MEYERS
NORRIS PENNY LLP





Auditors'
Report





To
the Shareholders of Envoy Capital Group Inc.





We have
audited the consolidated balance sheets of Envoy Capital Group Inc. as at
September 30, 2009 and the consolidated statements of operations, comprehensive
income, retained earnings and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.





We
conducted our audit in accordance with Canadian generally accepted auditing
standards and with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform an audit
to obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation.





In our
opinion, these consolidated financial statements, present fairly, in all
material respects, the financial position of the Company as at September 30,
2009 and the results of its operations and its cash flows for the year then
ended, in accordance with Canadian generally accepted accounting
principles.





The
financial statements as at September 30, 2008 and for the periods ending
September 30, 2007 and 2008, were audited by BDO Dunwoody LLP who expressed an
opinion without reservations on those financial statements in their audit report
dated December 16, 2008.





/s/
      MEYERS NORRIS PENNY LLPToronto,
      Ontario
            Chartered
      AccountantsNovember
      20, 2009
            Licensed
      Public Accountants





CHARTERED
      ACCOUNTANTS & BUSINESS ADVISORS
              1100
      -2 BLOOR ST. E., TORONTO, ON CANADA M4W 1A8
              PH.
      (416)596-1711 FAX (416) 596-7894
mnp.ca





F-1







MEYERS
NORRIS PENNY LLP





Comments
by Auditors for U.S. Readers


On
Canada-U.S. Reporting Differences







In the
United States, reporting standards for auditors require the addition of an
explanatory paragraph (following the opinion paragraph) when there is a change
in accounting principles that has a material effect on the comparability of the
Company's financial statements, such as the changes described in Note 2(o) of
the financial statements. Our report to the Shareholders dated November 20,
2009, is expressed in accordance with Canadian reporting standards which do not
require a reference to such changes in accounting principles in the Auditors'
Report, when the changes are properly accounted for and adequately disclosed in
the financial statements.





/s/
      MEYERS NORRIS PENNY LLPToronto,
      Ontario
            Chartered
      AccountantsNovember
      20, 2009
            Licensed
      Public Accountants








CHARTERED
      ACCOUNTANTS & BUSINESS ADVISORS
              1100
      -2 BLOOR ST. E., TORONTO, ON CANADA M4W 1A8
              PH.
      (416)596-1711 FAX (416) 596-7894
mnp.ca













Envoy
Capital Group Inc.


Consolidated
Balance Sheets


(Expressed
in Canadian dollars)





As
      at:
            
            
            September
      30
            
            
            September
      302009
            
            
            2008AssetsCurrentCash
            
            
            $
            13,931,670
            
            
            $
            4,576,771Investments
      held for trading
            note
      3
            
            
            5,154,996
            
            
            
            14,453,468Accounts
      receivable
            note
      4
            
            
            2,005,975
            
            
            
            8,387,477Future
      income taxes
            note
      17
            
            
            -
            
            
            
            650,791Prepaid
      expenses
            
            
            
            383,631
            
            
            
            388,736Loans
      receivable
            note
      5
            
            
            -
            
            
            
            365,62521,476,272
            
            
            
            28,822,868Investments
            note
      3
            
            
            214,593
            
            
            
            224,250Real
      estate
            note
      6
            
            
            1,250,100
            
            
            
            1,539,592Property,
      plant and equipment
            note
      7
            
            
            654,239
            
            
            
            1,150,465Goodwill
            note
      9
            
            
            -
            
            
            
            4,407,434Future
      income taxes
            note
      17
            
            
            -
            
            
            
            337,435$
            23,595,204
            
            
            $
            36,482,044Liabilities
      and Shareholders' EquityCurrentAccounts
      payable and accrued liabilities
            
            
            $
            1,120,750
            
            
            $
            3,521,264Derivatives
      held for trading
            note
      11
            
            
            668,477
            
            
            
            -Deferred
      revenue
            
            
            
            169,535
            
            
            
            731,860Loan
      payable
            note
      12
            
            
            -
            
            
            
            69,5991,958,762
            
            
            
            4,322,723Minority
      interest
            note
      13
            
            
            12,408
            
            
            
            -Shareholders'
      equityShare
      capital
            note
      14
            
            
            9,340,990
            
            
            
            9,370,741Contributed
      surplus
            note
      15
            
            
            29,822,864
            
            
            
            29,852,590Deficit
            
            
            
            (17,539,820
            )
            
            
            (7,064,010
            )21,624,034
            
            
            
            32,159,321$
            23,595,204
            
            
            $
            36,482,044





On
      behalf of the Board:(signed)
            (signed)Geoffrey
      B. Genovese,
            John
      H. Bailey,Director
            Director





The
accompanying notes are an integral part of these statements





F-2




Envoy
Capital Group Inc.


Consolidated
Statements of Operations


(Expressed
in Canadian dollars)





For
      the year ended:
            
            
            September 30
              2009
            
            
            September
      30
              2008
            
            
            September
      30
              2007Net
      revenue from consumer branding business
            note
      4
            
            $
            11,732,473
            
            
            $
            15,514,533
            
            
            $
            12,402,688Net
      investment gains (losses)
            note
      3
            
            
            333,372
            
            
            
            (4,930,185
            )
            
            
            4,061,467Interest
      and dividend income
            note
      3
            
            
            252,605
            
            
            
            675,519
            
            
            
            1,086,97012,318,450
            
            
            
            11,259,867
            
            
            
            17,551,125Operating
      expenses:Salaries
      and benefits
            note
      14
            
            
            12,706,335
            
            
            
            12,815,891
            
            
            
            11,319,127General
      and administrative
            note
      6
            
            
            3,151,830
            
            
            
            3,581,721
            
            
            
            2,635,005Occupancy
      costs
            
            
            
            851,112
            
            
            
            560,757
            
            
            
            540,76216,709,277
            
            
            
            16,958,369
            
            
            
            14,494,894Depreciation
            
            
            
            618,761
            
            
            
            737,132
            
            
            
            748,335Investment
      earnings
            
            
            
            -
            
            
            
            -
            
            
            
            (386,404
            )Interest
      expense and financing costs
            
            
            
            73,840
            
            
            
            33,347
            
            
            
            96,868Goodwill
      impairment
            note
      9
            
            
            4,407,434
            
            
            
            -
            
            
            
            -21,809,312
            
            
            
            17,728,848
            
            
            
            14,953,693(Loss)
      earnings before income taxes, minority interest and discontinued
      operations
            
            
            
            (9,490,862
            )
            
            
            (6,468,981
            )
            
            
            2,597,432Income
      tax expense (recovery)
            note
      17
            
            
            988,226
            
            
            
            3,689,164
            
            
            
            (43,773
            )(Loss)
      earnings before minority interest and discontinued
    operations
            
            
            
            (10,479,088
            )
            
            
            (10,158,145
            )
            
            
            2,641,205Minority
      interest
            
            
            
            (3,278
            )
            
            
            -
            
            
            
            -(Loss)
      earnings from continuing operations
            
            
            
            (10,475,810
            )
            
            
            (10,158,145
            )
            
            
            2,641,205Gain
      on disposal of discontinued operations, net of income
taxes
            note
      23
            
            
            -
            
            
            
            -
            
            
            
            375,514Net
      (loss) earnings
            
            
            $
            (10,475,810
            )
            
            $
            (10,158,145
            )
            
            $
            3,016,719(Loss)
      earnings per shareBasic
            
            
            $
            (1.22
            )
            
            $
            (1.11
            )
            
            $
            0.23Diluted
            
            
            $
            (1.22
            )
            
            $
            (1.11
            )
            
            $
            0.23(Loss)
      earnings per share - continuing operationsBasic
            
            
            $
            (1.22
            )
            
            $
            (1.11
            )
            
            $
            0.20Diluted
            
            
            $
            (1.22
            )
            
            $
            (1.11
            )
            
            $
            0.20Earnings
      per share - discontinued operationsBasic
            
            
            $
            -
            
            
            $
            -
            
            
            $
            0.03Diluted
            
            
            $
            -
            
            
            $
            -
            
            
            $
            0.03Weighted
      average number of common shares outstanding - basic
            
            
            8,558,466
            
            
            
            9,122,688
            
            
            
            13,147,793Weighted
      average number of common shares outstanding - fully
diluted
            
            
            8,558,466
            
            
            
            9,122,688
            
            
            
            13,155,910





The
accompanying notes are an integral part of these statements





F-3







Envoy
Capital Group Inc.


Consolidated
Statements of Comprehensive Income (Loss)


(Expressed
in Canadian dollars)





For
      the year ended:
            
            September
      30
            
            
            September
      30
            
            
            September
      302009
            
            
            2008
            
            
            2007Net
      (loss) earnings
            
            $
            (10,475,810
            )
            
            $
            (10,158,145
            )
            
            $
            3,016,719Other
      comprehensive income (loss):Gain
      (loss) on foreign currency translation
            
            
            -
            
            
            
            76,519
            
            
            
            (25,514
            )Comprehensive
      (loss) income
            
            $
            (10,475,810
            )
            
            $
            (10,081,626
            )
            
            $
            2,991,205





The
accompanying notes are an integral part of these statements













Envoy
Capital Group Inc.


