##### Table of Contents



As filed with the Securities and Exchange Commission on February 18, 2003




SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 20-F

|      |  |                                                                                                 
|----- |  | ------------------------------------------------------------------------------------------------
|[   ] |  | Registration statement pursuant to Section 12(b) or 12(g) of the
Securities Exchange Act of 1934
|     
|      |  | OR                                                                                              
|     
|[X]   |  | Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934            
|     
|      |  | For the fiscal year ended September 30, 2002                                                    
|     
|      |  | OR                                                                                              
|     
|[   ] |  | Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934        
|     
|      |  | For the transition period from __________ to __________                                         

Commission file number 0-30082

ENVOY COMMUNICATIONS GROUP INC.




(Exact name of Registrant as specified in its charter)




---

(Translation of Registrants name into English)


Ontario, Canada

(Jurisdiction of incorporation or organization)


172 John Street, Toronto, Ontario, Canada M5T 1X5

(Address of principal executive offices)


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

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

COMMON SHARES

(Title of Class)


The Nasdaq Small Cap Market

(Name of each exchange on which registered)


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

NONE

(Title of Class)


Indicate the number of outstanding shares of each of the issuers classes of
capital or common stock as of the close of the period covered by the annual
report: At September 30, 2002 there were 21,528,694 common shares
outstanding.

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

Indicate by check mark which financial statement item the Registrant has
elected to follow:           Item 17 [   ]  Item 18 [X]

Currency and Exchange Rates Information
All monetary amounts contained in this Form 20-F are, unless otherwise
indicated, expressed in Canadian dollars. On February 17, 2003 the noon
buying rate for Canadian Dollars as reported by the Federal Reserve Bank of
New York was $1.00 U.S. to $1.5209 Cdn. (see Item 9 for further exchange
rate information to U.S. currency.)

---

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TABLE OF CONTENTS



| |                                                                          |  |  |  |  |  |  | 
| | ------------------------------------------------------------------------ |  |  |  |  |  |  | 
| | AUDITORS REPORT TO THE SHAREHOLDERS                                    
| | COMMENTS BY AUDITORS FOR U.S. READERS ON CANADA-U.S REPORTING DIFFERENCE
| | Consolidated Balance Sheets                                             
| | Consolidated Statements of Operations                                   
| | Consolidated Statements of Retained Earnings (Deficit)                  
| | Consolidated Statements of Cash Flows                                   
| | Notes to Consolidated Financial Statements                              



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##### Table of Contents



TABLE OF CONTENTS

|                                                                                      |  | 
|------------------------------------------------------------------------------------- |  | 
|PART I                                                                               
|Item 1.   Identity of Directors, Senior Management and Advisers                      
|Item 2.   Offer Statistics and Expected Timetable                                    
|Item 3.   Key Information                                                            
|Item 4.   Information on the Company                                                 
|Item 5.   Operating and Financial Review and Prospects                               
|Item 6.   Directors, Senior Management and Employees                                 
|Item 7.   Major Shareholders and Related Party Transactions                          
|Item 8.   Financial Information                                                      
|Item 9.   The Offer and Listing                                                      
|Item 10. Additional Information                                                      
|Item 11. Quantitative and Qualitative Disclosures About Market Risk                  
|Item 12. Description of Securities Other than Equity Securities                      
|PART II                                                                              
|Item 13. Defaults, Dividend Arrearages and Delinquencies                             
|Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
|Item 15. Controls and Procedures                                                     
|Item 16. Reserved                                                                    
|PART III                                                                             
|Item 17. Financial Statements                                                        
|Item 18. Financial Statements                                                        
|Item 19. Exhibits                                                                    
|Signatures                                                                           
|Certifications                                                                       

2



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##### Table of Contents



PART I

Item 1.   IDENTIFY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS

Not applicable

Item 2.   OFFER STATISTICS AND EXPECTED TIMETABLES

Not applicable

Item 3.   KEY INFORMATION



|A. |  | Selected Financial Data(1)
|-- |  | --------------------------

The following table sets forth in Canadian dollars selected financial data
for Envoy for the fiscal years indicated below prepared in accordance with
Canadian Generally Accepted Accounting Principles unless otherwise noted. The
following selected financial data should be read in conjunction with the more
detailed financial statements and the related notes thereto appearing elsewhere
in this Form 20-F and the discussion under Item 5 Operating and Analysis of
Financial Condition and Results of Operation herein. The statements of
operations data of Envoy for the fiscal years ended September 30, 1998, and the
balance sheet data of Envoy as of September 30, 1998, are derived from
financial statements of Envoy that have been audited by BDO Dunwoody LLP,
independent public accountants, which are not included in this Form 20-F. The
selected financial data does not include statements of operations data or
balance sheet data of any acquired operations prior to their respective
acquisition effective dates.

|                              |  |                                                   |         |         |  |         |        |         |  |         |        |  |  |   |        |  |  |   |        | 
|----------------------------- |  | ------------------------------------------------- | ------- | ------- |  | ------- | ------ | ------- |  | ------- | ------ |  |  | - | ------ |  |  | - | ------ | 
|                              |  | Fiscal Years Ended September 30,                 
|                              |  |                                                  
|                              |  | 2002(2)                                           |         | 2001(3) |  | 2000(4) |        | 1999(5) |  | 1998(6)
|                              |  |                                                   |         |         |  |         |        |         |  |        
|                              |  | (all amounts in thousands, except per share data)
|Statement of Operations Data: |  |                                                   |         |         |  |         |        |         |  |         |        |  |  |   |        |  |  |   |        | 
|Net Revenue                   |  | $                                                 | 59,121  |         |  | $       | 82,786 |         |  | $       | 60,790 |  |  | $ | 41,787 |  |  | $ | 13,491 | 
|EBITDA(7)                     |  |                                                   | (2,375  | )       |  |         | 7,003  |         |  |         | 10,151 |  |  |   | 7,280  |  |  |   | 2,090  | 
|Net Earnings(8)               |  |                                                   | (53,379 | )       |  |         | (2,895 | )       |  |         | 2,910  |  |  |   | 2,877  |  |  |   | 1,503  | 
|Net Earnings Per Share(8)     |  |                                                   | ($2.54  | )       |  |         | ($0.14 | )       |  | $       | 0.15   |  |  | $ | 0.20   |  |  | $ | 0.15   | 



---

|(1) |  | The financial statements of Envoy are prepared in accordance with Canadian
Generally Accepted Accounting Principles (Canadian GAAP), which differs in
certain significant respects from U.S. Generally Accepted Accounting Principles
(U.S. GAAP). Reconciliation to U.S. GAAP is set forth in Note 20 to the
Notes to the audited Financial Statements of Envoy as well as in Note 8 to the
following table. Envoys results of operations under U.S. GAAP for the years
ended September 30, 2002, 2001 and 2000 are as disclosed in Note 20 to the
Notes to the audited Financial Statements of Envoy.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|                         |  |                                  |                            |      |  |      |         |      |  |      |         |  |  |   |        |  |  |   |        | 
|------------------------ |  | -------------------------------- | -------------------------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- |  |  | - | ------ |  |  | - | ------ | 
|                         |  | Fiscal Years Ended September 30,
|                         |  |                                 
|                         |  | 2002                             |                            | 2001 |  | 2000 |         | 1999 |  | 1998
|                         |  |                                  |                            |      |  |      |         |      |  |     
|                         |  |                                  | (all amounts in thousands)
|Balance Sheet Data:      |  |                                  |                            |      |  |      |         |      |  |      |         |  |  |   |        |  |  |   |        | 
|Current Assets           |  | $                                | 27,447                     |      |  | $    | 51,138  |      |  | $    | 43,337  |  |  | $ | 44,521 |  |  | $ | 15,684 | 
|Total Assets             |  |                                  | 49,174                     |      |  |      | 113,850 |      |  |      | 102,308 |  |  |   | 75,748 |  |  |   | 25,330 | 
|Total Debt(9)            |  |                                  | 14,003                     |      |  |      | 11,928  |      |  |      | 10,832  |  |  |   | 3,978  |  |  |   | 300    | 
|Shareholders Equity(10) |  |                                  | 9,779                      |      |  |      | 61,319  |      |  |      | 62,687  |  |  |   | 40,612 |  |  |   | 13,317 | 
|Retained Earnings(11)    |  |                                  | (47,630                    | )    |  |      | 5,603   |      |  |      | 8,403   |  |  |   | 5,493  |  |  |   | 2,682  | 



|(2) |  | The exchange rate utilized with respect to the Statement of Operations Data
for the year ended September 30, 2002 of Gilchrist is £1.00 to $2.3119 Cdn. and
with respect to the Balance Sheet Data of Gilchrist is £1.00 to $2.4894 Cdn.
The exchange rate utilized with respect to the Statement of Operations Data of
Hampel Stefanides is $1.00 U.S. to $1.5731 Cdn. and with respect to the Balance
Sheet Data of Hampel Stefanides is $1.00 U.S. to $1.5872 Cdn. Except as set
forth in footnotes 2, 3, 4 and 5, no other acquisitions by Envoy materially
affects the comparability of the information in the Selected Financial Data.                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(3) |  | The Statement of Operations Data for the year ended September 30, 2001
includes the results of operations of IDG, acquired effective as of January 1,
2001, for the nine month period from January 1, 2001 to September 30, 2001. See
Item 4 Information on the Company for a description of this acquisition. The
exchange rate utilized with respect to the Statement of Operations Data of
Gilchrist is £1.00 to $2.2122 Cdn. and with respect to the Balance Sheet Data
of Gilchrist is £1.00 to $2.3264 Cdn. The exchange rate utilized with respect
to the Statement of Operations Data of Hampel Stefanides is $1.00 U.S. to
$1.5785 Cdn. and with respect to the Balance Sheet Data of Hampel Stefanides is
$1.00 U.S. to $1.5352 Cdn. Except as set forth in footnotes 2, 3 and 4, no
other acquisitions by Envoy materially affect the comparability of the
information in the Selected Financial Data.                                                                                                                                                    
|   
|(4) |  | The Statement of Operations Data for the year ended September 30, 2000
includes the results of operations of Sage, acquired effective as of June 1,
2000, for the four month period from June 1, 2000 to September 30, 2000, and
the results of operations of Gilchrist, acquired effective as of July 1, 2000,
for the three month period from July 1, 2000 to September 30, 2000. See Item 4
Information on the Company for a description of such acquisitions. The
exchange rate utilized with respect to the Statement of Operations Data of
Gilchrist is £1.00 to $2.1885 Cdn. and with respect to the Balance Sheet Data
of Gilchrist is £1.00 to $2.2163 Cdn. The exchange rate utilized with respect
to the Statement of Operations Data of Hampel Stefanides is $1.00 U.S. to
$1.4722 Cdn. and with respect to the Balance Sheet Data of Hampel Stefanides is
$1.00 U.S. to $1.5035 Cdn. Except as set forth in footnotes 1, 3, and 4, no
other acquisitions by Envoy materially affect the comparability of the
information in the Selected Financial Data.

