct and conflicts of
interest; compliance with applicable laws and Company policies and procedures;
business integrity and fair dealing; public disclosure; use of corporate
property and opportunities; confidentiality; compliance with insider trading and
other legal requirements; and records and document retention.


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The Board
expects all employees at all levels of the companies within its group, as well
as officers, directors, customers, suppliers, vendors, contractors and partners,
to read, understand and comply with the Code. If any employee is uncertain about
a situation, the employee is expected to refer the matter to a supervisor or
Human Resources representative. All employees are also expected to report in
good faith any violations or potential violations of the Code and to co-operate
in internal investigations about a reported violation. Supervisors are expected
to answer employee questions about the Code or direct them to the right source
of information; provide timely advice and guidance to employees on ethics and
compliance concerns; handle all employee reports promptly and confidentially;
encourage employees to ask questions and get advice before they act; and report
in good faith any violations of the Code or situations that could result in
violations to the Company’s Chief Legal Officer. In addition to employees’ and
supervisors’ responsibilities detailed above, senior management has the
responsibility to continuously promote ethical business conduct, in line with
the Company’s values and general business principles.





No
material change report has been filed since October 1, 2007 that pertains to any
conduct of a director or executive officer that constitutes a departure from the
Code.





In
addition to the Code, the Company has also developed procedures for the receipt,
retention and treatment of complaints regarding accounting, internal controls,
auditing matters or evidence of an activity that may constitute corporate fraud
or violation of applicable law and for the confidential and anonymous submission
by employees of concerns regarding questionable accounting or auditing matters.
The complete Complaint Procedures for Accounting and Auditing Matters is
available in the Governance section of the Company’s website at www.Envoy.to,
and is incorporated by reference herein as Exhibit 11.2 to this Form
20-F.





Directors
and officers of the Company are required under the OBCA to disclose any material
interest in any material contract or transaction with the Company and refrain
from voting with respect thereof, subject to certain exceptions.





Item
16C:   Principal Accountant Fees and
Services




(a)
            AUDIT FEES were $98,500
      in 2009 and $250,000 in 2008. These fees include year end audit work,
      consents, reviews and assistance with regulatory
  filings.




(b)
            AUDIT-RELATED FEES were
      $23,697 in 2009 and $15,650 in 2008. These fees include assistance with
      due diligence and accounting
research.




(c)
            TAX FEES were $25,000 in
      2009 and $42,500 in 2008. These fees include tax compliance services and
      tax advice.




(d)
            All OTHER FEES were $nil
      in 2009, and $nil in 2008.




(e)
            In
      accordance with the Company’s Audit Committee Charter, the Audit Committee
      ensures the independent auditor submits a formal written statement
      delineating all relationships between the independent auditor and the
      Company and pre-approves all audit fees and non-audit services to be
      provided to the Company or any subsidiary by the independent auditor. All
      services provided to the Company after the adoption of the Audit Committee
      Charter were pre-approved by the Audit
  Committee.


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 Table of Contents


Item
16D:   Exemptions from the Listing Standards for
Audit Committees




Not
Applicable.




Item
16E:   Purchases of Equity Securities by the
Issuer and Affiliated Purchasers





From
October 1, 2008 through November 30, 2009, the Company repurchased and cancelled
27,259 common shares for cash consideration of $59,477.  The Company
repurchased these shares pursuant to the terms of a normal course issuer bid
which began on February 7, 2008 and ended on February 6, 2009.  The
Company was authorized to repurchase and cancel up to 10% of the public float of
the shares.  On April 27, 2009, the Company announced acceptance by
the Toronto Stock Exchange (the “TSX”) of its Notice of Intention to Make a
Normal Course Issuer (“NCIB”).   Pursuant to the NCIB, Envoy
proposed to purchase from time to time over a twelve month period, if considered
advisable, up to an aggregate of 682,723 common shares, being 10% of the public
float.   Purchases were approved to commence on May 1, 2009 and
conclude on the earlier of the date on which purchases under the NCIB have been
completed and April 30, 2010.  No purchases have yet been made under
this issuer bid.