Consolidated
Statements of Retained Earnings (Deficit)


(Expressed
in Canadian dollars)





For
      the year ended:
            
            
            September
      30
            
            
            September
      30
            
            
            September
      302009
            
            
            2008
            
            
            2007(Deficit)
      retained earnings, beginning of year
            
            
            $
            (7,064,010
            )
            
            $
            3,094,135
            
            
            $
            (40,266,401
            )Transitional
      adjustment on adoption of financial instruments
            
            
            
            -
            
            
            
            -
            
            
            
            77,416Net
      (loss) earnings
            
            
            
            (10,475,810
            )
            
            
            (10,158,145
            )
            
            
            3,016,719Deficit
      reduction applied against share capital
            Note
      14
            
            
            -
            
            
            
            -
            
            
            
            40,266,401(Deficit)
      retained earnings, end of year
            
            
            $
            (17,539,820
            )
            
            $
            (7,064,010
            )
            
            $
            3,094,135





The
accompanying notes are an integral part of these statements





F-4







Envoy
Capital Group Inc. Consolidated


Statements
of Cash Flows (Expressed in


Canadian
dollars)





For
      the year ended:
            
            September
      30
            
            
            September
      30
            
            
            September
      302009
            
            
            2008
            
            
            2007Cash
      flows from operating activities:Net
      (loss) income
            
            $
            (10,475,810
            )
            
            
            (10,158,145
            )
            
            $
            3,016,719Items
      not involving cash:Gain
      on disposal of discontinued operations
            
            
            -
            
            
            
            -
            
            
            
            (375,514
            )Depreciation
            
            
            618,761
            
            
            
            737,132
            
            
            
            748,335Stock
      based compensation
            
            
            -
            
            
            
            -
            
            
            
            16,987Minority
      interest
            
            
            (3,278
            )
            
            
            -
            
            
            
            -Impairment
      of real estate
            
            
            297,933Gain
      on foreign exchange
            
            
            -
            
            
            
            (76,519
            )
            
            
            -Future
      income taxes
            
            
            988,226
            
            
            
            3,714,944
            
            
            
            -Change
      in fair value of held for trading investments
            
            
            (337,297
            )
            
            
            4,917,237
            
            
            
            (4,061,467
            )Goodwill
      impairment
            
            
            4,407,434
            
            
            
            -
            
            
            
            -Net
      change in non-cash working capital balances:Accounts
      receivable
            
            
            6,381,502
            
            
            
            (3,081,525
            )
            
            
            (646,317
            )Prepaid
      expenses
            
            
            5,105
            
            
            
            321,423
            
            
            
            1,024,480Investments
      held for trading
            
            
            9,631,844
            
            
            
            8,218,162
            
            
            
            4,345,597Accounts
      payable and accrued liabilities
            
            
            (2,400,514
            )
            
            
            527,802
            
            
            
            (1,892,034
            )Derivatives
      held for trading
            
            
            668,477
            
            
            
            -
            
            
            
            -Deferred
      revenue
            
            
            (562,325
            )
            
            
            222,486
            
            
            
            (580,160
            )Other
            
            
            -
            
            
            
            -
            
            
            
            9,175Net
      cash provided by (used in) operating activities
            
            
            9,220,058
            
            
            
            5,342,997
            
            
            
            1,605,801Cash
      flows from financing activities:Operating
      line of credit
            
            
            -
            
            
            
            (1,975,000
            )
            
            
            1,975,000Loan
      payable repayments
            
            
            (69,599
            )
            
            
            (87,878
            )
            
            
            (94,558
            )Minority
      interest
            
            
            15,686
            
            
            
            -
            
            
            
            -Issuance
      of common shares
            
            
            -
            
            
            
            16,666
            
            
            
            66,584Share
      buy back under normal course issuer bid
            
            
            -
            
            
            
            -
            
            
            
            (30,218,722
            )Share
      buy back under normal course issuer bid
            
            
            (59,477
            )
            
            
            (2,932,720
            )
            
            
            (2,823,058
            )Net
      cash provided by (used in) financing activities
            
            
            (113,390
            )
            
            
            (4,978,932
            )
            
            
            (31,094,754
            )Cash
      flows from investing activities:Loans
      receivable
            
            
            365,625
            
            
            
            992,177
            
            
            
            492,923Purchase
      of capital assets
            
            
            (122,535
            )
            
            
            (442,994
            )
            
            
            (135,396
            )Proceeds
      on sale of subsidiary
            
            
            -
            
            
            
            2,803,549
            
            
            
            (103,549
            )Investment
      in real estate
            
            
            (8,441
            )
            
            
            (65,487
            )
            
            
            (472,751
            )Investments
            
            
            9,657
            
            
            
            -
            
            
            
            29,281,590Net
      cash provided by (used in) investing activities
            
            
            244,306
            
            
            
            3,287,245
            
            
            
            29,062,817Change
      in cash balance due to foreign exchange
            
            
            3,925
            
            
            
            165,986
            
            
            
            51,902Net
      change in cash from continuing operations
            
            
            9,354,899
            
            
            
            3,817,296
            
            
            
            (374,234
            )Cash
      flows from discontinued operationsNet
      cash provided by (used in) investing activities
            
            
            -
            
            
            
            -
            
            
            
            375,514Net
      change in cash from discontinued operations
            
            
            -
            
            
            
            -
            
            
            
            375,514Net
      change in cash
            
            
            9,354,899
            
            
            
            3,817,296
            
            
            
            1,280Cash,beginning of
      year
            
            
            4,576,771
            
            
            
            759,475
            
            
            
            758,195Cash,end of
      year
            
            $
            13,931,670
            
            
            $
            4,576,771
            
            
            $
            759,475Supplemental
      cash flow information:Interest
      paid
            
            $
            50,660
            
            
            $
            44,165
            
            
            $
            96,868Income
      taxes (received) paid
            
            
            -
            
            
            
            (25,780
            )
            
            
            -





The
accompanying notes are an integral part of these statements





F-5







Envoy
Capital Group Inc.


Consolidated
Statement of Shareholders Equity


(Expressed
in Canadian dollars)





Share
      capital
            
            
            Contributed
      surplus
            
            
            Warrants
            
            
            Stock
      based compensation
            
            
            (Deficit)
      Retained earnings
            
            
            Totalshareholders'
      equityBalance,
      October 1, 2007
            
            $
            10,516,344
            
            
            $
            24,216,052
            
            
            $
            6,542,456
            
            
            $
            864,533
            
            
            $
            3,094,135
            
            
            $
            45,157,001Share
      repurchases pursuant to normal course issuer bid (note 14)
            
            
            (1,162,269
            )
            
            
            (1,770,451
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (2,932,720
            )Share
      issuances pursuant to stock options exercised (note 14)
            
            
            16,666
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            16,666Net
      loss for the year
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (10,158,145
            )
            
            
            (10,158,145
            )Realized
      gain on foreign exchange translation
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            76,519Balance,
      September 30, 2008
            
            $
            9,370,741
            
            
            $
            22,445,601
            
            
            $
            6,542,456
            
            
            $
            864,533
            
            
            $
            (7,064,010
            )
            
            $
            32,159,321Share
      repurchases pursuant to normal course issuer bid (note 14)
            
            
            (29,751
            )
            
            
            (29,726
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (59,477
            )Expiration
      of stock options and warrants
            
            
            -
            
            
            
            7,406,989
            
            
            
            (6,542,456
            )
            
            
            (864,533
            )
            
            
            -
            
            
            
            -Net
      loss for the year
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (10,475,810
            )
            
            
            (10,475,810
            )Balance,
      September 30, 2009
            
            $
            9,340,990
            
            
            $
            29,822,864
            
            
            $
            -
            
            
            $
            -
            
            
            $
            (17,539,820
            )
            
            $
            21,624,034





The
accompanying notes are an integral part of these statements





F-6





Envoy Capital Group Inc.


Notes
to Consolidated Financial Statements


(Expressed
in Canadian dollars)


For
the years ended September 30, 2009, 2008 and 2007





1.
            Nature
      of Business





The
Company, continued under the Business Corporations Act (Ontario), operated in
the Canada, the United States, Monaco and the United Arab Emirates during the
year, providing merchant banking and consumer and retail branding
services.





Basis of
Presentation





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.







2.
            Significant
      Accounting Policies





(a)
            Principles
      of Consolidation





The
consolidated financial statements include the accounts of the Company and its
subsidiaries, collectively known as Envoy Capital Group Inc. Intercompany
balances and transactions are eliminated on consolidation.





Subsidiaries
as at September 30, 2009, 2008 and 2007 are as follows:





2009
            
            
            2008
            
            
            2007
            
            Jurisdiction
      ofCompany
            
            %
      ownership
            
            
            %
      ownership
            
            
            %
      ownership
            
            incorporationEnvoy
      Capital GroupMonaco
      S.A.M.
            
            
            99.8
            
            
            
            -
            
            
            
            -
            
            MonacoWatt
      International Inc.
            
            
            100.0
            
            
            
            100.0
            
            
            
            100.0
            
            Ontario1632159
      Ontario Ltd.
            
            
            100.0
            
            
            
            100.0
            
            
            
            100.0
            
            OntarioECG
      Properties Inc.
            
            
            100.0
            
            
            
            100.0
            
            
            
            100.0
            
            Ontario





(b)
            Use
      of Estimates





The
preparation of financial statements in conformity with Canadian generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the year.
Significant areas requiring the use of management estimates include discount
factors relating to fair value measurements, valuation allowance for future tax
assets, determination of substantial completion for revenue recognition and
provisions for uncollectible accounts. While management believes the estimates
are reasonable, actual results could differ from those estimates and could
impact future results of operations and cash flows.





F-7





Envoy Capital Group Inc.