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|(5) |  | The Statement of Operations Data for the year ended September 30, 1999
includes the results of operations of Hampel Stefanides acquired effective as
of October 1, 1998, for the entire twelve month period, the results of
operations of Devlin acquired effective as of January 1, 1999 for the nine
month period from January 1, 1999 to September 30, 1999, and the results of
operations of Watt International, acquired effective as of May 1, 1999, for the
five month period from May 1, 1999 to September 30, 1999. See Item 4
Information on the Company for a description of such acquisitions. The
exchange rate utilized with respect to the Statement of Operations Data of
Hampel Stefanides is $1.00 U.S. to $1.5029 Cdn. and with respect to the Balance
Sheet Data of Hampel Stefanides is $1.00 U.S. to $1.4674 Cdn. Except as set
forth in footnotes 1, 2 and 4, no other acquisitions by Envoy materially affect
the comparability of the information in the Selected Financial Data.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(6) |  | The Statement of Operations Data for the year ended September 30, 1998
includes the results of operations for the four month period from June 1, 1998
to September 30, 1998 of Promanad, acquired effective as of June 1, 1998. See
Item 4 Information on the Company for a description of such acquisition.
Except as set forth in footnote 1, 2 and 3, no other acquisitions by Envoy
materially affect the comparability of the information in the Selected
Financial Data.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   
|(7) |  | EBITDA represents earnings before interest, taxes, depreciation, and
amortization before unusual items, restructuring costs and goodwill write-down
(Adjusted EBITDA), we have excluded these charges as management believes such
costs are non-recurring in nature                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

The following table sets forth, for the years indicated, a reconciliation of
EBITDA to net earnings (loss).

|                                                                         |                                  |   |                           |            |      |   |            |           |  |   |            |           | 
|------------------------------------------------------------------------ | -------------------------------- | - | ------------------------- | ---------- | ---- | - | ---------- | --------- |  | - | ---------- | --------- | 
|                                                                         |                                  |   | Years Ended September 30,
|                                                                         |                                  |   |                          
|                                                                         |                                  |   | 2002                      |            | 2001 |   | 2000      
|                                                                         |                                  |   |                           |            |      |   |           
|Net earnings (loss)                                                      |                                  | $ | (53,379,435               | )          |      | $ | (2,895,372 | )         |  | $ | 2,910,427  |          
|Adjustments to calculate EBITDA:                                         |                                  |   |                           |            |      |   |            |           |  |   |            |          
|                                                                         | Interest expense                 |   |                           | 1,245,126  |      |   |            | 743,600   |  |   |            | 407,473   | 
|                                                                         | Income tax                       |   |                           | (4,853,540 | )    |   |            | 1,359,731 |  |   |            | 3,252,354 | 
|                                                                         | Depreciation                     |   |                           | 2,858,641  |      |   |            | 2,866,679 |  |   |            | 1,986,691 | 
|                                                                         | Amortization of goodwill         |   |                           | 2,187,509  |      |   |            | 3,011,571 |  |   |            | 1,593,769 | 
|                                                                         | Amortization of intangible asset |   |                           | 24,197     |      |   |            |          |  |   |            |          | 
|                                                                         | Write-down of goodwill           |   |                           | 37,934,711 |      |   |            |          |  |   |            |          | 
|                                                                         | Restructuring costs              |   |                           | 10,857,534 |      |   |            |          |  |   |            |          | 
|                                                                         | Unusual items                    |   |                           | 750,648    |      |   |            | 1,917,334 |  |   |            |          | 
|                                                                         |                                  |   |                           |            |      |   |            |           |  |   |            |          
|EBITDA before unusual items,
restructuring costs and
goodwill write-down |                                  | $ | (2,374,609                | )          |      | $ | 7,003,543  |           |  | $ | 10,150,714 |          



|(8) |  | As reflected in Note 20 to the Notes to the audited Financial Statements of
Envoy, in accordance with the reconciliation to U.S. GAAP set forth therein,
the net earnings (loss) for the years ended September 30, 2002, 2001 and 2000
was ($54,396,047), ($3,830,675), and
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|     |  | $2,910,427 and the diluted net earnings (loss) per share for the years ended
September 30, 2002, 2001 and 2000 was ($2.59), ($0.18), and $0.15,
respectively.                                                                                                             
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|(9)  |  | Total debt includes both the current and long term portion of debt.                                                                                                                                                                                                       
|    
|(10) |  | As reflected in Note 20 to the Notes to the audited Financial
Statements of Envoy, in accordance with the reconciliation to U.S. GAAP set forth therein, the shareholders equity as at
September 30, 2002 and 2001 was $8,180,751 and $61,270,082, respectively.         
|    
|(11) |  | Retained earnings as of September 30, 2002, 2001, 2000, and 1999 excludes
the cumulative foreign currency translation adjustment of $1,348,449, 832,880,
($314,328) and ($494,844), respectively. See Note 2(f) to the Notes to the
audited Financial Statements of Envoy.

Envoy has never paid any dividends on its common shares and does not
anticipate that it will pay any cash dividends on its common shares in the
foreseeable future.

Exchange Rates

On February 17, 2003, the noon buying rate for Canadian dollars as
reported by the Federal Reserve Bank of New York was $1.00 U.S. to 1.5209 Cdn.
The following table sets forth for the periods indicated certain information
regarding the exchange rate into U.S. currency of Canadian dollars. The rate
of exchange means the noon buying rate in New York City for cable transfers in
foreign currencies as certified for customs purposes by the Federal Reserve
Bank of New York.

|         |  |                                 |        |      |  |      |        |      |  |      |        |  |  |   |        |  |  |   |        | 
|-------- |  | ------------------------------- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------ |  |  | - | ------ | 
|         |  | Fiscal Year Ended September 30,
|         |  |                                
|         |  | 2002                            |        | 2001 |  | 2000 |        | 1999 |  | 1998
|         |  |                                 |        |      |  |      |        |      |  |     
|Average* |  | $                               | 1.5731 |      |  | $    | 1.5353 |      |  | $    | 1.4724 |  |  | $ | 1.5033 |  |  | $ | 1.5265 | 



|* |  | The average rate means the average of the exchange rates on the last day of
each month during the fiscal period.
|- |  | ----------------------------------------------------------------------------------------------------------------

|     |  |         |                      |          |  |          |        |         |  |           |        |        |  |   |        |  |  |   |        |  |  |   |        | 
|---- |  | ------- | -------------------- | -------- |  | -------- | ------ | ------- |  | --------- | ------ | ------ |  | - | ------ |  |  | - | ------ |  |  | - | ------ | 
|     |  |         | For the month ending
|     |  |        
|     |  | January |                      | December |  | November |        | October |  | September |        | August
|     |  | 2003    |                      | 2002     |  | 2002     |        | 2002    |  | 2002      |        | 2002  
|     |  |         |                      |          |  |          |        |         |  |           |        |       
|High |  | $       | 1.5672               |          |  | $        | 1.5776 |         |  | $         | 1.5905 |        |  | $ | 1.5980 |  |  | $ | 1.5872 |  |  | $ | 1.5918 | 
|Low  |  |         | 1.5184               |          |  |          | 1.5476 |         |  |           | 1.5538 |        |  |   | 1.5583 |  |  |   | 1.5524 |  |  |   | 1.5538 | 

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|B. |  | Capitalization and Indebtedness          
|-- |  | -----------------------------------------
|  
|   |  | Not applicable                           
|  
|C. |  | Reasons for the Offer and Use of Proceeds
|  
|   |  | Not applicable                           
|  
|D. |  | Risk factors                             

Envoys business, financial condition and results of operations could be
materially adversely affected by any of the following risks.

This Form 20-F contains forward-looking statements that involve risks and
uncertainties. Envoys actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including the risks faced by Envoy described below and elsewhere in this form.

FinancialThe consolidated financial statements have been prepared on the
going concern basis, which assumes the Company will continue its operations in
the foreseeable future and will be able to realize its assets and satisfy its
liabilities in the normal course of business. Certain conditions exist and
events have occurred, as further described below that provide uncertainty
regarding the Companys ability to continue as a going concern, with its
existing operations. During fiscal 2002, the Company entered into a Forbearance
Agreement with the lenders, which requires the Company to make monthly
principal payments from December 31, 2002 through to March 31, 2003 and repay
the balance of the loan by April 30, 2003. Consequently the loan is classified
as a current liability and the working capital shortfall is approximately $7.7
million as at September 30, 2002. The Companys ability to repay its bank
borrowings is dependent upon its ability to generate positive cash flow from
operations, secure additional debt or equity financing under private
placements, refinance or renegotiate its debt facility and/or sell all of, or a
part of, its operating businesses. There can be no assurances that the Company
will be successful in doing so. In the event the Company is unable to repay or
refinance the bank loans from the above sources then the application of the
going concern principle for financial statement reporting purposes may no
longer be appropriate. These consolidated financial statements do not include
any adjustments related to the recoverability and classification of recorded
asset amounts or the amounts and classification of liabilities that may be
necessary.

General economic conditionsThe marketing and communications industry is
cyclical and as a result it is subject to downturns in general economic
conditions and changes in client business and marketing budgets. A significant
portion of our business is with large multinational businesses, including large
packaged goods companies and large food retailers who are less impacted by
downturns in the economy. In an effort to both offer our clients services on
an international scale, and to manage our exposure to broad economic
conditions, Envoy has diversified geographically, operating across North
America and in the United Kingdom.

7



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The marketing communications and design and industries are highly
competitive. Envoy competes in each of the markets in which it operates. In
the advertising/marketing field, Envoy competes with the operating agencies of
international holding companies such as Omnicom Group Inc., Interpublic Group
of Companies Inc., WPP Group PLC, Ogilvy & Mather (Canada) and Havas
Advertising, as well as such regional and local agencies such as Cossette
Communications Group Inc. In the design field, Envoys design company Watt has
competitors including Enterprise IG,Landor Associates, Interbrand Group, The
FutureBrand Company, Seigelgale, and Fitch Inc.

Envoy depends on its key management personnel for its future success.
Envoy relies on its key management personnel. Envoys future success will
depend upon its ability to attract and retain additional highly skilled
personnel. If any of Envoys officers or key employees leave Envoy, the
relationships that they have with Envoys clients could be lost. In addition,
Envoys ability to generate revenues directly relates to Envoys personnel,
both in terms of the number and expertise of the personnel Envoy has available
to work on its projects and the mix of full time employees, temporary employees
and contract service providers Envoy utilizes. The competition for employees at
all levels of the marketing communications industry is intense and is
increasing. As a result, if Envoy fails to retain existing employees or hire
new employees when necessary, Envoys business, financial condition and
operating results could be materially and adversely affected.

Envoys results of operations and its business depend on its relationship
with a limited number of large clients.Set forth below is the percentage of
net revenue during the fiscal year ended September 30, 2002 for each of Envoys
clients that accounted for 10% or more of its net revenue and for Envoys five
largest clients combined:

|                              |  |                    |      |  
|----------------------------- |  | ------------------ | ---- | -
|                              |  | Fiscal Year Ended 
|Client                        |  | September 30, 2002
|                              |  |                   
|Asda Stores Limited           |  |                    | 18.9 | %
|Wal-Mart Stores Inc.          |  |                    | 11.7 | %
|Safeway Incorporated          |  |                    | 11.6 | %
|Five largest clients combined |  |                    | 48.6 | %

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

As is customary in the industries in which we operate, Envoy does not have
long-term contracts with any of its clients. Envoys clients generally have
the right to terminate their relationships with Envoy without penalty and with
relatively short or no notice. The termination of Envoys business
relationships with any significant client, or a material reduction in the use
of

8



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Envoys services by any significant client, could adversely affect Envoys
future financial performance.

Envoys operating results may vary from period to period.Envoys
operating results have fluctuated in the past, and may continue to fluctuate in
the future, as a result of a variety of factors, many of which are outside of
Envoys control, including:



| |  |  | timing of new projects;                                                  
| | - |  | -------------------------------------------------------------------------
|
| |  |  | reductions, cancellations or completions of major projects;              
|
| |  |  | the loss of one or more significant clients;                             
|
| |  |  | the opening or closing of an office;                                     
|
| |  |  | Envoys relative mix of business;                                        
|
| |  |  | changes in pricing by Envoy or competitors;                              
|
| |  |  | employee utilization rates;                                              
|
| |  |  | changes in personnel;                                                    
|
| |  |  | costs related to expansion of Envoys business, including by acquisition;
|
| |  |  | increased competition; and                                               
|
| |  |  | marketing budget decisions by Envoys clients.                           

As a result of these fluctuations, period-to-period comparisons of Envoys
operating results cannot necessarily be relied upon as indicators of future
performance. In some fiscal quarters Envoys operating results may fall below
the expectations of securities analysts and investors due to any of the factors
described above.

The integration of acquired businesses may adversely affect Envoys
operating results.Envoy expects that the integration of businesses recently
acquired by it as well as future acquisitions, if any, will place a significant
burden on Envoys management. Such integration is subject to risks and
uncertainties, including:



| |  |  | the inability to effectively assimilate the operations,
services, technologies, personnel and cultures of the acquired
entities;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the potential disruption of Envoys business; and                                                                               
|
| |  |  | the impairment or loss of relationships with employees and clients.                                                             

If in connection with Envoys business acquisitions Envoy fails to integrate
Envoys operations successfully or on a timely basis, or if Envoy incurs
unforeseen expenses, Envoys financial performance could be materially and
adversely affected. In addition, if Envoy is unable to identify complementary
businesses to acquire or is unable to consummate acquisitions on acceptable
terms, Envoys expansion plans may be materially and adversely affected.