Period
            
            (a)
      Total Numberof Shares (or Units) Purchased
            
            
            (b)
      AveragePrice Paidper Share(or Units)
            
            
            (c)
      Total Numberof Shares (or Units)Purchased as Part Of Publicly
      AnnouncedPlans or Programs
            
            (d)
      Maximum Number(or Approximate Dollar Value) of Shares (or Units) that May
      Yet Be Purchased Under the Plans or ProgramsOctober
      1, toOctober
      3, 2008
            
            
            27,259
            
            
            $
            2.02
            
            
            
            27,259
            
            nilTotal
            
            
            27,259
            
            
            
            
            
            
            
            27,259




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PART
III





Item
17:   Financial Statements





(a)
            Envoy
      Capital Group Inc.(i)
            Auditors’
      Report on the financial statements for the year ended September 30,
      2009
            F-1Comments
      by Auditor for U.S. Readers on Canada-U.S. Reporting
      DifferencesAuditors’
      Report on the financial statements for the year ended September 30, 2009
      and 2008(ii)
            Consolidated
      Balance Sheets as at September 30, 2009 and 2008
            F-2(iii)
            Consolidated
      Statements of Operations for the years ended September 30, 2009, 2008
      and 2007
            F-3(iv)
            Consolidated
      Statements of (Deficit) Retained Earnings for the years ended September
      30, 2009, 2008 and 2007
            F-4(v)
            Consolidated
      Statements of Cash Flows for the years ended September 30, 2009, 2008
      and 2007
            F-5(vi)
            Notes
      to Consolidated Financial Statements
            F-6





Item
18:   Financial Statements




Envoy has
elected to provide financial statements pursuant to Item 17.


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 Table of Contents


Item
19:   Exhibits


EXHIBIT
INDEX





Exhibit No.
            Description1.1*
            Articles
      of Incorporation and By-Law No. 1 (as amended on May 2, 2000) of Envoy
      Communications Group Inc.1.2**
            Articles
      of Amendment (as amended on January 9, 2004) and By-Law No. 1 of Envoy
      Communications Group Inc.1.3**
            Articles
      of Amendment (as amended on January 21, 2005) and By-Law No. 1 of Envoy
      Communications Group Inc.1.4****
            Articles
      of Amendment (as amended on March 30, 2007) and By-Law No. 1 of Envoy
      Capital Group Inc.8.1
            List
      of Significant Subsidiaries (contained in Item 4.C
  hereof)11.1***
            Code
      of Business Conduct11.2***
            Complaint
      Procedures for Accounting and Auditing Matters11.3***
            Board
      Mandate12.1
            Certification
      of CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of
      200212.2
            Certification
      of CFO Pursuant to Section 302 of the Sarbanes-Oxley Act of
      200213.1
            Certifications
      of CEO and CFO Pursuant to Section 906 of the Sarbanes-Oxley Act of
      200215.1***
            Audit
      Committee Charter15.2***
            Compensation
      Committee Charter15.3***
            Nominating
      and Corporate Governance Committee Charter17
            Financial
      Statements








*
Incorporated by reference to the Company’s Annual Report on Form 20-F, filed on
May 15, 2000 (Commission File No. 000-30082)





**
Incorporated by reference to the Company’s Annual Report on Form 20-F, filed on
December 29, 2006 (Commission File No. 000-30082).





***
Incorporated by reference to the Company’s Annual Report on Form 20-F, filed on
December 29, 2005 (Commission File No. 000-30082).




****
Incorporated by reference to the Company’s Annual Report on Form 20-F, filed on
December 24, 2008 (Commission File No. 000-30082).


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SIGNATURES





The
registrant hereby certifies that it meets all of the requirements for filing on
Form 20-F and that it has duly caused and authorized the undersigned to
sign this Annual Report on its behalf.





ENVOY
      CAPITAL GROUP INC.Date:December
      16, 2009
            /s/ J. JOSEPH LEEDERName:J.
      Joseph LeederTitle:President
      and Chief Executive Officer






72