Notes
to Consolidated Financial Statements


(Expressed
in Canadian dollars)


For
the years ended September 30, 2009, 2008 and 2007





2.
            Significant
      Accounting Policies (continued)





(c)
            Property,
      Plant and Equipment





Property,
plant and equipment are recorded at cost and are depreciated over their
estimated useful lives as follows:





Asset
            Basis
            RateComputer
      equipment and software
            Declining
      balanceand
      straight line
            30-50%
      or 3-4 yearsFurniture
      and equipment
            Declining
      balanceand
      straight line
            20%
      or 5 yearsLeasehold
      improvements
            Straight
      line
            initial
      term of lease+ 1
      option period





The
Company performs impairment testing on long-lived assets held for use whenever
events or changes in circumstances indicate that the carrying value of an asset,
or group of assets, may not be recoverable. Impairment losses are recognized
when undiscounted future cash flows from its use and disposal are less than the
assets' carrying amount. Impairment is measured as the amount by which the
assets' carrying value exceeds its fair value. Any impairment is included in
loss for the year. Discounted cash flows are used to measure fair value of
long-lived assets.





(d)
            Revenue
      Recognition





Consumer
and Retail Branding:





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.





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
project indicates a loss.





F-8





Envoy Capital Group Inc.


Notes
to Consolidated Financial Statements


(Expressed
in Canadian dollars)


For the years ended September 30, 2009, 2008 and
2007





2.
            Significant
      Accounting Policies (continued)





Further,
the balance sheet reflects the following:





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





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





(iii)
            work
      in process representing 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.





Merchant
Banking:





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.





(e)
            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 to which goodwill has been attributed is compared to
its carrying amount 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 in 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.





F-9





Envoy Capital Group Inc.


Notes
to Consolidated Financial Statements


(Expressed
in Canadian dollars)


For
the years ended September 30, 2009, 2008 and 2007





2.
            Significant
      Accounting Policies (continued)





(f)
            Foreign
      currency translation





The
financial statements of the Company's foreign subsidiaries, all of which are
integrated operations, are translated using the temporal method, whereby the
monetary assets and liabilities of such foreign operations are translated at the
exchange rate in effect at the balance sheet date. Non-monetary items are
translated at historical rates, unless such items are carried at market, in
which case they are translated at the exchange rate in effect at the balance
sheet date. Revenue and expenses are translated at the average exchange rate for
the period. Translation gains or losses are recognized in the results of
operations for the period.





In
respect of the Company and its subsidiaries' foreign currency transactions, at
the transaction date each asset, liability, revenue and expense is translated
into the functional currency of the Company at the exchange rate in effect at
the date of the transaction. At the year-end date, monetary assets and
liabilities are translated into the functional currency of the Company at the
exchange rate in effect at that date. The resulting foreign exchange gains and
losses are included in earnings in the current year.





(g)
            Income
      taxes





The
Company 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 date of 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
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
income tax assets and liabilities are adjusted for the effects of changes in tax
laws and rates on the date of the substantive enactment of the
change.





(h)
            Stock-based
      compensation





The
Company calculates the fair value of the stock-based compensation on all awards
granted and recognizes the expense from the date of grant and is amortized over
the vesting period. The company determines the fair value of stock options
granted using the Black-Scholes option pricing model.





(i)
            Earnings
      per share





Basic
earnings per share are computed using the weighted average number of common
shares that are outstanding during the year. Diluted earnings per share are
computed using the weighted average number of common and potential common shares
outstanding during the year. Potential common shares consist of the incremental
common shares issuable upon the exercise of stock options and
warrants.





F-10





Envoy Capital Group Inc.


Notes
to Consolidated Financial Statements


(Expressed
in Canadian dollars)


For the years ended September 30, 2009, 2008 and
2007





2.
            Significant
      Accounting Policies (continued)





(j)
            Business
      combinations





All
business combinations are accounted for using the purchase method of accounting.
The value of shares issued in a business combination is measured using the
average share price for a reasonable period before and after the date the terms
of the acquisition are agreed to and announced. Intangible assets that meet
specific criteria are recognized and reported apart from goodwill.





(k)
            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. The change in policy was applied retrospectively in fiscal 2007 with no
restatement of comparative figures. The effect of the adjustment was a net
increase to retained earnings of $77,416.





The
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.





The
following is a summary of the accounting model the Company has elected to apply
to each of its significant categories of financial instruments outstanding at
September 30, 2009:





Cash
            
            Held-for-tradingInvestments
      held for trading
            
            Held-for-tradingAccounts
      receivable
            
            Loans
      and receivablesLoans
      receivable
            
            Loans
      and receivablesInvestments
            
            Available
      for saleForeign
      currency contracts
            
            Held-for-tradingBank
      indebtedness
            
            Other
      financial liabilityAccounts
      payable
            
            Other
      financial liability





F-11





Envoy Capital Group Inc.


Notes
to Consolidated Financial Statements


(Expressed
in Canadian dollars)


For
the years ended September 30, 2009, 2008 and 2007





2.
            Significant
      Accounting Policies (continued)





Held-for-Trading
("HFT")





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 and changes in fair value are included in net earnings for
the period.





Held-to-Maturity
("HTM")





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. The Company currently has no
HTM investments.





Available-for-Sale
("AFS")





AFS
financial assets are those non-derivative financial assets that are either
designated as AFS, or that are not classified as loans and receivables, HTM or
HFT investments. 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





Loans and
receivables are accounted for at cost, less any allowances, using the effective
interest rate method.





Other
liabilities





Other
liabilities are recorded at amortized cost, and include all liabilities, other
than derivatives.





Transaction
costs





Transaction
costs are expensed in the period incurred.





F-12





Envoy Capital Group Inc.


Notes
to Consolidated Financial Statements


(Expressed
in Canadian dollars)


For
the years ended September 30, 2009, 2008 and 2007





2.
            Significant
      Accounting Policies (continued)





Determination
of fair value





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 or AFS 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.





Investments
in which the Company has a significant influence are accounted for using the
equity method.





(l)
            Comprehensive
      income





Comprehensive
income is the change in a company's net assets that results from transactions,
events and circumstances from sources other than the company's shareholders. It
includes items that would not normally be included in net earnings, such
as:





•
            changes
      in the currency translation adjustment relating to self-sustaining foreign
      operations


•
            unrealized
      gains or losses on available-for-sale
  investments.





F-13





Envoy Capital Group Inc.


Notes
to Consolidated Financial Statements


(Expressed
in Canadian dollars)


For
the years ended September 30, 2009, 2008 and 2007





2.
            Significant
      Accounting Policies (continued)





(m)
            Hedges





In
conjunction with the above policies, the Company also adopted section 3865 of
the CICA Handbook, Hedges. The section describes when and how hedge accounting
can be used. The Company currently does not have any hedge
transactions.





(n)
            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 prior
periods.





(o)
            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.





F-14





Envoy Capital Group Inc.


Notes
to Consolidated Financial Statements


(Expressed
in Canadian dollars)


For
the years ended September 30, 2009, 2008 and 2007





2.
            Significant
      Accounting Policies (continued)





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. The additional disclosures
relating to the adoption of these new sections are described in notes 19 and
20.





(p)
            Recent
      accounting pronouncements





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. The Company continues to monitor, and
assess, the impact of the convergence of Canadian GAAP and IFRS.





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.





F-15





Envoy Capital Group Inc.


Notes
to Consolidated Financial Statements


(Expressed
in Canadian dollars)


For the years ended September 30, 2009, 2008 and
2007





3.
            Investments





2009
            
            
            2008Investments
      held for tradingCash
      and equivalents
            
            $
            -
            
            
            $
            2,700,000Publicly-traded
      investmentsFixed
      income
            
            
            -
            
            
            
            99,434Equities
            
            
            4,719,259
            
            
            
            7,051,786Derivatives
            
            
            435,737
            
            
            
            -Discount
      securities
            
            
            -
            
            
            
            4,602,2485,154,996
            
            
            
            11,753,468Total
      investments held for trading
            
            $
            5,154,996
            
            
            $
            14,453,468InvestmentsInvestment
      in capital pool company
            
            $
            190,343
            
            
            $
            200,000Available
      for sale investments in private equity
            
            
            24,250
            
            
            
            24,250Total
      investments
            
            $
            214,593
            
            
            $
            224,250





As at
September 30, 2009 the portfolio of investments held for trading was invested in
marketable securities, including common shares and derivative instruments. The
specific investments within the portfolio will vary depending on market
conditions. The investment portfolio, including interest and dividend income,
earned $585,977 during fiscal 2009 (2008 - loss of $4,254,666), after deducting
fees and expenses.





At
September 30, 2009 Envoy owned an approximate 28% interest in Sereno Capital
Corporation ("Sereno"), a Capital Pool Company. 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. Accordingly, the Company has recognized a loss of $9,657 on its
investment, representing its share of Sereno's operating losses to date. Sereno
is currently in the process of evaluating opportunities and has not yet
completed a qualifying transaction.







4.
            Accounts
      receivable





2009
            
            
            2008Trade
      receivables
            
            $
            1,232,042
            
            
            $
            6,199,726Unbilled
      revenue
            
            
            225,168
            
            
            
            1,332,334Work
      in process (at cost)
            
            
            548,765
            
            
            
            855,407$
            2,005,975
            
            
            $
            8,387,477





Included
in net revenue are disbursement costs of $918,162 (2008 -
$2,440,015).





F-16





Envoy Capital Group Inc.


Notes
to Consolidated Financial Statements


(Expressed
in Canadian dollars)





For
the years ended September 30, 2009, 2008 and 2007





5.
            Loans
      receivable





Effective
June 30, 2005, the Company completed the sale of its John Street, Inc.
subsidiary and related assets to the management of John Street. The Company
financed a portion of the sale through loans receivable, secured by a general
security agreement and collateralized by the underlying shares. All loans were
paid in full on February 28, 2009.