Continued growth of Envoys business will place increased demands on its
systems and resources and may impact Envoys operating results. The expansion
of Envoys business and

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customer base has placed increased demands on Envoys management,
operating systems, internal controls and financial and physical resources.
Envoys continued growth, if any, may strain existing management and human
resources, in particular, affecting Envoys ability to attract and retain
sufficient talented personnel. Consequently, Envoy may be required to increase
expenditures to hire new employees, open new offices and invest in new
equipment or make other capital expenditures. Any failure to expand any of the
foregoing areas in an efficient manner could adversely affect Envoys business.
There also can be no assurance that Envoy will be able to sustain the rates of
growth that Envoy has experienced in the past.

Conflicts of interest and exclusivity arrangements with Envoys clients
may limit Envoys ability to provide services to others. Conflicts of interest
between clients and potential clients are inherent in the marketing
communications, design and technology industry. Moreover, as is customary in
the marketing communications industry, Envoy has entered into exclusivity
arrangements with many of Envoys largest clients that restrict Envoys ability
to provide services to their competitors. Envoy has in the past been, and may
in the future be, unable to take on new clients because such opportunities
would require it to provide services to direct competitors of its existing
clients. In addition, Envoy risks harming relationships with existing clients
when it agrees to provide services to indirect competitors of existing clients.
Prospective clients also may choose not to retain Envoy for reasons of actual
or perceived conflicts of interest.

Item 4.   INFORMATION ON THE COMPANY

The following Information on the Company contains forward-looking
statements, which involve risks and uncertainties. Envoys actual results
could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those set forth under
Item 3Risk Factors and elsewhere in this Form 20-F.

ENVOY COMMUNICATIONS GROUP INC.

General

Envoy operates internationally providing design, marketing and technology
services in North America and Europe. Combining strategy, creativity, and
innovation, Envoys subsidiary companies deliver business-building solutions to
over 200 leading global brands. Our clients include Asda Stores Limited
(Asda), BASF Corporation (BASF), Cott Corporation (Cott), Famous Players
Inc. (Famous Players), Fujifilm Photo Film Canada Inc. (Fujifilm), Lexus a
division of Toyota Canada Inc. (Lexus), Nissan Canada Inc. (Nissan),
Safeway Incorporated (Safeway), Scott Paper Ltd. (Scott Paper), Sprint
Canada Inc. (Sprint Canada), Steelcase USA, Tetra Pak, and Wal-Mart Stores
Inc. (Wal-Mart). We generated $59.1 million Cdn. of net revenue for our
fiscal year ended September 30, 2002, $82.8 million Cdn. of net revenue for the
year ended September 30, 2001 and $60.8 million Cdn. for the year ended
September 30, 2000.

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The principal place of business of Envoy is located at 172 John Street,
Toronto, Canada M5T 1X5. Envoy may be reached by telephone: (416) 593-7555
facsimile: (416) 593-4434. Envoys website is www.envoy.to. Information
contained in our website does not constitute a part of this Form 20-F.



|A. |  | History and Development of the Company
|-- |  | --------------------------------------

Envoy was incorporated under the laws of the Province of British Columbia,
Canada as Potential Mines Ltd. in December 1973 and was continued under the
laws of the Province of Ontario, Canada in December 1997. Since December 1997
Envoy has shifted the nature of its business to providing marketing
communications and design services for promoting clients products, services
and business messages utilizing such media as print, broadcast and the
Internet. Envoy has grown, in large part, through strategic acquisitions.
Certain material acquisitions by Envoy are described below.

Effective as of June 1, 1998, Envoy acquired Promanad Communications Inc.
(Promanad), an advertising, public relations and corporate identity agency.
Envoy expanded its geographic reach into the U.S. marketplace through its
acquisition of Hampel Stefanides Inc. (Hampel Stefanides), effective as of
October 1, 1998.

Effective as of May 1, 1999, Envoy acquired Watt International Inc. (Watt
International), through which Envoy acquired the operations, substantially all
of the assets and certain of the liabilities of The Watt Design Group Inc.
(Watt Design), a Toronto-based provider of design, packaging, retail
environments and marketing identity services to retailers. Envoy expanded its
geographical reach into the United Kingdom and the continental Europe
marketplace through its acquisition of Gilchrist Brothers Limited
(Gilchrist), a United Kingdom based digital imaging and design firm,
effective as of July 1, 2000. Effective as of January 1, 2001, Envoy acquired
The International Design Group (Canada) Inc. (IDG), a Toronto-based retail
planning and design firm. IDG was amalgamated with Watt International effective
September 30, 2001. Watt International, Gilchrist and IDG are referred to
collectively as (Watt).

During July 2001, Envoy launched John Street Inc. a Toronto based
advertising and Communications initiative to replace the advertising business
previously conducted by the Communiqué Group Inc. Envoy owns 70% of John
Street Inc., and the shares held by the minority shareholders are mandatorily
redeemable by Envoy at September 30, 2004 for cash consideration. No amount
has been accrued in the financial statements as the purchase price will be
determined and paid over a three-year period based on certain performance
milestones.

Effective October 1, 2001, the Company acquired 100% of the outstanding
shares of Commordore Conference Planners Inc. (Commodore), a conference and
event marketing company.

Effective as of January 1, 1999, Envoy acquired Devlin Multimedia Inc.
(Devlin), a Toronto-based website design and development company. Effective
as of June 1, 2000, Envoy acquired Sage Information Consultants Inc. (Sage),
a digital professional service firm operating in the United States and Canada.
The assets of both Sage and Devlin were sold in

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November and October, respectively, 2002 and the Company will focus on the
design and marketing communications business going forward.



| | B. |  | Business Overview
| | -- |  | -----------------

Our Services

We provide strategic and creative marketing, design and technology
services that help our clients build, maintain and leverage their products and
brands. Our services help our clients build their public image, generate new
revenue, create first-to-market opportunities and increase efficiencies and
customer care.

Net revenue by type of service for the last three fiscal years is as
follows: (all amounts in thousands)

|             |  |             |        |             |  |             |        |  |  |   |        | 
|------------ |  | ----------- | ------ | ----------- |  | ----------- | ------ |  |  | - | ------ | 
|             |  | Fiscal 2002 |        | Fiscal 2001 |  | Fiscal 2000
|             |  |             |        |             |  |            
|Net revenue: |  |             |        |             |  |             |        |  |  |   |        | 
|Marketing    |  | $           | 12,428 |             |  | $           | 24,375 |  |  | $ | 28,773 | 
|Design       |  |             | 38,204 |             |  |             | 43,437 |  |  |   | 24,431 | 
|Technology   |  |             | 8,489  |             |  |             | 14,973 |  |  |   | 7,586  | 
|             |  |             |        |             |  |             |        |  |  |   |        | 
|             |  | $           | 59,121 |             |  | $           | 82,785 |  |  | $ | 60,790 | 

Net revenue by geographic region, based on the region the customer is
located, is as follows: (all amounts in thousands)

|                                      |  |             |        |             |  |             |        |  |  |   |        | 
|------------------------------------- |  | ----------- | ------ | ----------- |  | ----------- | ------ |  |  | - | ------ | 
|                                      |  | Fiscal 2002 |        | Fiscal 2001 |  | Fiscal 2000
|                                      |  |             |        |             |  |            
|Net revenue:                          |  |             |        |             |  |             |        |  |  |   |        | 
|Canada                                |  | $           | 15,983 |             |  | $           | 21,826 |  |  | $ | 24,164 | 
|United States                         |  |             | 27,708 |             |  |             | 40,970 |  |  |   | 32,560 | 
|United Kingdom and
Continental Europe |  |             | 15,430 |             |  |             | 19,989 |  |  |   | 4,066  | 
|                                      |  |             |        |             |  |             |        |  |  |   |        | 
|                                      |  | $           | 59,121 |             |  | $           | 82,785 |  |  | $ | 60,790 | 

Marketing

We provide comprehensive advertising/marketing services across various
media. These services include strategic planning and consulting, creative
concept development, off-line and on-line advertising production, account
planning, market research, media planning and buying, event marketing and
public relations.

We are committed to creating brand propositions that are unique, ownable
and sustainable. Through our advertising agencies Hampel Stefanides and John
Street we operate in the U.S. and Canada to provide our clients with a
consistent marketing message.

Design

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Watt is an international brand strategy, brand implementation and brand
consultancy which was ranked by DesignWeek as one of the top ten design firms
in the world.

We are involved with all aspects of the creation and execution of brand
strategy. We help our clients develop national and private label brands,
including the development of the product concept, brand name, image, brand
packaging, design and marketing strategies.

We are involved in the strategic naming, developing and positioning of
corporate images. We help our clients establish identities across their
organizations by creating consistent identities for every aspect of their
business. We focus on every aspect of the clients brand and identity, and we
conduct brand audits to assess the impact and efficiency of our clients
brands.

Our retail design group has designed many shopping malls, entertainment
complexes, specialty retailers, superstores, airport retail spaces, retail
department stores, banks and automobile maintenance stores. Our retail
concepts have been utilized in over 40 countries, representing over 25
industries.

Our staff of designers, strategists help our clients develop new retail
store concepts, design store layouts and assess and predict consumer shopping
behaviour in both brick-and-mortar and online retail environments.

Technology

In response to the growing interest in the Internet and e-commerce we
expanded our business to include technology as a key component of our overall
service offering through the acquisition of Sage and Devlin. However,
e-commerce and technology infastructure business slowed significantly in late
2001 and 2002 and our technology business also suffered a slowdown. During our
first quarter in fiscal 2003, we have disposed of our technology companies.

Our Strategy

Our goal is to be our clients most valued business partner in building
and leveraging their brands through marketing and design services. We believe
that we have the creative talent, strategic thinking and executional expertise
to offer our clients a truly integrated marketing communication strategy. We
plan to pursue the following strategies:

Deliver high quality and internationally recognized services in each of our
core disciplines.

Our brands have built strong reputations for delivering high quality
services internationally. We intend to continue to offer services at this high
standard in each of our core disciplines of marketing, design and technology.
We believe that this focus on internationally based, leading edge capabilities
will ensure that Envoy continues to attract and retain prominent clients and
key talent.

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Pursue strategic acquisitions.

Our historical growth has been achieved partially by way of strategic
acquisition. We have used this strategic acquisition strategy to extend
Envoys geographic reach and breadth of service offering and to add a
significant degree of diversification to our business model. The opportunities
for continued growth through acquisition are currently more limited as a result
of a shortage of available capital to fund such acquisitions.

Industry Overview

Worldwide Advertising Market

In this environment, we believe that companies are seeking to work with
agencies that can deliver proven creative talent, a consistent marketing
message worldwide and an integrated offering of advertising and marketing
services that includes creative concept development, strategic planning and
consulting, advertising production, media planning and buying, event and
marketing.

Design Services

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

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

Government Regulations

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

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|C. |  | Organizational Structure
|-- |  | ------------------------

Envoy has operations in the United States, the United Kingdom, Continental
Europe and Canada. Significant subsidiaries are as follows:

|                                  |  |                |     |               |  |                 |                | 
|--------------------------------- |  | -------------- | --- | ------------- |  | --------------- | -------------- | 
|                                  |  |                |     |               |  | Jurisdiction of
|Company                           |  | % of Ownership |     | Incorporation
|                                  |  |                |     |              
|Communique Incentives Inc.        |  |                | 100 |               |  |                 | Ontario       
|Hampel Stefanides, Inc.           |  |                | 100 |               |  |                 | Delaware      
|Devlin Multimedia Inc.            |  |                | 100 |               |  |                 | Ontario       
|Watt International Inc.           |  |                | 100 |               |  |                 | Ontario       
|Sage Information Consultants Inc. |  |                | 100 |               |  |                 | Ontario       
|Gilchrist Brothers Limited        |  |                | 100 |               |  |                 | United Kingdom
|International Design Group        |  |                | 100 |               |  |                 | Ontario       
|John Street Inc.                  |  |                | 70  |               |  |                 | Ontario       



|D. |  | Property, Plants and Equipment
|-- |  | ------------------------------

We currently operate offices in the following cities: London and Leeds
(UK), New York, San Francisco, and Toronto. The terms of our principal leases
are as follows:

Until January 2003, Envoys principal executive offices consisted of a
five-story office building of approximately 35,000 square feet located at 26-28
Duncan Street, Toronto, Ontario, Canada. In January 2003, Envoy exited the
Duncan Street facility after negotiating a release of the term of the lease
extension. Envoy has no further obligation to the landlord beyond February 1,
2003.