2009
            
            
            2008Loan
      receivable, 8.0% per annum, due June 30, 2009, repayable in monthly
      instalments of $28,125, plus interest
            
            $
            -
            
            
            $
            253,125Loan
      receivable, 8.0% per annum, due June 30, 2009, repayable in monthly
      instalments of $12,500, plus interest
            
            
            
            
            
            
            112,500$
            -
            
            
            $
            365,625







6.
            Real
      estate





The
Company currently owns two investment properties on Queen St. in Toronto, which
it had planned to develop for resale. Given market conditions, the Company made
a decision not to develop the properties. The properties have been recorded at
fair value, net of disposal costs. As a result, the Company recorded an
impairment loss of approximately $297,000 in the period, representing the
difference between the carrying value at the time of impairment and the fair
value. This impairment loss has been included in general and administrative
expenses.







7.
            Property,
      plant and equipment





Accumulated
            
            
            Net
      book2009
            
            Cost
            
            
            depreciation
            
            
            valueLeasehold
      improvements
            
            $
            837,102
            
            
            $
            483,416
            
            
            $
            353,686Computer
      equipment and software
            
            
            3,387,796
            
            
            
            3,179,041
            
            
            
            208,745Furniture
      and equipment
            
            
            571,454
            
            
            
            479,646
            
            
            
            91,808Equipment
      under capital leases
            
            
            963,519
            
            
            
            963,519
            
            
            
            -$
            5,759,871
            
            
            $
            5,105,622
            
            
            $
            654,239





F-17





Envoy Capital Group Inc.


Notes
to Consolidated Financial Statements


(Expressed
in Canadian dollars)





For
the years ended September 30, 2009, 2008 and 2007





7.
            Property,
      plant and equipment (continued)





Accumulated
            
            
            Net
      book2008
            
            Cost
            
            
            depreciation
            
            
            valueLeasehold
      improvements
            
            $
            3,647,838
            
            
            $
            3,014,078
            
            
            $
            633,760Computer
      equipment and software
            
            
            4,171,636
            
            
            
            3,687,146
            
            
            
            484,490Furniture
      and equipment
            
            
            501,234
            
            
            
            470,957
            
            
            
            30,277Equipment
      under capital leases
            
            
            963,519
            
            
            
            961,581
            
            
            
            1,938$
            9,284,227
            
            
            $
            8,133,762
            
            
            $
            1,150,465







8.
            Related
      party transactions





During
the year, 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 Capital Group Monaco, S.A.M. ("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 Envoy Monaco (total of
0.2%) at a cost 5,000 Euros each (see note 13 minority interest).





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.









9.
            Goodwill





Goodwill
is tested for impairment on an annual basis, or more frequently if events or
circumstances indicate that it may be impaired. At September 30, 2009,
impairment tests were performed on goodwill using discounted cash flows. This
test indicated that the carrying value of the Consumer and Retail branding
component's assets exceeded their fair value. Accordingly, a loss of $4,407,434
was recorded in the consolidated statement of operations for the year ended
September 30, 2009, reducing the carrying value of goodwill from $4,407,434 to
nil.





The
impairment charges are a result of management's best estimates of expected
revenues, expenses and cash flows and were based on information that was
available at September 30, 2009. These estimates are subject to measurement
uncertainty as they are dependent on factors outside of management's control. In
addition, by their nature, impairment tests involve a significant degree of
judgment, as expectations concerning future cash flows and the selection of
appropriate market inputs are subject to considerable risks and
uncertainties.





F-18





Envoy Capital Group Inc.


Notes
to Consolidated Financial Statements


(Expressed
in Canadian dollars)





For the years ended September 30, 2009, 2008 and
2007





10.
            Bank
      indebtedness





The
Company has access to a revolving demand credit facility of $1 million in order
to manage day-to-day operating requirements. Amounts borrowed under the facility
bear interest at the bank prime rate. Drawings under the credit facility are
secured by $2 million of the Company's investment portfolio. There were no
borrowings under the facility at September 30, 2009. The credit facility has no
set maturity date.







11.
            Derivatives
      held for trading





During
fiscal 2009, the Company established an investment position in derivative
instruments by writing a number of put options on large cap U.S. publicly-traded
companies. The put option contracts are publicly traded on the Chicago Board
Options Exchange and have expiry dates ranging from October 2009 to January
2011.





The
options have been recorded at their fair value of $668,477, based on quoted
market prices at September 30, 2009. Changes in fair value of the options have
been recorded in investment income for the period. The purchase price of all
shares underlying the options is approximately USD $5,626,000.







12.
            Loan
      payable





2009
            
            
            2008Loan
      payable to landlord, 3.5% per annum, due July 1, 2009, repayable in
      blended monthly instalments of $7,666.
            
            $
            -
            
            
            $
            69,599







13.
            Minority
      interest





On
November 25, 2008, the Company established a new foreign subsidiary, Envoy
Capital Group Monaco, S.A.M ("Envoy Monaco"). The mandate for Envoy Monaco is
mainly to attract new investment opportunities and promote the services of the
Company in the European market.





As part
of the requirements of incorporation, a small interest in the Company is owned
by two directors of Envoy Monaco who are residents of Monaco. The ownership of
0.2% has been reflected in the financial statements as minority
interest





F-19





Envoy Capital Group Inc.


Notes
to Consolidated Financial Statements


(Expressed
in Canadian dollars)





For the years ended September 30, 2009, 2008 and
2007





14.
            Share
      capital





(a)
            Authorized:





Unlimited
common shares without par value.





Issued:





2009
            
            
            2008
            
            
            2007Number
      of
              shares
            
            
            Amount
            
            
            Number
      of
              shares
            
            
            Amount
            
            
            Number
      of
              shares
            
            
            AmountBalance,beginning of
      year
            
            
            8,585,636
            
            
            $
            9,370,741
            
            
            
            9,637,233
            
            
            $
            10,516,344
            
            
            
            19,421,415
            
            
            $
            97,186,342Common
      shares issued (cancelled) pursuant to:Repurchase
      of shares pursuant to substantial issuer bid (c)
            
            
            
            
            
            
            
            
            
            
            -
            
            
            
            -
            
            
            
            (9,002,383
            )
            
            
            (45,048,658
            )Stock
      options exercised
            
            
            -
            
            
            
            -
            
            
            
            13,333
            
            
            
            16,666
            
            
            
            31,667
            
            
            
            66,584Deficit
      reduction pursuant to special resolution (b)
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (40,266,401
            )Repurchase
      of shares pursuant to normal course issuer bid (c)
            
            
            (27,259
            )
            
            
            (29,751
            )
            
            
            (1,064,930
            )
            
            
            (1,162,269
            )
            
            
            (813,466
            )
            
            
            (1,421,523
            )Balance,end of
      year
            
            
            8,558,377
            
            
            $
            9,340,990
            
            
            
            8,585,636
            
            
            $
            9,370,741
            
            
            
            9,637,233
            
            
            $
            10,516,344





(b)
            Deficit
      reduction





On March
30, 2007, shareholders of the Company approved a special resolution to reduce
the stated capital of the common shares of the Company by $40,266,401. The
reduction in share capital was applied against the opening deficit of 2007 in
the same amount.





(c)
            Repurchase
      of 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 proposes to purchase from time to time over the next
12 months, 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.





Pursuant
to the 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. In fiscal 2009, under this normal course
issuer bid, the





F-20







Envoy
Capital Group Inc.


Notes
to Consolidated Financial Statements


(Expressed
in Canadian dollars)





For
the years ended September 30, 2009, 2008 and 2007





14.
            Share
      capital (continued)





Company
repurchased and cancelled 27,259 common shares for cash consideration of
$59,477, including related costs.





During
fiscal 2008, the Company repurchased and cancelled 1,064,930 common shares for
cash consideration of $2,932,720. The Company repurchased 188,309 shares for
cash consideration of $572,942 pursuant to the terms of a normal course issuer
bid which began on February 7, 2007 and ended on February 6, 2008. In addition,
during fiscal 2008, the Company repurchased 876,621 shares for cash
consideration of $2,359,778 pursuant to the terms of the normal course issuer
bid which began on February 7, 2008 and ended on February 6, 2009.





Pursuant
to the terms of a substantial issuer bid via a modified "Dutch Auction" which
began on September 15, 2006 and ended on January 24, 2007, the Company
re­purchased, for cancellation, 9,002,383 shares at a price of US$2.70
(CDN$3.19) per share. Total cash consideration, including associated costs, was
$30,218,722, or $3.36 per share.





During
fiscal 2007, the Company repurchased and cancelled 813,466 common shares for
cash consideration of $2,823,058, pursuant to the terms of a normal course
issuer bid which began on February 7, 2007 and ended on February 6,
2008.





(d)
            Stock
      option plan





The
Company has reserved 800,000 common shares under its stock option plan. Under
the plan, the options are exercisable for one common share and the exercise
price of the option must equal the market price of the underlying share at the
grant date.





The
options have vesting periods ranging from the date of grant up to five years.
Once vested, options are exercisable at any time until expiry. All outstanding
options expired on May
24, 2009.





There
were no options granted during fiscal 2009, 2008 and 2007.





The
estimated fair value of the options granted during fiscal 2004, using the
Black-Scholes option pricing model, was $864,533 of which $16,987 was expensed
in the financial statements in fiscal 2007 and the remaining option value of
$847,546 was expensed in prior years. These amounts were originally included as
part of stock based compensation in Shareholders' Equity but have been
reclassified to Contributed Surplus at September 30, 2009 upon expiration of the
options.