Envoy has additional office space consisting of a four-story office
building of approximately 20,000 square foot located at 172 John Street,
Toronto, Ontario. Envoys principal executive offices are now located at John
Street. In addition Watt IDG and John Street Inc. are also located in these
premises. These premises have been leased pursuant to a lease with a term
which commenced on July 1, 1999 and expires in June 2004, and a current annual
rent of $135,000 Cdn. with rent increases each year of the lease term. The
lease may be renewed by Envoy on six months prior written notice for three
further terms of two years for the first option and five years for the second
and third options at specified increased rents for each year of the renewal
terms. Notice has been given for the first option term. In connection with
the lease negotiation, the landlord advanced to Envoy $750,000 Cdn. as a loan,
with an interest rate of 3.5% per annum to be repaid over 10 years. The
leasehold improvements involved

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modernization of the facilities and other modifications expected to
benefit both Envoy and the landlord. The principal balance of this loan at
September 30, 2002 was $553,992 Cdn.

The offices of Envoys wholly-owned subsidiary Devlin were located at 185
Fredrick Street, Ground 100, Toronto, Ontario, Canada. The premises are leased
pursuant to a lease with a current annual rent of $82,138 Cdn. which expired in
July 2002. In October 2002 Envoy sold the assets of Devlin to management of the
subsidiary. The new company formed to acquire Devlin has been assigned all
future obligations for all leases formerly held by Devlin.

The executive offices of Envoys wholly-owned subsidiary, Hampel
Stefanides, are located on the 11th floor at 111 Fifth Avenue, New York, New
York. The offices consist of approximately 18,000 square feet of office space
leased pursuant to a lease (the HSI Lease) that expires in May 2011. Annual
rent is approximately US$324,000 until June 2004, when the annual rent
increases to US$846,000, with annual increases each year of the lease term.
Envoy has provided the landlord with a guarantee of Hampel Stefanides
obligation under the lease in the event that Hampel Stefanides is unable to
honour its lease commitments. Envoy maintains a $250,000 U.S. letter of credit
in for the landlord as security for the 11th floor lease.

During 2002 Envoy negotiated the exit of approximately 18,000 square feet
of office space located on the 12th floor of 111 Fifth Avenue, New York, New
York. Under the terms of the lease settlement agreement Envoy agreed to pay
the landlord on September 30, 2002 $500,000 (U.S.) cash, issued 250,000 common
shares of Envoy at a price of $.50 (U.S.) per share and agreed to make 22
additional monthly payments of $36,638 (U.S.) commencing October 1, 2002. The
payments are secured by a letter of credit in the amount of $250,000 (U.S.) in
favour of the landlord. The total expense relating to the 12th floor
termination agreement has been reflected as restructuring costs in fiscal 2002.

The offices of Envoys wholly-owned subsidiary, Watt International,
consist of an office building of approximately 26,600 square feet located at
300 Bayview, Toronto, Ontario, Canada. The premises are leased pursuant to a
lease with a current annual rent of $243,318 Cdn. that expires in March 2005.

The offices of Envoys wholly-owned subsidiary, Gilchrist, consist of an
industrial building of approximately 72,000 square feet located on Ring Road,
West Park, Leeds, West Yorkshire, England. The premises are leased pursuant to
a lease with a current annual rent of £150,000, which expires in February 2009.
Gilchrist has additional office space of approximately 950 square feet located
at 12 Great Newport Street, London, England. The premises are leased pursuant
to a lease with a current annual rent of £57,000, which expires in August 2005.

Clients

Our customers consist primarily of large multinational businesses and
regional accounts. No single client accounted for over 20% of net revenue for
the year ended September 30, 2002. Our clients during the year include: Asda,
BASF, Cott, Famous Players, Fujifilm, Lexus, Nissan, Safeway Inc., Scott Paper,
Sprint Canada, Steelecase USA, Tetra Pak, and Wal-Mart.

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Item 5.   OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following discussionshould be read in conjunction with, and is
qualified in its entirety by, the financial statements of Envoy and notes
relating thereto included elsewhere in this Form 20-F. The information
contained in this Item# 5 refersto financial statements of Envoy, which are
presented in Canadian dollars and are prepared in accordance with Canadian
GAAP. Canadian GAAP differs in certain significant respects from U.S. GAAP.
Reconciliation to U.S. GAAP is set forth in Note 20 to the Notes to the audited
Financial Statements of Envoy. Historical results of operations, percentage
relationships and any trends that may be inferred therefrom are not necessarily
indicative of the operating results of any future period.

The following discussion contains forward-looking statements that are
subject to significant risks and uncertainties. There are a number of
important factors that could cause actual results to differ materially from
historical results and percentages and results anticipated by the
forward-looking statements contained in the following discussion. Statements
in this Form 20-F concerning Envoys outlook or future economic performance,
anticipated profitability, revenues, commissions and fees, expenses or other
financial items and statements made with respect to any future events,
conditions, performance or other matters are forward looking statements as
that term is defined under the U.S. federal securities laws. Forward-looking
statements are subject to risks, uncertainties, and other factors, which could
cause actual results to differ materially from those stated in such statements.
Such risks, uncertainties and factors include, but are not limited to, (i) the
uncertain acceptance of the Internet and Envoys Internet and other technology,
(ii) that Envoy has grown rapidly in the last several years and there can be no
assurance that Envoy will continue to be able to grow profitably or manage its
growth, (iii) risks associated with acquisitions, (iv) risks associated with
competition, (v) that Envoys quarterly operating results have fluctuated in
the past and are expected to fluctuate in the future, and (vi) that the loss of
services of certain key individuals could have a material adverse effect on
Envoys business, financial condition or operating results.

Overview

Net Revenue.(Referred to as gross margin in fiscal 1999 and prior) Net
revenue represents Envoys compensation for its agency and non-agency services
and is recognized only when collection of such net revenue is probable. Agency
services are those that require the Company to incur external media and
production costs on behalf of its clients and for which it is entitled to pass
through the costs for reimbursement from its clients. The reimbursement of
pass-through costs are not included in net revenue. The Companys agency and
non-agency projects are typically short-term in nature. Fees earned for non
services are recognized either upon the performance of the Companys services
when the Company earns a per-diem fee, or in the case of a fixed fee, when the
Companys services are substantially complete and accepted by the client. Fees
billed to clients in excess of fees recognized as net revenue are classified as
deferred revenue. When the Companys compensation for its agency services is
based on commissions, net revenue is comprised of: (i) commissions earned from
media expenditures, which are recognized at the time the advertising appears or
is broadcast, or in respect of on-line advertising, either ratably over the
period of time the advertising appears or based on the actual impressions
delivered at the contractual rate per impression, depending upon the terms of
the arrangement; and (ii) commissions earned on expenditure for the production
of advertisements, which are

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recognized upon the completion of the Companys services and acceptance by
the client, being the time at which the Company has no further substantial
obligations with respect thereto. When the Companys compensation for its
agency services is fee-based, net revenue is comprised of non-refundable
monthly agency fees, which are recognized in the month earned.

Operating Expenses.Salaries and benefits and general and administrative
costs represent Envoys two largest operating expenses. Salaries and benefits
expenses include salaries, employee benefits, incentive compensation and other
payroll related costs, which are expensed as incurred. General and
administrative costs include business development, office costs and
professional services. Business development activities include new business
pitches to potential clients and existing clients or their respective
affiliates with respect to new products and services, client presentations, and
Envoys own advertising and promotion costs, award entry fees and research.

Recognition Policies.In general, Envoy recognizes its compensation for
its services as follows. Fees earned for non-agency services are recognized
either upon the performance of Envoys services when Envoy earns a per diem fee
or, in the case of a fixed fee, upon substantial completion of Envoys services
and acceptance by the client. Fees earned but not yet billed are included in
accounts receivable. Fees billed and collected from clients in excess of fees
recognized as net revenue are classified as deferred revenue.

When Envoys compensation for its agency services are commission based,
net revenue is comprised of (i) commissions earned from media expenditures,
which are recognized at the time the advertising appears or is broadcast, or in
respect of on-line advertising, either ratably over the period of time the
advertising appears or based on actual impressions delivered at the contractual
rate per impression, depending upon the terms of the arrangement, and (ii)
commissions earned on expenditures for the production of advertisements, which
are recognized upon the completion of Envoys services and acceptance by the
client, being the time at which Envoy has no further substantial obligations
with respect thereto. When Envoys compensation for its agency services is fee
based, net revenue is comprised of non-refundable monthly agency fees which are
recognized in the month earned.

Pass-through costs related to production are accrued and recorded in
accounts receivable, as unbilled reimbursable costs, at the time the third
party suppliers render their services. Pass-through costs related to media are
accrued at the time the advertisement appears or is broadcast.

Tax Matters.With respect to Envoys 2002 fiscal year, Envoy had tax loss
carryforwards sufficient to cover its Canadian income tax liabilities and has
approximately $9.3 million in loss-carryforwards. Details on income taxes are
set forth in Note 13 to the Notes to the audited consolidated Financial
Statements of Envoy.

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|A. |  | Operating Results
|-- |  | -----------------

Fiscal Year Ended September 30, 2002 compared to Fiscal Year Ended September
30, 2001

Net revenue decreased by 29%, to $59.1 million in the fiscal year ended
September 30, 2002, from $82.8 million in the fiscal year ended September 30,
2001. This decrease resulted from a combination of general economic slowdown
in the North American and U.K. marketplace as well as specific slowdown within
the advertising and technology markets, particularly in New York. Our revenue
from marketing activities decreased $12.0 million from $24.4 million to $12.4
million, the largest portion of this decrease being a decline in revenue in New
York of $11.7 million and a further decrease of approximately $300,000 in
revenue relating to the Canadian marketing group. Technology revenue decreased
$6.5 million from $15.0 million to $8.5 million. Again, part of the reduction
in revenue relates to the decline in business at our New York operations. Net
revenue from design services decreased $5.2 million from $43.4 to $38.2
million.

Our five largest clients in fiscal 2002 accounted for 48.6% of our net
revenue for such period, while our five largest clients in fiscal 2001
accounted for 37.5% of our net revenue for such period. No single client
accounted for over 20% of our net revenue in either of such years.

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

Operating expenses decreased by 19% to $61.5 million for fiscal 2002 from
$75.8 million in fiscal 2001. The primary reasons for the decrease in
operating expenses were a decrease in salaries and benefits of $8.6 million, or
16%, and a decrease in general and administrative expenses of $5.7 million, or
33%. Occupancy costs decreased slightly from $4.8 million to $4.7 million.

In response to the significant decrease in revenues experienced by the
Company in the first six months of the year, management implemented a plan to
reduce salary and benefit expenses during the second quarter. As a result of
this downsizing, a reduction of approximately $15.2 million in annual salary
and benefit expenses was achieved, although all of these savings were not
realized during the current year. General and administrative expenses also
decreased as a result of both cost saving measures initiated by management and
the overall decline in revenues. During fiscal 2002, the Company exited from
excess office space in New York and subsequent to year-end the Company exited
from excess office space in Toronto.

EBITDAEarnings before interest, taxes, depreciation and amortization
before unusual items, restructuring costs and goodwill write-down (Adjusted
EBITDA), we have excluded these charges as management believes such costs are
non-recurring in nature. In fiscal 2002, we

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had a loss of ($2.4) million in Adjusted EBITDA, as defined, compared with
income of $7.0 million in fiscal 2001.

Depreciation expenseDepreciation expense remained consistent at $2.9
million in fiscal 2002 and fiscal 2001.