F-21








Envoy
Capital Group Inc.


Notes
to Consolidated Financial Statements


(Expressed
in Canadian dollars)




For
the years ended September 30, 2009, 2008 and 2007





14.
            Share
      capital (continued)





(e)
            Stock
      option details





WeightedaverageNumber
            
            
            exercise
      priceof options
            
            
            per shareOptions
      outstanding, September 30, 2007
            
            
            258,333
            
            
            
            3.86Options
      granted
            
            
            -
            
            
            
            -Options
      exercised
            
            
            (13,333
            )
            
            
            1.25Options cancelled
            
            
            (20,000
            )
            
            
            4.00Options
      outstanding, September 30, 2008
            
            
            225,000
            
            
            
            4.00Options
      granted
            
            
            -
            
            
            
            -Options
      exercised
            
            
            -
            
            
            
            -Options cancelled
            
            
            (225,000
            )
            
            
            4.00Options outstanding, September 30,
      2009
            
            
            -
            
            
            $
            -Number
      of options exercisableOptions exercisable, September 30,
      2009
            
            
            -
            
            
            $
            -Options exercisable, September 30,
      2008
            
            
            225,000
            
            
            $
            4.00Options exercisable, September 30,
      2007
            
            
            258,333
            
            
            $
            3.86





F-22








Envoy
Capital Group Inc.


Notes
to Consolidated Financial Statements


(Expressed
in Canadian dollars)





For
the years ended September 30, 2009, 2008 and 2007





15.
            Contributed
      Surplus





During
fiscal 2009, pursuant to the normal course issuer bid described in Note 14(c),
the Company repurchased and cancelled 27,259 common shares at an average price
of $2.18 per common share for total cash consideration of $59,477 including
related expenses. As the average price paid was more than the average per share
value of the outstanding common shares, $29,726 was recorded as a reduction of
contributed surplus.





During
fiscal 2008, pursuant to the normal course issuer bid described in Note 14(c),
the Company repurchased and cancelled 1,064,930 common shares at an average
price of $2.75 per common share for total cash consideration of $2,932,720
including related expenses. As the average price paid was more than the average
per share value of the outstanding common shares, $1,770,451 was recorded as a
reduction of contributed surplus.





On
January 25, 2007, pursuant to the substantial issuer bid described in Note
14(c), the Company repurchased and cancelled 9,002,383 common shares at an
average price of $3.36 per common share for total cash consideration of
$30,218,722 including related expenses. As the average price paid was less than
the average per share value of the outstanding common shares, $14,829,936 was
recorded in contributed surplus as a gain on redemption of shares.





During
fiscal 2007, pursuant to the normal course issuer bid described in Note 14(c),
the Company repurchased and cancelled 813,466 common shares at an average price
of $3.47 per common share for total cash consideration of $2,823,058 including
related expenses. As the average price paid was more than the average per share
value of the outstanding common shares, $1,401,535 was recorded as a reduction
of contributed surplus.





F-23





Envoy
Capital Group Inc.
 Notes
to Consolidated Financial Statements
 (Expressed
in Canadian dollars)
 
 For
the years ended September 30, 2009, 2008 and 2007


16.
            Earnings
      per Share





2009
            
            
            2008
            
            
            2007Numerator
      for EPS calculations:Net
      (loss) earnings
            
            $
            (10,475,810
            )
            
            $
            (10,158,145
            )
            
            $
            3,016,719Denominator:Denominator
      for basic net earnings per share -weighted average shares
      outstanding
            
            
            8,558,466
            
            
            
            9,122,688
            
            
            
            13,147,793Effect
      of dilutive potential common shares issuable:-
      under stock options
            
            
            -
            
            
            
            -
            
            
            
            8,117Denominator
      for diluted net earnings per share
            
            
            8,558,466
            
            
            
            9,122,688
            
            
            
            13,155,910





Details
of anti-dilutive potential securities outstanding not included in diluted EPS
calculations at September 30 are as follows:





Anti-dilutive potential
      securities
            
            2009
            
            
            2008
            
            
            2007Common
      shares potentially issuable:-pursuant to
      warrants
            
            
            -
            
            
            
            5,526,317
            
            
            
            5,526,317-under stock
      options
            
            
            -
            
            
            
            225,000
            
            
            
            245,000-
            
            
            
            5,751,317
            
            
            
            5,771,317





F-24




Envoy Capital Group Inc.


Notes
to Consolidated Financial Statements


(Expressed
in Canadian dollars)


For
the years ended September 30, 2009, 2008 and 2007





17.
            Income
      taxes





Income
tax expense (recovery) for the years ended September 30, 2009, 2008 and 2007
consists of:





2009
            
            
            2008
            
            
            2007Current
      (recovery)
            
            $
            -
            
            
            $
            (25,780
            )
            
            $
            -Future
            
            
            988,226
            
            
            
            3,714,944
            
            
            
            (43,773
            )$
            988,226
            
            
            $
            3,689,164
            
            
            $
            (43,773
            )





The
income tax expense (recovery) attributable to (loss) income differs from the
amounts computed by applying the Canadian statutory rates of 33.0% (2008 -
34.15%; 2007 - 36.12%) to the (loss) earnings before income taxes and
discontinued operations as a result of the following:





2009
            
            
            2008
            
            
            2007Income
      tax (recovery) expense at statutory rates
            
            $
            (3,131,984
            )
            
            
            (33.0
            %)
            
            $
            (2,209,157
            )
            
            
            (34.2
            %)
            
            $
            938,192
            
            
            
            36.1
            %Increase
      (decrease) in income taxes resulting from:Expenses
      (revenue) deducted (included) in the accounts that have no corresponding
      deduction (inclusion) for income taxes
            
            
            111,541
            
            
            
            1.2
            %
            
            
            (92,814
            )
            
            
            (1.4
            %)
            
            
            28,404
            
            
            
            1.1
            %Change
      in valuation allowance
            
            
            346,036
            
            
            
            3.6
            %
            
            
            5,618,446
            
            
            
            86.8
            %
            
            
            (1,429,871
            )
            
            
            (55.1
            %)Adjustment
      to future tax for substantively enacted changes in tax laws and
      rates
            
            
            94,909
            
            
            
            1.0
            %
            
            
            74,393
            
            
            
            1.2
            %
            
            
            705,939
            
            
            
            27.2
            %Other
            
            
            3,567,725
            
            
            
            37.6
            %
            
            
            298,296
            
            
            
            4.6
            %
            
            
            (286,437
            )
            
            
            (11.0
            %)988,226
            
            
            
            10.4
            %
            
            $
            3,689,164
            
            
            
            57.0
            %
            
            $
            (43,773
            )
            
            
            (1.7
            %)





F-25





Envoy Capital Group Inc.
 Notes
to Consolidated Financial Statements
 (Expressed
in Canadian dollars)
 For
the years ended September 30, 2009, 2008 and 2007


17.
            Income
      taxes (continued)





The tax
effects of temporary differences that give rise to significant portions of the
future tax assets and liabilities at September 30, 2009 and 2008 are presented
below:





2009
            
            
            2008Future
      tax assets:Property,
      plant and equipment
            
            $
            146,718
            
            
            $
            1,094,932Non-capital
      losses expiring by 2029
            
            
            8,570,178
            
            
            
            8,273,890Other
            
            
            11,061
            
            
            
            1,3258,727,957
            
            
            
            9,370,147Less valuation allowance
            
            
            8,727,957
            
            
            
            8,381,921Total
      net future tax assets
            
            
            -
            
            
            
            988,226Less current portion
            
            
            -
            
            
            
            650,791$
            -
            
            
            $
            337,435





At
September 30, 2009, the Company has non-capital losses of approximately
$26,800,000 available to reduce future years' taxable income, which expire as
follows:





2010
            
            $
            4,200,0002014
            
            
            2,400,0002015
            
            
            1,600,0002026
            
            
            1,900,0002027
            
            
            1,400,0002028
            
            
            9,200,0002029
            
            
            6,100,000$
            26,800,000





The
Company has realized net capital losses of approximately $2,848,000 available
for carry forward to be applied against future taxable gains for Canadian tax
purposes. The losses are available for carry forward indefinitely.





No
provision has been made in the financial statements with respect to any
potential future income tax assets which may be associated with these capital
losses.





F-26





Envoy Capital Group Inc.
 Notes
to Consolidated Financial Statements
 (Expressed
in Canadian dollars)
 For
the years ended September 30, 2009, 2008 and 2007


18.
            Commitments
      and contingencies





The
Company has entered into operating lease agreements for office premises and
equipment with minimum annual lease payments over the next three years to expiry
as follows:





2010
            
            $
            393,5932011
            
            
            89,1862012
            
            
            85,566$
            568,345





Rent
expense under operating leases for the year ended September 30, 2009 amounted to
$1,021,403 (2008 - $801,291; 2007 - $754,926).







19.
            Management
      of capital





The
Company includes the following in its definition of capital:





2009
            
            
            2008Loan
      payable
            
            $
            -
            
            
            $
            69,599Shareholders'
      equity comprised ofShare
      capital
            
            
            9,340,990
            
            
            
            9,370,741Contributed
      surplus
            
            
            29,822,864
            
            
            
            29,852,590Deficit
            
            
            (17,539,820
            )
            
            
            (7,064,010
            )$
            21,624,034
            
            
            $
            32,228,920





The
Company's objectives when managing capital are:





(a)
            to
      allow the Company to respond to changes in economic and/or marketplace
      conditions by maintaining the Company's ability to purchase new
      investments;





(b)
            to
      give shareholders sustained growth in shareholder value by increasing
      shareholders' equity;





(c)
            to
      ensure that the Company maintains the level of capital necessary to meet
      the requirements of its bank; and





(d)
            to
      maintain a flexible capital structure which optimizes the cost of capital
      at acceptable levels of risk.