Interest expenseInterest expense increased from $744,000 to $1.2
million. The increase in interest was largely due to an increase in interest
rates year over year on our borrowing under our credit facility. Our effective
rate of interest on this debt increased during the year to 8.5% from 4.5%. In
addition, interest expense increased because of the issuance of $3.8 million
convertible debentures during the year with interest being paid at 10% per
annum. The convertible debentures also have a non-cash interest expense
resulting from the accounting for the conversion features of the debentures.
See Note 11 to the audited consolidated financial statements. Interest expense
also includes fees associated with the restructuring of our bank loan facility
of $290,000.

Unusual ItemDuring 2002, as a result of changes in the banking loan
arrangements, the Company was no longer allowed to fully utilize its $40
million line of credit and repayment terms were accelerated. Accordingly, the
remaining unamortized portion of deferred financing charges totaling $751,000
was written off.

RestructuringAs mentioned above, in response to a general economic
downturn impacting the Companys business, management implemented a
restructuring plan during the first half of fiscal 2002. The restructuring
involved downsizing its workforce, exiting excess office space and writing off
redundant fixed assets. Accordingly, the Company has recorded a restructuring
expense of $10.9 million. The restructuring includes a reduction of 156
employees, as well as the abandonment of 18,000 square feet of leased office
space in New York City, and 35,000 square feet of leased office space in
Toronto. The annual expense savings in salaries, benefits and occupancy costs
associated with this restructuring is expected to be approximately $17.2
million.

The above factors resulted in a decrease in our earnings (loss) before
income taxes and goodwill amortization and goodwill write-down from $1.5
million to ($18.1) million.

Income taxesIn 2002, our effective income tax rate as a percentage of
net income before goodwill amortization was (26.7%) compared to our 2001
effective tax rate of 92.2%. The difference relates primarily to the Company
having a pretax loss in fiscal 2002, compared to pretax income in fiscal 2001,
and certain expenses deducted in the accounts which have no corresponding
deduction for income taxes as set forth in Note 13 in our audited consolidated
financial statements. These expenses increased in 2002 due to the write-down
of goodwill, certain costs incurred in connection with equity financing, and
certain compensation expenses, which may not be deductible for tax purposes.
See also Note 2(g) in our audited consolidated financial statements. In the
current year management has recorded a valuation allowance of approximately
$2.4 million in the carrying value of the deferred tax assets. The valuation
allowance was considered appropriate because, in the opinion of management it
is likely not able to realize the benefits.

20



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##### Table of Contents



Goodwill amortizationGoodwill amortization decreased from $3.0 million
to $2.2 million due largely to the write-down of goodwill during the year.
Goodwill is largely not deductible for income tax purposes.

Write-down of goodwillDuring the year the Company performed an
assessment of the carrying values of goodwill recorded in connection with its
various businesses. The assessment was performed because a number of factors
indicated that an impairment had arisen commencing in the period ended March
31, 2002, as well as later in fiscal 2002. Accordingly, the Company recorded a
write-down of $37.9 million, which primarily related to the goodwill associated
with the businesses of Sage, Promanad and Hampel Stefanides. See Note 8 in the
audited consolidated financial statements.

Net Earnings (loss)Primarily as a result of the foregoing factors, net
loss increased from ($2.9) million in fiscal 2001 to ($53.4) million in fiscal
2002.

Fiscal Year Ended September 30, 2001 compared to Fiscal Year Ended September
30, 2000

Net revenueNet revenue increased by 36% to $82.8 million in the year
ended September 30, 2001 from $60.8 million in the year ended September 30,
2000. This increase occurred as a result of both growth through acquisition
and organic growth. Effective January 1, 2001 Envoy acquired the International
Design Group. This acquisition was accounted for using purchase accounting and
Envoys results of operations reflect net revenue from the effective date of
the acquisition. This acquisition accounted for approximately $2.8 million, or
13% of the overall increase in net revenue. Our organic growth rate for the
entire Company in 2001 was 4.8%.

In fiscal 2000, Envoy completed two acquisitions: the acquisition of
Gilchrist effective July 1, 2000, and the acquisition of Sage, effective June
1, 2000. Envoys results of operations for fiscal 2000 include the acquired
operations from their respective dates of the acquisitions. As a result of the
acquisitions of Gilchrist and Sage, there are an additional nine and eight
months of net revenues for these companies, respectively, included in the
September 30, 2001 results of operations that were not included in the results
of operations for the year ended September 30, 2000. In fiscal 2001, net
revenue from Envoys marketing services represented approximately 30% of net
revenue, while design and technology services represented 52% and 18%
respectively.

Net revenues from customers located in the United States have continued to
grow from $32.6 million in fiscal 2000 to $41.0 million in fiscal 2001, partly
due to the acquisition of Sage in late fiscal 2000. Net revenues from the
United Kingdom and continental Europe have continued to grow from $4.1 million
in 2000 to $20.0 million in 2001 largely due to the acquisition of Gilchrist in
late 2000.

Our five largest clients in fiscal 2001 accounted for 37.5% of our net
revenue for such period, while our five largest clients in fiscal 2000
accounted for 33.7% of our net revenue for such period. No single client
accounted for over 18% of our net revenue in either year.

21



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In fiscal 2001, Envoy earned $7.0 million in EBITDA before unusual items
compared with $10.2 million in fiscal 2000. This represents a decrease of 31%
year over year. In 2001, our EBITDA profit margin before unusual items was
8.7%, compared to 17.3% in 2000. The decrease is largely due to the general
economic slowdown in the last quarter. During the fourth quarter the Company
experienced a loss of $3 million dollars. The principal reasons for this in
our fourth quarter were the slowdown in our technology business, which
experienced a loss of approximately $1.5 million, as well as losses resulting
from the closure of Communiqué Advertising in Canada. In addition goodwill
amortization for the fourth quarter amounted to approximately $800,000.

Operating ExpensesOperating expenses increased by 50% to $75.8 million
for fiscal 2001 from $50.6 million for fiscal 2000. As a percentage of net
revenue, operating expenses increased to 91% for fiscal 2001 from 83% in fiscal
2000. The primary reasons for the increase in operating expenses were an
increase in salaries and benefits of $18.5 million, or 53%; an increase in
general and administrative expenses of $4.4 million or, 34%; and an increase in
occupancy costs of $2.2 million, or 86%. There were also increases in
depreciation of $880,000, or 44%, and of goodwill amortization net of taxes of
$1.4 million, or 89%. The increase in salaries and benefits reflects staff of
acquired operations plus the additional management and client support personnel
employed to handle the continued growth and expanded operations throughout
Envoy and related recruiting and hiring costs. As a percentage of net revenue,
salaries and benefits increased to 65% for fiscal 2001 compared with 58% in
fiscal 2000. The percentage increase in salary expense is a result of a
combination of factors including the cost of winding up our Canadian
advertising business during the year, an increase in staff to accommodate the
growth in our technology business and, the delay in the launch by clients of
certain major projects which resulted in underutilized staff at certain times
during the year. The additional general and administrative expenses were
largely due to expanded business development activities by our existing
business divisions as well as new and expanded business development by the
acquired businesses. General and administrative expenses remained constant at
21% of net revenue for fiscal 2001 and fiscal 2000. Occupancy costs increased
due to additional space required to support our growth in New York, San
Francisco and Sweden, and the occupancy costs associated with the acquisition
of Gilchrist for an additional three months in fiscal 2001. The additional
depreciation charges were due to the depreciation of leasehold costs associated
with our acquired operations and additional office space; depreciation of newly
purchased capital equipment and depreciation from acquired businesses. As a
percentage of revenue, depreciation remained relatively consistent at
approximately 3.4% year over year. The increase in interest charge was largely
due to additional debt used to funds acquisitions as well as an increase in
interest rates year over year on our floating rate debt.

During the year we announced that we terminated our discussions in
connection with the proposed acquisition of Leagas Delaney. Generally accepted
accounting principles require that all costs associated with the proposed
acquisitions and the related equity financing need to be expensed at the date
of abandonment. These costs include legal, accounting, consulting and other
out-of-pocket expenses, all of which amounted to approximately $1.9 million.

The above factors resulted in a decrease in our earnings before income
taxes and goodwill amortization from $7.8 million to $1.5 million.

22



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In 2001, our effective income tax rate as a percentage of net income
before goodwill amortization was 92.2% compared to our 2000 effective tax rate
of 41.9%. The difference relates primarily to expenses deducted in the
accounts which have no corresponding deduction for income taxes as set forth in
Note 10 to our audited consolidated financial statements. These expenses
increased in 2001 due to certain costs incurred in connection with aborted
acquisitions and equity financing, and certain compensation expense both of
which may not be deductible for tax purposes. See Note 2(d) and Note 11 in our
audited consolidated financial statements.

Goodwill amortization increased from $1.6 million to $3 million due
largely to the increased amount of goodwill derived from the acquisitions
discussed above as well as additional earn-out payments. Goodwill is largely
not deductible for income tax purposes.

Net IncomePrimarily as a result of the foregoing factors, net income
decreased from $2.9 million in fiscal 2000 to ($2.9) million in fiscal 2001.



|B. |  | Liquidity and Capital Resources
|-- |  | -------------------------------

During the year the Company entered into a Forbearance Agreement with the
lenders under its Bank Credit Facility. The Forbearance Agreement requires the
Company to make certain monthly principal repayments commencing in December
2002 with the balance due on April 30, 2003. Additional borrowings under the
Forbearance Agreement are limited to a letter of credit of £250,000. The
ability to make such future principal repayments is dependent on the Companys
ability to generate positive cash flow from operations in the future as well as
to raise sufficient funds to repay bank borrowings by way of additional debt or
equity financing under private placements, sell additional business units or
refinance its bank facility with the current lenders or alternative lenders.
There can be no assurances that the Company will be successful in obtaining
additional debt or equity financing, refinancing its bank facility, or that
additional business units can be sold.

The consolidated financial statements have been prepared on a going
concern basis, which assumes the Company will continue in operations in the
foreseeable future and be able to realize its assets and satisfy its
liabilities in the normal course of business. See Note 1 to the audited
consolidated financial statements.

Our principal capital requirements have been used to fund acquisitions,
including related earnout, capital expenditures and working capital purposes.
The Company does not have any substantial earnout payments remaining on its
previous acquisitions and the remaining potential liability is contingent on
future financial performance.

On April 29, 2002, we issued $1,800,000 in 10% convertible debentures
which mature on April 29, 2007. On September 12, 2002, we issued an additional
$2,000,000 in 10% convertible debentures which mature on September 12, 2007.
See Note 11 of the audited consolidated financial statements. The net proceeds
from the sale of the debentures were used for general corporate purposes.

23



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##### Table of Contents



We had a working capital deficit of ($7.7) million and a cash balance of
$470,000 at September 30, 2002. At September 30, 2001, working capital was
($430,000) and a cash balance of $21.8 million. Working capital includes the
reclassification of bank debt of $9.8 million in fiscal 2002 and $7.8 million
in fiscal 2001, as a current liability due to the terms of the Forebearance
Agreement entered into with the lenders, which requires full repayments of
outstanding balances by April 30, 2003. The Company has a credit facility of
£250,000 available until April 30, 2003 to fund working capital requirements.
In addition the Company has used excess cash balance to fund its working
capital requirements however, such cash balance can vary significantly
depending on client spending patterns and collection results. Subsequent to
year-end the Company has arranged a $0.5 million loan with an interest rate of
15% per annum, paid monthly. The loan is repayable on June 30, 2003.

Net cash provided by (used in) operating activities before any increase or
decrease in non-cash operating working capital was ($7.6) million for the year
ended September 30, 2002 and $2.5 million for the year ended September 30,
2001. The decrease in working capital is primarily a result of the decrease in
cash due to lower earnings during the year.

Net cash provided by (used in) financing activities was $3.0 million for
the year ended September 30, 2002 and ($287,000) for the year ended September
30, 2001. During fiscal 2002, the Company issued $3.8 million convertible
debentures. See Note 11 to our audited consolidated financial statements.

Net cash used in investing activities was ($3.7) million for the year
ended September 30, 2002 and ($5.4) million for the year ended September 30,
2001. Decrease is a result of fewer expenses relating to acquisitions during
the year and a reduction in capital expenditures.

At September 30, 2002 we had restricted cash of $1.8 million ($159,000 at
September 30, 2001) representing customer deposits. See Note 4 to our audited
consolidated financial statements.

Critical Accounting Policies

The significant accounting policies used by the Corporation in preparing its
consolidated financial statements are described in Note 2 to the audited
consolidated financial statements and should be read to ensure a proper
understanding and evaluation of the estimates and judgements made by management
in preparing those financial statements. The corporations consolidated
financial statements are prepared in accordance with Canadian generally
accepted accounting principals. The Corporation also prepares a reconciliation
to United States generally accepted accounting principals, which is included in
Note 20 to the audited consolidated financial statements.

Inherent in the application of some of those policies is the judgement by
management as to which of the various methods allowed under generally accepted
accounting principals is the most appropriate to apply in the case of the
Corporation. As well, management must take appropriate estimates at the time
the financial statements are prepared.

24



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##### Table of Contents



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

GoodwillAnnually, the Company assesses the recoverability of the carrying
value of its goodwill and the related amortization period. As part of the
evaluation, the Company considers several factors, including the operating
results and trends, movements in major clients and key client service
personnel, changes in client relationships and general economic conditions.
Future operating results and above factors could vary materially, and
accordingly the value of goodwill could change by material amounts.

Income TaxesThe 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
anticipated date of the reversal for all significant temporary differences
between the tax and accounting bases of assets and liabilities and for certain
tax carryforward items. Future income tax assets and liabilities are
recognized only to the extent that, in the opinion of management, it is more
likely than not that the future income tax assets will be realized. Future
operating results and future tax rates could vary materially, and accordingly
the value of income tax assets and liabilities could change by material
amounts.

Impact of Recently Issued Canadian Accounting Standards

Business Combinations

The Company adopted the new provisions of the Canadian Institute of Chartered
Accountants (CICA), Handbook Section 1581, Business Combinations. All
business combinations are accounted for using the purchase method of
accounting. The value of the shares issued in a business combination are
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. Effective
July 1, 2001, goodwill acquired in business combinations completed after June
30, 2001 was not amortized and is subject to impairment testing and intangible
assets that meet specific criteria are recognized and reported apart from
goodwill.

Earnings Per Share

The Company adopted the new provisions of the CICA Handbook Section 3500,
Earnings per Share. Basic earnings per share is computed using the weighted
average number of common shares that are outstanding during the year. Diluted
earnings per share is computed using the weighted average number of common and
potential common shares outstanding during the year. Potential common shares
consist of the incremental issuable upon the exercise of stock options using
the treasury method. Previously, the Company calculated fully diluted earnings
per share using the imputed earnings method. The change in accounting policy
has been applied retroactively and the diluted earnings per share figures
presented for the comparative period have been restated.

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##### Table of Contents



Commitments and Contractual Commitments

Set out below is a summary of the amounts due and committed under contractual
cash obligations at September 30, 2002:

|                                    |  |       |            |              |  |               |            |               |  |             |           |           |  |   |            |   |  |   |         | 
|----------------------------------- |  | ----- | ---------- | ------------ |  | ------------- | ---------- | ------------- |  | ----------- | --------- | --------- |  | - | ---------- | - |  | - | ------- | 
|                                    |  |       |            |              |  | Due in 1      |            | Due between   |  | Due between |           | Due after
|                                    |  | Total |            | year or less |  | years 2 and 3 |            | years 4 and 5 |  | 5 years    
|                                    |  |       |            |              |  |               |            |               |  |            
|Bank credit
facility and other
debt |  | $     | 11,919,313 |              |  | $             | 10,589,114 |               |  | $           | 743,731   |           |  | $ | 308,499    |   |  | $ | 277,969 | 
|Operating leases                    |  |       | 24,543,358 |              |  |               | 4,402,963  |               |  |             | 7,877,681 |           |  |   | 12,185,501 |   |  |   | 77,213  | 
|Debentures                          |  |       | 3,800,000  |              |  |               | 0          |               |  |             | 0         |           |  |   | 3,800,000  | * |  |   | 0       | 
|                                    |  |       |            |              |  |               |            |               |  |             |           |           |  |   |            |   |  |   |         | 
|Total contractual
cash obligations  |  | $     | 40,262,671 |              |  | $             | 14,992,077 |               |  | $           | 8,621,412 |           |  | $ | 16,294,000 |   |  | $ | 355,182 | 



---

|(a) |  | * The holders of the convertible debentures have the right to require
the Company to purchase all or a portion of their debentures in fiscal 2004.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | See Notes 10, and 16 to the audited consolidated financial statements.                                                                            

Other Commitments

Earn-out payments for acquisitionsAdditional consideration may be paid with
respect to Commordore over a two-year period if certain milestones are
achieved. The earn-out amounts earned will be satisfied to a maximum of
$475,000 in cash. See Note 3(a) of the audited consolidated financial
statements. Additional consideration may be paid with respect to the
acquisition of International Design Group, over a three-year period if certain
performance milestones are achieved. The earn-out amounts earned will be
satisfied by a maximum of $2,000,000 in cash and a maximum of 154,321 common
shares of the Company. See Note 3(b) of the audited consolidated financial
statements.

The Company has letters of credit outstanding of Cdn. $150,000, U.S. $500,000
and £250,000 all of which expire on April 30, 2003.

The shares held by the minority shareholders of John Street Inc., representing
a 30% interest, are mandatorily redeemable by the Company at September 30, 2004
for cash consideration and as such represents a financial liability of the
Company. No amount has been accrued in the financial statements as the
purchase price will be determined and paid over a three-year period based on
certain performance milestones.



|C. |  | Research and Development, Patents and Licenses, etc.
|-- |  | ----------------------------------------------------
|  
|   |  | Not applicable                                      

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##### Table of Contents





|D. |  | Trend Information
|-- |  | -----------------
|  
|   |  | Not applicable   

Item 6.   DIRECTORS AND SENIOR MANAGEMENT AND EMPLOYEES



|A. |  | Directors and Senior Management
|-- |  | -------------------------------

The following table sets forth certain information regarding the directors
and senior managers of Envoy as of January 31, 2003. Each director is elected
at the annual meeting of shareholders to serve until the next annual meeting or
until a successor is elected or appointed.

|                     |  |     |    |                 |  |                                                             
|-------------------- |  | --- | -- | --------------- |  | ------------------------------------------------------------
|                     |  |     |    |                 |  | Positions                                                   
|Name                 |  | Age |    | Held with Envoy
|                     |  |     |    |                
|Geoffrey B. Genovese |  |     | 48 |                 |  | Chairman, President and Chief Executive
Officer and Director
|John H. Bailey(2)    |  |     | 58 |                 |  | Secretary and Director                                      
|David Hull(1),(2)    |  |     | 46 |                 |  | Director                                                    
|Hugh Aird(1),(2)     |  |     | 49 |                 |  | Director                                                    
|David Parkes(1)      |  |     | 56 |                 |  | Director                                                    
|Donald G. Watt       |  |     | 67 |                 |  | Director                                                    
|J. Joseph Leeder     |  |     | 48 |                 |  | Vice President and Chief Financial Officer                  



---

|(1) |  | Member of the Audit Committee.       
|--- |  | -------------------------------------
|   
|(2) |  | Member of the Compensation Committee.

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

Geoffrey B. Genovese.Mr. Genovese founded The Incentive Design Company
Ltd., a business and marketing communications company, in 1981. Envoy acquired
IDC in July 1991. Mr. Genovese currently serves as Chairman, President and
Chief Executive Officer of Envoy Communications Group Inc. and Chief Executive
Officer of Watt International Inc. Mr. Genovese served as President and Chief
Executive Officer of Envoy from October 1993 to September 2001. Mr. Genovese
has been a Director of Envoy since July 1991.

John H. Bailey. Mr. Bailey is a barrister and a solicitor who has been in
private practice since 1973. Mr. Bailey earned a Bachelor of Commerce and a
Bachelor of Laws degree from the University of Toronto and a Master of Laws
degree from York University. Mr. Bailey has been a Director of Envoy since
April 1994 and Secretary of Envoy since August 1997.

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##### Table of Contents



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

Hugh Aird. Mr. Aird has been Vice President Business Development of
Mulvihill Capital Management, a financial consulting company, since November
2001. Mr. Aird was Chairman and Chief Executive Officer of DRIA Capital Inc., a
financial consulting company, from November 1998 to November 2001.From
February 1995 to November 1998, Mr. Aird was the Vice-Chairman and a Director
of Merrill Lynch Canada Inc. (formerly Midland Walwyn Capital Inc.). From
February 1986 to 1996, Mr. Aird was President and Chief Executive Officer of
Trilon Securities Corporation, a securities firm. Mr. Aird has been a Director
of Envoy since August 1997. Mr. Aird has been a Director of Invesprint
Corporation, a label and packaging material manufacturer listed on the TSE,
since March 1996 and of Digital Processing Systems Inc., a designer,
manufacturer and marketer of electronic hardware and software listed on the
TSE, since May 1996.

David
Parkes.Mr. Parkes founded David Parkes & Associates in September
2001, which is an Executive Consulting Service firm. From November 1999 to
August 2001, Mr. Parkes was President and CEO of Look Communications Inc. From
September 1997 to November 1999, Mr. Parkes was President and CEO of
TeleSpectrum Canada Inc. From January 1995 to June 1997, Mr. Parkes was
President and CEO of Sprint Canada Inc. Mr. Parkes has been a director of
Envoy since October 2002.

Donald G. Watt. Mr. Watt founded Watt Design in 1966 and served as its
President from its inception until 1992 when it was acquired by Cott
Corporation, a supplier of retail branded beverages listed on the TSE and
Nasdaq. Mr. Watt served as Watt Designs Chairman from 1992 until the
acquisition of substantially all of Watt Designs assets by Envoy. In
addition, during the period from 1992 to 1995, Mr. Watt served as the President
of Retail Brands Corporation, the marketing arm of Cott Corporation. Mr. Watt
has been Chairman of Watt International since its acquisition by Envoy. Mr.
Watt became a director of Envoy in June 1999. Mr. Watt is also a Director of
Cott Corporation, The Forzani Group Limited, a retailer of sporting goods
company listed on the TSE and Montreal Stock Exchange, Indigo Books & Music
Inc., a retailer of books and music, GTR Group Inc., a supplier of republished
and previously played video games listed on the TSE, Aastra Technologies
Limited, a manufacturer of telecommunications equipment listed on the TSE and
Alberta Stock Exchange, and Partyco Holdings Ltd., a retailer of party supplies
listed on the Alberta Stock Exchange.

J. Joseph Leeder. Mr. Leeder joined Envoy in November 1998 as Vice
President and Chief Financial Officer. Prior to joining Envoy, Mr. Leeder was
a partner of KPMG LLP in Canada, an accounting firm, and an executive vice
president of KPMG Corporate Finance Inc., a subsidiary of KPMG LLP.

The Ontario Business Corporations Act requires that a majority of Envoys
directors be Canadian residents. There are no arrangements or understandings
between any director or executive officer of Envoy pursuant to which he was
selected as such.