F-27





Envoy Capital Group Inc.
 Notes
to Consolidated Financial Statements
 (Expressed
in Canadian dollars)
 For
the years ended September 30, 2009, 2008 and 2007


19.
            Management
      of capital (continued)





The
Company manages its capital structure and makes adjustments to it in the light
of changes in economic conditions and the risk characteristics of its underlying
assets. The Company maintains or adjusts its capital level to enable it to meet
its objectives by:





(a)
            realizing
      proceeds from the disposition of its
  investments;





(b)
            utilizing
      leverage in the form of third party debt and the Company's bank credit
      line (bank indebtedness);





(c)
            raising
      capital through equity financings;
and





(d)
            purchasing
      the Company's own shares for cancellation pursuant to its normal course
      issuer bid.





The
Company is not subject to any capital requirements imposed by a regulator. There
were no changes in the Company's approach to capital management during the
period. To date, the Company has not declared any cash dividends to its
shareholders as part of its capital management program. The Company's management
is responsible for the management of capital and monitors the Company's use of
various forms of leverage on a daily basis. The Company expects that its current
capital resources will be sufficient to discharge its liabilities as at
September 30, 2009.







20.
            Financial
      instruments





Fair
Value





The
Company's carrying value of cash, accounts receivable, bank indebtedness,
accounts payable and accrued liabilities approximate their fair values due to
the immediate or short term maturity of these instruments.





Carrying
value and fair value of financial assets and liabilities are summarized as
follows:





Classification
            
            Carrying
      value
            
            
            2009
              Fair
      value
            
            
            Carrying
      value
            
            
            2008
              Fair
      valueHeld-for-trading
            
            $
            18,376,609
            
            
            $
            18,376,609
            
            
            $
            18,214,729
            
            
            $
            18,214,729Available-for-sale
            
            
            24,250
            
            
            
            24,250
            
            
            
            24,250
            
            
            
            24,250Loans
      and receivables
            
            
            2,005,975
            
            
            
            2,005,975
            
            
            
            8,753,102
            
            
            
            8,753,102Other
      financial liabilities
            
            
            1,079,170
            
            
            
            1,079,170
            
            
            
            3,507,213
            
            
            
            3,507,213





F-28





Envoy Capital Group Inc.
 Notes
to Consolidated Financial Statements
 (Expressed
in Canadian dollars)
 For
the years ended September 30, 2009, 2008 and 2007


20.
            Financial
      instruments (continued)





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 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.





The
following table shows the estimated sensitivity of the Company's after-tax net
income (loss) for the year ended September 30, 2009 from a change in the closing
price of the Company's investments with all other variables held constant as at
September 30, 2009:





F-29





Envoy Capital Group Inc.
 Notes
to Consolidated Financial Statements
 (Expressed
in Canadian dollars)
 For
the years ended September 30, 2009, 2008 and 2007


20.
            Financial
      instruments (continued)





Change
      in net after-tax income
            
            
            Change
      in net after-tax incomePercentagechange
      in
            
            (loss)from
      % increase in
            
            
            (loss)from
      % decrease inclosing
      price
            
            closing price
            
            
            closing
      price2%
            
            $
            89,730
            
            
            $
            (89,730
            )4%
            
            
            179,461
            
            
            
            (179,461
            )6%
            
            
            269,191
            
            
            
            (269,191
            )8%
            
            
            358,922
            
            
            
            (358,922
            )10%
            
            
            448,652
            
            
            
            (448,652
            )





(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.





The
following assets and liabilities were denominated in foreign currencies at
September 30, 2009 (US dollar 1.0707, UAE Dirham 0.2919, British Pound 1.7889,
Euro dollar 1.5686):





2009
            
            
            2008Denominated
      in U.S. dollarsCash
            
            $
            3,928,313
            
            
            $
            951,929Investments
      held for trading
            
            
            4,905,380
            
            
            
            1,486,504Accounts
      receivable
            
            
            498,442
            
            
            
            2,052,966Accounts
      payable
            
            
            (134,383
            )
            
            
            (136,945
            )Derivatives
      held for trading
            
            
            (668,477
            )
            
            
            -Deferred
      revenue
            
            
            (25,979
            )
            
            
            -Net
      assets denominated in U S dollars
            
            $
            8,503,296
            
            
            $
            4
      354 454





F-30





Envoy Capital Group Inc.
 Notes
to Consolidated Financial Statements
 (Expressed
in Canadian dollars)
 For
the years ended September 30, 2009, 2008 and 2007


20.
            Financial
      instruments (continued)





2009
            
            
            2008Denominated
      in U.A.E dirhamCash
            
            $
            144,839
            
            
            $
            41,338Accounts
      receivable
            
            
            82,757
            
            
            
            2,723,905Accounts
      payable
            
            
            (231,819
            )
            
            
            (872,975
            )Net
      assets denominated in U.A.E dirham
            
            $
            (4,223
            )
            
            $
            1,892,268Denominated
      in British poundsAccounts
      receivable
            
            $
            55,320
            
            
            $
            143,254Accounts
      payable
            
            
            -
            
            
            
            (104,493
            )Net
      assets denominated in British pounds
            
            $
            55,320
            
            
            $
            38,761Denominated
      in Euro dollarsCash
            
            $
            1,251,351
            
            
            $
            -Accounts
      payable
            
            
            (63,778
            )
            
            
            (83,600
            )Net
      assets denominated in Euro dollars
            
            $
            1,187,573
            
            
            $
            (83,600
            )





The
following table shows the estimated sensitivity of the Company's after-tax net
income (loss) for the year ended September 30, 2009 from a change in all foreign
currencies (U.S. dollars, U.A.E. dirham, British pounds and Euro dollars) with
all other variables held constant as at September 30, 2009:





Percentage
      change in foreign currencies
            
            Change
      in net after-tax income (loss) from % increase in foreign
      currency
            
            
            Change
      in net after-tax income (loss) from % decrease in foreign
      currency2%
            
            $
            (6,871
            )
            
            $
            6,8714%
            
            
            (13,743
            )
            
            
            13,7436%
            
            
            (20,614
            )
            
            
            20,6148%
            
            
            (27,486
            )
            
            
            27,48610%
            
            
            (34,357
            )
            
            
            34,357





(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).





F-31





Envoy Capital Group Inc.
 Notes
to Consolidated Financial Statements
 (Expressed
in Canadian dollars)
 For
the years ended September 30, 2009, 2008 and 2007


20.
            Financial
      instruments (continued)





At
September 30, 2009, the composition of trade receivables was as
follows:





2009
            
            
            2008Current
            
            $
            619,325
            
            
            $
            2,580,171Past
      due 1-30
            
            
            203,272
            
            
            
            1,338,149Past
      due 31-90
            
            
            299,978
            
            
            
            1,747,837More
      than 90 days past due
            
            
            109,467
            
            
            
            533,569Total
      trade receivables
            
            $
            1,232,042
            
            
            $
            6,199,726





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.





At
September 30, 2009, the Company's allowance for doubtful accounts was as
follows:





2009
            
            
            2008Opening
      balance
            
            $
            136,577
            
            
            $
            88,034Additions
            
            
            107,852
            
            
            
            73,225Write-offs
            
            
            (114,331
            )
            
            
            (24,682
            )Ending
      balance
            
            $
            130,098
            
            
            $
            136,577





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.





F-32





Envoy Capital Group Inc.
 Notes
to Consolidated Financial Statements
 (Expressed
in Canadian dollars)
 For
the years ended September 30, 2009, 2008 and 2007


20.
            Financial
      instruments (continued)





(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.







21.
            Segmented
      information





Summary
of financial information concerning the Company's operating segments is shown in
the following tables:





(a)
            Summary
      of operating results:





For
      the year ended September 30, 2009Consumer
      and Retail Branding
            
            
            Merchant
      Banking
            
            
            Corporate
            
            
            TotalNet
      revenue
            
            $
            11,732,473
            
            
            $
            585,977
            
            
            $
            -
            
            
            $
            12,318,450Operating
      expenses:Salaries
      and benefits
            
            
            10,245,881
            
            
            
            1,745,507
            
            
            
            714,947
            
            
            
            12,706,335General
      and administrative
            
            
            1,847,197
            
            
            
            278,355
            
            
            
            1,026,278
            
            
            
            3,151,830Occupancy
      costs
            
            
            912,177
            
            
            
            169,954
            
            
            
            (231,019
            )
            
            
            851,112Depreciation
            
            
            346,898
            
            
            
            17,136
            
            
            
            254,727
            
            
            
            618,761Interest
      (income) expense
            
            
            -
            
            
            
            68,535
            
            
            
            5,305
            
            
            
            73,840Goodwill
      impairment
            
            
            4,407,434
            
            
            
            -
            
            
            
            -
            
            
            
            4,407,434Earnings
      (loss) before income taxes
            
            
            (6.027.114
            )
            
            
            (1,693,510
            )
            
            
            (1,770,238
            )
            
            
            (9,490,862
            )Income
      tax expense
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            988,226Loss
      before minority interest
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (10,479,088
            )Minority
      interest
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (3,278
            )Net
      loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            (10,475,810
            )





F-33





Envoy Capital Group Inc.
 Notes
to Consolidated Financial Statements
 (Expressed
in Canadian dollars)
 For
the years ended September 30, 2009, 2008 and 2007