28



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##### Table of Contents





|B. |  | Compensation
|-- |  | ------------

The following table sets forth in Canadian dollars all compensation for
the fiscal year ended September 30, 2002 paid to the Chief Executive Officer of
Envoy and the four other most highly compensated officers who served as
executive officers of the Company (the Named Executive Officers):

|                                                 |  |                     |         |                        |  |                 |        |             |  |        |         |             |  |           |         |         |  |               |  |         |  |              |   |  |  |  |   |  |  |  |   | 
|------------------------------------------------ |  | ------------------- | ------- | ---------------------- |  | --------------- | ------ | ----------- |  | ------ | ------- | ----------- |  | --------- | ------- | ------- |  | ------------- |  | ------- |  | ------------ | - |  |  |  | - |  |  |  | - | 
|                                                 |  |                     |         | Long Term Compensation | 
|                                                 |  |                     |         |                        | 
|                                                 |  |                     |         |                        |  |                 |        |             |  |        |         |             |  | Awards    |         | Payouts |  |               |  |        
|                                                 |  |                     |         |                        |  |                 |        |             |  |        |         |             |  |           |         |         |  |               |  |        
|                                                 |  | Annual Compensation |         |                        |  |                 |        |             |  |        |         | Restricted  |  |           |         |         |  |               |  |        
|                                                 |  |                     |         | Securities             |  |                 |        |             |  | Shares |         |             |  |           |         |         |  |              
|                                                 |  |                     |         |                        |  |                 |        |             |  | Other  |         | Under       |  |           |         |         |  | or Restricted |  | LTIP    |  | All Other   
|Name and Principal                               |  |                     |         |                        |  |                 |        |             |  | Annual |         | Option/SARs |  |           |         |         |  | Share         |  | Payouts |  | Compensation
|Position                                         |  | Salary ($)          |         | Bonus ($)              |  | Compensation($) |        | Granted (#) |  |        |         |             |  | Units ($) |         | ($)     |  | ($)          
|                                                 |  |                     |         |                        |  |                 |        |             |  |        |         |             |  |           |         |         |  |              
|Geoffrey B. Genovese,                            |  |                     | 513,333 |                        |  |                 |       |             |  |        | 150,000 | (1)         |  |           | 500,000 |         |  |               |  |         |  |              |  |  |  |  |  |  |  |  |  | 
|Chairman, President
andChief Executive
Officer   |  |                     |         |                        |  |                 |        |             |  |        |         |             |  |           |         |         |  |               |  |         |  |              |   |  |  |  |   | 
|                                                
|J. Joseph Leeder,                                |  |                     | 280,000 |                        |  |                 |       |             |  |        |        |             |  |           | 400,000 |         |  |               |  |         |  |              |  |  |  |  |  |  |  |  |  | 
|Vice President, and
Chief Financial
Officer      |  |                     |         |                        |  |                 |        |             |  |        |         |             |  |           |         |         |  |               |  |         |  |              |   |  |  |  |   | 
|                                                
|Arthur Fleischman,                               |  |                     | 225,000 |                        |  |                 | 80,000 |             |  |        |        |             |  |           |        |         |  |               |  |         |  |              |  |  |  |  |  |  |  |  |  | 
|President,John
Street Inc.                       |  |                     |         |                        |  |                 |        |             |  |        |         |             |  |           |         |         |  |               |  |         |  |              |   |  |  |  |   | 
|                                                
|Larry Hampel,                                    |  |                     | 350,000 | (2)                    |  |                 |       |             |  |        |        |             |  |           |        |         |  |               |  |         |  |              |  |  |  |  |  |  |  |  |  | 
|Executive Vice
President,Hampel
Stefanides, Inc. |  |                     |         |                        |  |                 |        |             |  |        |         |             |  |           |         |         |  |               |  |         |  |              |   |  |  |  |   | 
|                                                
|Dean Stefanides,                                 |  |                     | 350,000 | (2)                    |  |                 |       |             |  |        |        |             |  |           |        |         |  |               |  |         |  |              |  |  |  |  |  |  |  |  |  | 
|Executive Vice
President,Hampel
Stefanides, Inc. |  |                     |         |                        |  |                 |        |             |  |        |         |             |  |           |         |         |  |               |  |         |  |              |   |  |  |  |   | 



|(1) |  | The amount was paid to a corporation related to Mr. Genovese as an annual
management fee.     
|--- |  | ----------------------------------------------------------------------------------------------
|   
|(2) |  | The compensation of Messrs. Hampel and Stefanides is stated and paid in
United States dollars.

The following table sets forth options granted under the Stock Option Plan to
the Named Executive Officers of the Company in the most recently completed
fiscal year:

|                     |  |                     |  |                     |        |               |  |                |  |                    |      |                   |  |   |      |  |  |             
|-------------------- |  | ------------------- |  | ------------------- | ------ | ------------- |  | -------------- |  | ------------------ | ---- | ----------------- |  | - | ---- |  |  | ------------
|                     |  |                     |  | Percentage of Total |        |               |  |                |  |                    |      | Market Value of   |  |  
|                     |  |                     |  | Options Granted to  |        |               |  |                |  |                    |      | Shares Underlying |  |  
|                     |  | Shares Under        |  | Employees in        |        |               |  | Exercise Price |  | Options on Date of |      |                  
|Name                 |  | Options Granted (#) |  | Financial Year      |        | Date of Grant |  | ($/Security)   |  | Grant ($/Security) |      | Expiry Date      
|                     |  |                     |  |                     |        |               |  |                |  |                    |      |                  
|Geoffrey B. Genovese |  | 500,000(1)          |  |                     | 29.09% |               |  | May 30, 2002   |  | $                  | 0.61 |                   |  | $ | 0.61 |  |  | May 29, 2007
|J. Joseph Leeder     |  | 400,000(2)          |  |                     | 23.27% |               |  | May 30, 2002   |  | $                  | 0.61 |                   |  | $ | 0.61 |  |  | May 29, 2007

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

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|                                                |  |                  |  |                 |  |               |                 |                  |     |                     |     |                  |  |                    |  | 
|----------------------------------------------- |  | ---------------- |  | --------------- |  | ------------- | --------------- | ---------------- | --- | ------------------- | --- | ---------------- |  | ------------------ |  | 
|Stock Options Exercised During 2002 Fiscal Year
|                                               
|                                                |  |                  |  |                 |  |               |                 |                  |     |                     |     |                  |  | Value of          
|                                                |  |                  |  |                 |  |               |                 |                  |     |                     |     |                  |  | Unexercised In-the
|                                                |  |                  |  |                 |  |               |                 |                  |     | Unexercised Options |     | Money Options at
|                                                |  | Number of Shares |  |                 |  |               |                 | at FY-End (#)    |     | FY-End ($)         
|                                                |  | Acquired on      |  | Aggregate Value |  | Exercisable/  |                 | Exercisable/    
|Name                                            |  | Exercise         |  | Realized ($)    |  | Unexercisable |                 | Unexercisable(1)
|                                                |  |                  |  |                 |  |               |                 |                 
|Geoffrey B. Genovese                            |  | Nil              |  | Nil             |  | 950,000/nil   |                 |                  | 0/0 |                    
|Joseph Leeder                                   |  | Nil              |  | Nil             |  |               | 333,333/316,667 |                  |     |                     | 0/0 |                 
|Arthur Fleischman                               |  | Nil              |  | Nil             |  |               | 50,000/100,000  |                  |     |                     | 0/0 |                 
|Larry Hampel                                    |  | Nil              |  | Nil             |  |               | 75,000/25,000   |                  |     |                     | 0/0 |                 
|Dean Stefanides                                 |  | Nil              |  | Nil             |  |               | 75,000/25,000   |                  |     |                     | 0/0 |                 



|(1) |  | The closing stock price of the Common Shares of the Company on the
Toronto Stock Exchange on September 30, 2002 was $0.21.
|--- |  | --------------------------------------------------------------------------------------------------------------------------

Subsequent to September 30, 2002, the President of the Corporation,
Geoffrey B. Genovese, elected to cancel his stock options to purchase 950,000
Common Shares, being all of the options to purchase Common Shares granted to
Mr. Genovese under the Stock Option Plan. The cancellation of these stock
options resulted in an additional 950,000 Common Shares being available for
grant, without increasing the maximum number of Common Shares reserved for
issuance upon exercise of options under the Stock Option Plan.

Envoy does not provide any pension, retirement plan or other remuneration
for its directors or executive officers that constitutes an expense to Envoy,
nor are there any plans or other arrangements in respect of compensation
received or that may be received by executive officers in Envoys most recently
completed or current financial year to compensate such officers in the event of
the termination of employment or a change in control of Envoy.

Certain directors, who are not officers of the Company or any of its
affiliations, are compensated for their services as directors and members of a
committee through a combination of annual and meeting attendance fees. Each of
Messrs. Aird, and Parkes are entitled to receive an annual directors fee of
$25,000. In addition, each of Messrs. Aird, Parkes and Hull are entitled to
receive a fee of $500 for each Board of Directors meeting and $1,000 for each
Committee meeting attended. No compensation was paid to the other directors
for their services as directors or members of committees. Directors are also
entitled to participate in the Companys Stock Option Plan.

Employment Contracts and Termination Agreements

The Companys wholly-owned subsidiary, Hampel and Sage have entered into
employment contracts with the Named Executive Officers.

Geoffrey B. Genovese has agreed to act as the Corporations Chairman,
President and Chief Executive Officer at an annual base salary of $550,000,
together with a discretionary bonus based on the achievement of agreed upon
criteria established from time to time by the Compensation Committee. Effective
February 1, 2002 Mr. Genovese agreed to a 10% reduction

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in his base salary. This agreement provides for a severance payment
equivalent to $300,000 plus an amount equal to two times the total remuneration
and other compensation paid to Mr. Genovese and his management company during
the 12 month period preceding termination, if Mr. Genoveses employment is
terminated, without cause, by the Corporation. An annual fee of $150,000 is
also payable to Mr. Genoveses management company pursuant to a management
agreement with the Corporation. Effective February 1, 2002 Mr. Genovese agreed
to a 10% reduction in this annual fee. The management agreement has a fixed
term ending on September 30, 2003. Mr. Genoveses employment contracts are
reviewed and amended periodically.

Joseph Leeder has agreed to act as the Corporations Vice President and
Chief Financial Officer at an annual base salary of $300,000, together with a
discretionary bonus based on the achievement of agreed upon criteria
established from time to time by the Chief Executive Officer. Mr. Leeder also
receives an annual car allowance of $9,600. Effective February 1, 2002 Mr.
Leeder has agreed to a 10% reduction in his base salary. This agreement
provides for a severance payment equivalent to his base salary for a period of
three months for each year of employment (to a maximum of six months), if Mr.
Leeders employment is terminated, without cause, by the Corporation, and for a
period of twelve months, if Mr. Leeders employment is terminated, without
cause, by the Corporation within six months of a change of control of the
Corporation. Mr. Leeders employment contract are reviewed and amended
periodically

Arthur Fleischmann has agreed to act as the President of John St. at an annual
base salary of $225,000, together with an annual cash bonus based on the
performance of John St. This agreement provides for a severance payment
equivalent to his base salary and benefits for a period of ten months, if his
employment is terminated by the Corporation.

Larry Hampel has agreed to act as an Executive Vice President of Hampel
Stefanides at an annual base salary of US$350,000. This agreement had a fixed
term of 4 years, ending on September 30, 2002, and has been informally extended
pending the negotiation and signing of a new agreement between Larry Hampel and
Hampel Stefanides.

Dean Stefanides has agreed to act as an Executive Vice President of Hampel
Stefanides at an annual base salary of US$350,000. This agreement had a fixed
term of 4 years, ending on September 30, 2002, and has been informally extended
pending the negotiation and signing of a new agreement between Dean Stefanides
and Hampel Stefanides.

Compensation of Directors

There are no standard or other arrangements under which directors of Envoy
who are also officers of Envoy or otherwise have a business relationship with
Envoy were compensated by Envoy during the most recently completed fiscal year
for acting in their capacity as directors. Outside directors, who have no
business relationship with Envoy other than service as a director, are entitled
to receive an annual retainer for service as a director and fees for attendance
at meetings of the Board of Directors and committees thereof. Except as set
forth below, there are no arrangements under which directors of Envoy were
compensated by Envoy during the most recently completed fiscal year for
services rendered as consultants or experts. In the fiscal year ended
September 30, 2002, Envoy paid approximately $266,000 Cdn. to John H. Bailey,
Barrister & Solicitor, for legal services provided to Envoy.

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Directors and Officers Liability Insurance

The Corporation maintains liability insurance for the benefit of the directors
and officers of the Corporation and its subsidiaries against liability incurred
by them in their respective capacities. The current annual policy limit is
$10,000,000. Under the policy, individual directors and officers are reimbursed
for losses incurred in their capacities as such, subject to a deductible of
$250,000 for securities claims suits arising in the United States and $50,000
for all other claims. The deductible is the responsibility of the Corporation.
The annual premium of $135,000 was paid by the Corporation.



|C. |  | Board Practices
|-- |  | ---------------

CORPORATE GOVERNANCE

The following describes the Corporations corporate governance practices.