21.
            Segmented
      information (continued)





For
      the year ended September 30, 2008Consumer
      and Retail Branding
            
            
            Merchant
      Banking
            
            
            Corporate
            
            
            TotalNet
      revenue
            
            $
            15,514,533
            
            
            $
            (4,254,666
            )
            
            $
            -
            
            
            $
            11,259,867Operating
      expenses:Salaries
      and benefits
            
            
            10,975,740
            
            
            
            848,433
            
            
            
            991,718
            
            
            
            12,815,891General
      and administrative
            
            
            1,737,792
            
            
            
            550,442
            
            
            
            1,293,487
            
            
            
            3,581,721Occupancy
      costs
            
            
            844,763
            
            
            
            75,380
            
            
            
            (359,386
            )
            
            
            560,757Depreciation
            
            
            391,717
            
            
            
            11,572
            
            
            
            333,843
            
            
            
            737,132Interest
      (income) expense
            
            
            (10,759
            )
            
            
            -
            
            
            
            44,106
            
            
            
            33,347Earnings
      (loss) before income taxes
            
            
            1,575,280
            
            
            
            (5.740.493
            )
            
            
            (2,303,768
            )
            
            
            (6,468,981
            )Income
      tax expense
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            3,689,164Net
      loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            (10,158,145
            )





F-34





Envoy Capital Group Inc.
 Notes
to Consolidated Financial Statements
 (Expressed
in Canadian dollars)
 For
the years ended September 30, 2009, 2008 and 2007


21.
            Segmented
      information (continued)





For
      the year ended September 30, 2007Consumer
      and Retail Branding
            
            
            Merchant
      Banking
            
            
            Corporate
            
            
            TotalNet
      revenue
            
            $
            12,402,688
            
            
            $
            5,148,437
            
            
            $
            -
            
            
            $
            17,551,125Operating
      expenses:Salaries
      and benefits
            
            
            8,031,440
            
            
            
            1,464,649
            
            
            
            1,823,038
            
            
            
            11,319,127General
      and administrative
            
            
            1,429,480
            
            
            
            341,255
            
            
            
            864,270
            
            
            
            2,635,005Occupancy
      costs
            
            
            769,046
            
            
            
            75,425
            
            
            
            (303,709
            )
            
            
            540,762Depreciation
            
            
            392,865
            
            
            
            14,580
            
            
            
            340,890
            
            
            
            748,335Investment
      earnings
            
            
            -
            
            
            
            -
            
            
            
            (386,404
            )
            
            
            (386,404
            )Interest
      expense and financing
            
            
            18,156
            
            
            
            -
            
            
            
            78,712
            
            
            
            96,868Earnings
      (loss) before income taxes and discontinued operations
            
            
            1,761,701
            
            
            
            3,252,528
            
            
            
            (2,416,797
            )
            
            
            2,597,432Income
      tax recovery
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (43,773
            )Earnings
      from continuing operations
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            2,641,205Earnings
      from discontinued operations, net of income taxes
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            375,514Net
      earnings
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            3,016,719





(b)
            Summary
      of total assets





Consumer
      and Retail Branding
            
            
            Merchant
      Banking
            
            
            Corporate
            
            
            TotalSeptember
      30, 2009
            
            $
            2,690,449
            
            
            $
            20,904,066
            
            
            $
            689
            
            
            $
            23,595,204September
      30, 2008
            
            $
            14,252,978
            
            
            $
            21,476,157
            
            
            $
            752,909
            
            
            $
            36,482,044





F-35





Envoy Capital Group Inc.
 Notes
to Consolidated Financial Statements
 (Expressed
in Canadian dollars)
 For
the years ended September 30, 2009, 2008 and 2007


21.
            Segmented
      information (continued)





(c)
            Net
      revenue by type of service





2009
            
            
            2008
            
            
            2007Net
      revenue:Consumer
      and retail branding
            
            $
            11,732,473
            
            
            $
            15,514,533
            
            
            $
            12,402,688Merchant
      banking
            
            
            585,977
            
            
            
            (4,254,666
            )
            
            
            5,148,437$
            12,318,450
            
            
            $
            11,259,867
            
            
            $
            17,551,125





(d)
            Net
      revenue by customer location





2009
            
            
            2008
            
            
            2007Net
      revenue:USA/South
      America
            
            $
            4,891,762
            
            
            $
            6,395,333
            
            
            $
            6,410,926Canada
            
            
            4,712,220
            
            
            
            1,074,769
            
            
            
            9,222,222Middle
      East/Asia
            
            
            2,048,065
            
            
            
            3,789,765
            
            
            
            1,917,977Europe
            
            
            666,403
            
            
            
            -
            
            
            
            -$
            12,318,450
            
            
            $
            11,259,867
            
            
            $
            17,551,125





(e)
            Net
      revenue from major customers





In fiscal
2009, there were 2 customers who individually represented more than 10% of the
Company's net revenue. Total net revenue from these customers was approximately
$4,958,000 (2008 - five customers $8,836,000, 2007 - one customer
$1,847,000).







22.
            Comparative
      figures





Certain
comparative figures have been reclassified to conform to the financial statement
presentation adopted for 2009.





F-36





Envoy Capital Group Inc.
 Notes
to Consolidated Financial Statements
 (Expressed
in Canadian dollars)
 For
the years ended September 30, 2009, 2008 and 2007


23.
            Discontinued
      operations





Through
its wholly owned subsidiary ECG Holdings (UK) Limited the Company provided brand
strategy, package design, brand management, pre-press, film services in UK and
Europe. During fiscal 2006, Envoy's management decided to sell ECG (UK) in order
to re-deploy the capital in its Merchant Banking business.





Effective
September 15, 2006, Envoy completed the sale of shares of its wholly owned
subsidiary, ECG (UK) and related business and all the assets of Watt Gilchrist
Limited and Parker Williams Design Limited. The sale price was $27,000,000 paid
in cash. Pursuant to the terms and conditions of sale purchase agreement
$2,700,000 was held in escrow to secure potential fourth party claims. In
January, 2008, the Company received $2,834,568, representing the withheld amount
plus accrued interest.





ECG
      Holdings (UK) Limited and related companiesFiscal
      year:
            
            2009
            
            
            2008
            
            
            2007Gain
      on sale of discontinued operations
            
            $
            -
            
            
            $
            -
            
            
            $
            375,514Earnings
      from discontinued operations
            
            $
            -
            
            
            $
            -
            
            
            $
            375,514







24.
            Reconciliation
      to United States generally accepted accounting
  principles





These
consolidated financial statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") as applied in Canada. Set out
below are the material adjustments to net (loss) earnings for the years ended
September 30, 2009, 2008 and 2007 required to conform to US GAAP.





2009
            
            
            2008
            
            
            2007Net
      (loss) earnings based onCanadian
      GAAP
            
            $
            (10,475,810
            )
            
            $
            (10,158,145
            )
            
            $
            3,016,719Cash
      held in escrow (a)
            
            
            -
            
            
            
            2,803,549
            
            
            
            (103,549
            )Capitalized
      incorporation costs (e)
            
            
            -
            
            
            
            66,339
            
            
            
            (66,339
            )Income
      recognized on reclassification of investments (f)
            
            
            -
            
            
            
            -
            
            
            
            77,416Gains
      on privately-held securities (f)
            
            
            -
            
            
            
            -
            
            
            
            (1,147,500
            )Fair
      value adjustment on restricted securities (f)
            
            
            (283,411
            )
            
            
            1,619,615
            
            
            
            -Net
      (loss) earnings based on U.S. GAAP
            
            $
            (10,759,221
            )
            
            $
            (5,668,642
            )
            
            $
            1,776,747





F-37





Envoy Capital Group Inc.
 Notes
to Consolidated Financial Statements
 (Expressed
in Canadian dollars)
 For
the years ended September 30, 2009, 2008 and 2007


24.
            Reconciliation
      to United States generally accepted accounting principles
      (continued)





2009
            
            
            2008
            
            
            2007Net
      (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 table sets forth the computation of basic and diluted earnings (loss)
per share:





2009
            
            
            2008
            
            
            2007Net
      (loss) earnings per share: Basic
            
            $
            (1.26
            )
            
            
            (0.62
            )
            
            
            0.14Diluted
            
            
            (1.26
            )
            
            
            (0.62
            )
            
            
            0.14Net
      (loss) earnings per share from continuing operations:Basic
            
            $
            (1.26
            )
            
            
            (0.93
            )
            
            
            0.11Diluted
            
            
            (1.26
            )
            
            
            (0.93
            )
            
            
            0.11Net
      earnings per share from discontinued operations:Basic
            
            $
            -
            
            
            
            0.31
            
            
            
            0.03Diluted
            
            
            -
            
            
            
            0.31
            
            
            
            0.03





The
calculation of diluted (loss) earnings per share used income from continuing
operations as the "control number" in determining whether potential common
shares are dilutive or antidilutive. Since the Company experienced a loss in
fiscal 2009 and fiscal 2008 from continuing operations, all potential common
shares outstanding from dilutive securities are considered antidilutive and are
excluded from the calculation of diluted loss per share for that
year.





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 (f)
            
            
            188,704
            
            
            
            472,115Total
      assets based on U.S. GAAP
            
            $
            23,783,908
            
            
            $
            36,954,159





F-38





Envoy Capital Group Inc.
 Notes
to Consolidated Financial Statements
 (Expressed
in Canadian dollars)
 For
the years ended September 30, 2009, 2008 and 2007


24.
            Reconciliation
      to United States generally accepted accounting principles
      (continued)





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 (f)
            
            
            188,704
            
            
            
            472,115Shareholders'
      equity based on U.S. GAAP
            
            $
            21,812,738
            
            
            $
            32,631,436





Summary
of accounting policy differences:





The areas
of material difference between Canadian and U.S. GAAP and their impact on the
consolidated financial statements of the Company are set out below:





(a)
            Cash
      held in escrow:





Cash held
in escrow represents funds which were held in common trust with the purchaser of
the UK operations, as per the terms of the purchase and sale agreement. The
amount was held in joint trust as security for indemnities provided to the
purchaser at closing and was released on the first anniversary date of the
transaction, including accrued interest. Canadian GAAP allowed the recognition
of this amount in determining the gain on sale. Under US GAAP these funds could
not be recognized until they were released from escrow. As described in Note 23
during January, 2008 the Company received the cash previously held in escrow and
as a result the amount was recognized in US GAAP income.





(b)
            Comprehensive
      income:





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





F-39





Envoy Capital Group Inc.
 Notes
to Consolidated Financial Statements
 (Expressed
in Canadian dollars)
 For
the years ended September 30, 2009, 2008 and 2007


24.
            Reconciliation
      to United States generally accepted accounting principles
      (continued)





(c)
            Reduction
      of capital:





In 2007,
the share capital of the Company was reduced by $40,266,401 pursuant to a
special resolution of its shareholders and was applied against the deficit.
Also, in 1997, the share capital of the Company was reduced by $9,886,961
pursuant to a special resolution of its shareholders and was applied against the
deficit. These reductions in capital are not permitted under U.S. GAAP. While
the adjustments have no impact on shareholders' equity, under U.S. GAAP, share
capital and deficit would be increased by $50,153,362 as at September 30, 2009
and 2008.





(d)
            Revenue:





Under
U.S. GAAP net investment gains and interest and dividend income would be
included as investment earnings (as non-operating) in the consolidated statement
of operations.





(e)
            Capitalized
      incorporation costs:





Certain
costs relating to the establishment of an office in Dubai, UAE were capitalized
for Canadian GAAP purposes in fiscal 2007 and expensed in fiscal 2008. These
costs were not permitted to be capitalized under US GAAP.





(f)
            Investments:





As at
September 30, 2009, the Company has categorized certain investments as held-for
trading for Canadian GAAP purposes which requires that these investments be
accounted for at fair value with changes in fair value through the Statement of
Operations.





During
fiscal 2008, a private entity in which the Company held an investment completed
its Initial Public Offering and a second investment in a Capital Pool Company
completed its qualifying transaction. As a result of these transactions the
Company's shares in these entities had escrow restrictions imposed by the
exchange on which the shares are listed. Under Canadian GAAP the Company
recorded these shares at fair value which was determined using valuation
techniques to reflect the restriction on these securities. Under US GAAP, those
shares which will be released from escrow in less than twelve months are
recorded at the quoted market price at the balance sheet date and those shares
which will be released from escrow in greater than twelve months are recorded at
cost. The result was a combined US GAAP net income difference totalling
($283,411) and $1,619,615, in fiscal 2009 and 2008, respectively, and a
difference in total assets at September 30, 2009 and September 30, 2008 of
$188,704 and $472,115, respectively.





F-40





Envoy Capital Group Inc.
 Notes
to Consolidated Financial Statements
 (Expressed
in Canadian dollars)
 For
the years ended September 30, 2009, 2008 and 2007


24.
            Reconciliation
      to United States generally accepted accounting principles
      (continued)





As of
September 30, 2007, the Company categorized certain investments as
held-for-trading and accordingly, recorded at market value for Canadian GAAP. As
a result, the Company recognized a fair value adjustment of $1,147,500 based on
an increase in fair value of privately-held equity securities. Under U.S. GAAP,
these investments would be accounted for at cost and therefore no fair value
adjustment would be recognized. As a result of these differences, investments
held for trading would have been $1,147,500 lower than the amount reported in
our audited financial statements at September 30, 2007. Also in fiscal 2007
certain of the Company's investments which had been categorized as
available-for-sale were disposed of resulting in the realization of gains in the
amount of $242,378 which were reversed from comprehensive income and recorded in
net income. The impact of the reversal on net income for fiscal 2007 was
$77,416, net of associated payroll expenses of $121,189 and tax expense of
$43,773.





(g)
            Financial
      instruments:





Under
U.S. GAAP, the Company is required to present information about its financial
assets and liabilities with respect to the hierarchy of the valuation techniques
the Company utilized to determine the fair value. In general, fair values
determined by Level 1 inputs utilize quoted prices (unadjusted) in active
markets for identical assets or liabilities. Fair values determined by Level 2
inputs utilize data points that are observable such as quoted prices, interest
rates and yield curves. Fair values determined by Level 3 inputs are
unobservable data points for the asset or liability, and includes situations
where there is little, if any, market activity for the asset or
liability.





At
September 30, 2009, the Company's financial assets and liabilities would be
classified as follows:





Significant
            
            
            Significant
      Other
            
            
            SignificantObservable
            
            
            Observable
            
            
            UnobservableInputs
            
            
            Inputs
            
            
            InputsSept.
      30, 2009
            
            
            (Level
      1)
            
            
            (Level
      2)
            
            
            (Level
      3)Assets:Cash
            
            $
            13,931,670
            
            
            $
            13,931,670
            
            
            $
            -
            
            
            $
            -Investments
      held for trading
            
            
            5,154,996
            
            
            
            4,960,622
            
            
            
            194,374
            
            
            
            -Investments
            
            
            214,593
            
            
            
            214,593
            
            
            
            -
            
            
            
            -$
            19,301,259
            
            
            $
            19,106,885
            
            
            $
            194,374
            
            
            $
            -





F-41





Envoy Capital Group Inc.
 Notes
to Consolidated Financial Statements
 (Expressed
in Canadian dollars)
 For
the years ended September 30, 2009, 2008 and 2007


24.
            Reconciliation
      to United States generally accepted accounting principles
      (continued)





Significant
            
            
            Significant
      Other
            
            
            SignificantObservable
            
            
            Observable
            
            
            UnobservableInputs
            
            
            Inputs
            
            
            InputsSept.
      30, 2009
            
            
            (Level
      1)
            
            
            (Level
      2)
            
            
            (Level
      3)Liabilities:Derivatives
      held for trading
            
            $
            668,477
            
            
            $
            668,477
            
            
            
            -
            
            
            
            -$
            668,477
            
            
            $
            668,477
            
            
            $
            -
            
            
            $
            -





(h)
            Consolidated
      statements of operations:





Under
U.S. GAAP, goodwill impairment and depreciation would be classified as operating
expenses. Under Canadian GAAP, these amounts are considered non-operating
expenses.





(i)
            Consolidated
      statements of cash flows:





Under
U.S. GAAP, the escrow funds received as proceeds on the sale of its subsidiary
would be included as part of discontinued operations. Under Canadian GAAP, these
cash flows were included as net cash from investing activities. Under U.S. GAAP,
net cash from investing activities in fiscal 2008 would be lower by $2,803,549
and net change in cash from discontinued operations would be higher by the same
amount.





Under
U.S. GAAP, the loss on investment under the equity method of $9,657 would be
included as a non-cash add back to operating activities as opposed to cash flows
from investing activities. Under U.S. GAAP, net cash from operating activities
would be higher by $9,657 and net cash from investing activities would be lower
by the same amount.





Also,
under Canadian GAAP, proceeds from the sale of investments used to fund the
substantial issuer bid in fiscal 2007 were included as cash flows from investing
activities in the Consolidated Statements of Cash Flows. Under U.S. GAAP, these
cash flows would be included as net cash provided by operating activities. Under
U.S. GAAP, net cash provided by operating activities in fiscal 2007 would be
higher by $29,389,900 and net cash provided by investing activities would be
lower by the same amount.





F-42





Envoy Capital Group Inc.
 Notes
to Consolidated Financial Statements
 (Expressed
in Canadian dollars)
 For
the years ended September 30, 2009, 2008 and 2007


24.
            Reconciliation
      to United States generally accepted accounting principles
      (continued)





(j)
            Accounting
      for Uncertainty in Income Taxes





The
Financial Accounting Standards Board ("FASB") issued an interpretation,
effective for fiscal years beginning after December 15, 2006, which clarifies
the accounting for uncertainty in income taxes recognized in an enterprise's
financial statements. This interpretation prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement of
a tax position taken or expected to be taken in the Company's tax returns. It
also provides guidance on de-recognition, classification, interest and
penalties, accounting in interim periods, disclosure and transition. The
majority of the Company's tax positions still under potential exposure of tax
authority review relate to Canadian taxes. Canadian tax returns are statute
barred after three years from the assessment date. The Company has assessed the
Company's tax positions and has determined that it is more likely than not that
all tax positions taken will be sustained upon examination based on the
technical merits of the positions.





(k)
            Recent
      accounting pronouncements:





In
September 2006, the 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.





F-43





Envoy Capital Group Inc.
 Notes
to Consolidated Financial Statements
 (Expressed
in Canadian dollars)
 For
the years ended September 30, 2009, 2008 and 2007


24.
            Reconciliation
      to United States generally accepted accounting principles
      (continued)





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.





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.





F-44





Envoy Capital Group Inc.
 Notes
to Consolidated Financial Statements
 (Expressed
in Canadian dollars)
 For
the years ended September 30, 2009, 2008 and 2007


24.
            Reconciliation
      to United States generally accepted accounting principles
      (continued)





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 an y, the adoption of this standard will
have on the Company's consolidated financial statements.




F-45