Mandate of the Board

The Board of Directors (the Board) holds meetings whenever appropriate
to oversee the conduct of the Corporations business and monitor and evaluate
the day-to-day management of the Corporation. With respect to risk management
activities, the Board is presented, at each meeting, reports on operations,
financial status, material contracts and litigation.

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

The Corporation has delegated the responsibility for monitoring the
effectiveness of the Corporations international information systems to the
Audit Committee of the Board. The Audit Committee is also responsible for
reviewing and appraising the soundness, adequacy and application of financial
and other operating controls, determining the extent of compliance with
established policies, plans and procedures and ascertaining the reliability and
timeliness of management data developed within the organization.

Composition of the Board

The articles of the Corporation provide that there shall be a Board of not
less than 3 or more than 10 directors. There are currently six directors of
the Corporation, two of whom are inside or related directors and three of
whom are outside and unrelated directors, and one of whom is an outside
but related director (as such terms are defined in the Toronto Stock Exchange
Report). Geoffrey Genovese, the Chairman, President and Chief Executive

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Officer of the Corporation and Donald Watt, the Chairman of the
Corporations wholly owned subsidiary, Watt International Inc., are the
inside and related directors. Hugh Aird, David Hull and David Parkes are
the outside and unrelated directors of the Corporation. John H. Bailey is
an outside director but, as counsel who provides ongoing legal services to the
Corporation, may be considered to be a related director. The Board intends
to periodically examine its size and constitution to ensure responsible
corporate governance and effective corporate management.

Governing Committees

The directors have established the Audit Committee and the Compensation
Committee to focus resources and expertise in certain areas of the Boards
mandate.

Audit Committee

The Board has delegated to the Audit Committee of the Board responsibility
for ensuring management has designed and implemented an effective management
system and for reviewing internal information, audit, control and management
systems. The Audit Committee is comprised of three directors, Hugh Aird, David
Hull and David Parkes. In accordance with the TSX Report recommendations, all
members of the Audit Committee are outside and unrelated directors of the
Corporation.

The Audit Committee is responsible for reviewing the Corporations annual
consolidated financial statements and reporting to the Board in connection
therewith. The Audit Committee is also responsible for monitoring the
Corporations internal controls and information gathering systems and dealing
with the Corporations external auditors. On February 22, 2000, the Audit
Committee adopted a formal written audit committee charter, which specifies the
auditors accountability to the Board and the authority and responsibilities of
the Audit Committee.

Compensation Committee

The Compensation Committee is comprised of three directors, David Hull,
Hugh Aird and John H. Bailey, all of whom are outside directors. The
Compensation Committee reviews, administers and monitors the Corporations
executive compensation plans, policies and programs, including the compensation
of all executive officers and, if requested by the President, reviews the
compensation of any other officer or senior employee.

Corporate Governance Committee

The Board has not, as yet, established a Corporate Governance Committee as
recommended in the Toronto Stock Exchange Report and believes that the matters
ordinarily considered by such a committee are effectively administered by the
Boards outside and unrelated directors. Although, at present, the Board
has determined this to be the most practical approach to responsible corporate
governance, the Board will continue to evaluate this determination as
circumstances dictate.

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Expectations of the Board

The Board expects management of the Corporation to report to the Board in
a comprehensive, accurate and timely fashion on the business and affairs of the
Corporation generally and on specific matters that it considers to have
material consequences for the Corporation and its shareholders. Management is
expected to continually develop and review the Corporations strategic plan to
make the decisions necessary to give effect to the plan; to adhere to the
Corporations operational policies; and to monitor the Corporations financial
performance in comparison to the annual budget, with the ultimate goal of
enhancing shareholder value.

Shareholder Communication

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



|D. |  | Employees
|-- |  | ---------

As at January 31, 2003, Envoy has 175 full time employees based in
Toronto, Canada, 31 based in the United States, and 133 based in the United
Kingdom and Continental Europe. Of this total, 29 employees were engaged in
marketing, and 310 in design.

As at January 31, 2002, Envoy had 292 full time employees based in
Toronto, Canada, 60 based in the United States, and 158 based in the United
Kingdom and Continental Europe. Of this total, 75 employees were engaged in
marketing, 369 in design, and 73 in technology.

As of January 31, 2001, Envoy had 354 full time employees based in
Toronto, Canada, 54 based in the United States and 151 based in the United
Kingdom and Continental Europe. Of this total 115 employees were engaged in
advertising/marketing, 344 in design, and 100 in technology.

As of January 31, 2000, Envoy had 250 full time employees based in
Toronto, Canada, and 56 based in the United States. Of this total 143
employees were engaged in advertising/marketing 149 in design, and 14 in
technology.



|E. |  | Share Ownership
|-- |  | ---------------

As of January 31, 2003, the options and other rights to purchase common
shares of Envoy consisted of stock options to purchase 3,709,750 common shares,
options on convertible debentures to purchase 8,382,353 common shares, warrants
on convertible debentures to

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purchase 7,882,353 common shares and other contingent rights to receive up
to 154,321 common shares, all as described below.

Options

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

The maximum number of common shares reserved for issuance upon exercise of
options under the Stock Option Plan is 4,000,000. As at January 31, 2003,
options to purchase 3,709,750 common shares and no SARs are outstanding under
the Stock Option Plan. The aggregate number of common shares issued to any one
Insider (as such term is defined in the Stock Option Plan) and to all Insiders
as a group under the Stock Option Plan and any other share compensation
arrangement within a one year period may not exceed 5% and 10%, respectively,
of the issued and outstanding common shares immediately prior to the issuance
in question. No optionee may hold options to purchase more than 5% of the
outstanding common shares of Envoy. The option price per share shall not be
less than the closing price of the common shares of Envoy on the TSE on the
last trading day prior to the option grant. Envoy is required to enter into a
written agreement with each option-holder under the Stock Option Plan, which
agreement shall set out the option price and terms and conditions upon which
such option may be exercised, in accordance with the provisions of the Stock
Option Plan.

The following table describes the options to acquire common shares that
are outstanding pursuant to the Stock Option Plan or otherwise as of January
31, 2003:
35Table of Contents

|                  |  |                  |           |                |  |                |      |  |  |                  
|----------------- |  | ---------------- | --------- | -------------- |  | -------------- | ---- |  |  | -----------------
|                  |  | Number of Common |           |                |  |                |      | 
|                  |  | Shares Under     |           |                |  |                |      | 
|Class of Optionee |  | Options Granted  |           | Exercise Price |  | Date of Expiry
|                  |  |                  |           |                |  |               
|J. Joseph Leeder  |  |                  | 100,000   |                |  | $              | 4.10 |  |  | December 16, 2003
|J. Joseph Leeder  |  |                  | 100,000   |                |  | $              | 6.20 |  |  | August 10, 2004  
|J. Joseph Leeder  |  |                  | 50,000    |                |  | $              | 7.40 |  |  | March 30, 2005   
|J. Joseph Leeder  |  |                  | 400,000   |                |  | $              | 0.61 |  |  | May 29, 2007     
|J. Joseph Leeder  |  |                  | 150,000   |                |  | $              | 0.25 |  |  | October 27, 2007 
|Arthur Fleischman |  |                  | 150,000   |                |  | $              | 3.05 |  |  | June 27, 2006    
|Arthur Fleischman |  |                  | 100,000   |                |  | $              | 0.25 |  |  | October 27, 2007 
|Larry Hampel      |  |                  | 100,000   |                |  | $              | 4.00 |  |  | November 10, 2003
|Larry Hampel      |  |                  | 100,000   |                |  | $              | 0.25 |  |  | October 27, 2007 
|Dean Stefanides   |  |                  | 100,000   |                |  | $              | 4.00 |  |  | November 10, 2003
|Dean Stefanides   |  |                  | 100,000   |                |  | $              | 0.25 |  |  | October 27, 2003 
|Other             |  |                  | 125,000   |                |  | $              | 4.00 |  |  | November 10, 2003
|                  |  |                  | 70,000    |                |  | $              | 3.90 |  |  | March 7, 2004    
|                  |  |                  | 60,000    |                |  | $              | 4.70 |  |  | April 22, 2004   
|                  |  |                  | 15,000    |                |  | $              | 6.20 |  |  | August 10, 2004  
|                  |  |                  | 60,000    |                |  | $              | 7.40 |  |  | March 30, 2005   
|                  |  |                  | 50,000    |                |  | $              | 7.40 |  |  | April 11, 2005   
|                  |  |                  | 230,000   |                |  | $              | 3.05 |  |  | June 27, 2006    
|                  |  |                  | 300,000   |                |  | $              | 0.61 |  |  | May 29, 2007     
|                  |  |                  | 79,750    |                |  | $              | 3.05 |  |  | August 1, 2007   
|                  |  |                  | 1,270,000 |                |  | $              | 0.25 |  |  | October 27, 2007 
|                  |  |                  |          
|Total             |  |                  | 3,709,750 |                |  |                |      |  |  |                  
|                  |  |                  |          

The following table sets forth shares owned by the Chairman, President and
Chief Executive Officer of Envoy and the four other most highly compensated
officers who served as executive officers of the Corporation as of January 31,
2003 (the Named Executive Officers):

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|                     |  |                  |           |                   |  |  |     |  
|-------------------- |  | ---------------- | --------- | ----------------- |  |  | --- | -
|                     |  | Number of Common |           | Percent of       
|Identity of Person   |  | Shares Owned     |           | Outstanding Class
|                     |  |                  |           |                  
|Geoffrey B. Genovese |  |                  | 1,490,860 | (1)               |  |  | 7.0 | %
|J. Joseph Leeder     |  | Nil              |           | Nil              
|Arthur Fleischman    |  | Nil              |           | Nil              
|Larry Hampel         |  | Nil              |           | Nil              
|Dean Stefanides      |  | Nil              |           | Nil              

Convertible Debentures

As described in Note 11 to the audited consolidated financial statements,
Envoy issued two series of convertible debentures in fiscal 2002 for proceeds
of $3.8 million. The debentures are convertible until their respective
maturity dates into a maximum of 8,382,353 common shares, and upon conversion,
the debenture holders will hold 7,882,353 purchase warrants that may be
converted into 7,882,353 common shares at an exercise price totaling $3.8
million.

Other Rights

Pursuant to the acquisition agreement in connection with Envoys
acquisition of IDG, certain executive officers of IDG have the right to receive
up to an additional 154,321 common shares in the aggregate through January 1,
2004 depending upon the financial performance of IDG for the fiscal years
included therein.

Item 7.   MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

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

As of January 31, 2003, Envoy had an authorized share capital of
50,000,000 common shares without par value, of which 21,258,694 shares were
issued and outstanding.

The following table sets forth certain information regarding the ownership
of outstanding common shares of Envoy as of January 31, 2003 with respect to
each person known by Envoy to be the owner either of record or beneficially of
more than 5% of the issued and outstanding common shares of Envoy. As used in
this table, beneficial ownership refers to the sole or shared power to vote
or direct the voting or to dispose or direct the disposition of any security.
A person is deemed to be the beneficial owner of securities that can be
acquired within 60 days from the date of this Form 20-F through the exercise of
any option, warrant or right. Common shares subject to options, warrants or
rights which are currently exercisable or exercisable within 60 days are deemed
outstanding for computing the ownership percentage of the person holding

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such options, warrants or rights, but are not deemed outstanding for
computing the ownership percentage of any other person.

|                                                                              |  |                         |            |                              |  |  |      |  
|----------------------------------------------------------------------------- |  | ----------------------- | ---------- | ---------------------------- |  |  | ---- | -
|Identity of Person or Group                                                   |  | Number of Common Shares |            | Percent of Outstanding Class
|                                                                              |  |                         |            |                             
|CDS & Co.(1)                                                                  |  |                         | 17,619,309 |                              |  |  | 82.9 | %
|NCI Account
P.O. Box 1038 Station A
25 The Esplanade
Toronto, Ontario M5W 1G5 |  |                         |            |                              |  |  |      |  
|                                                                             
|Cede & Co.(1)                                                                 |  |                         | 3,193,312  |                              |  |  | 15.0 | %
|P.O. Box 20
Bowling Green Station
New York, NY 10274
USA                      |  |                         |            |                              |  |  |      |  
|                                                                             
|Geoffrey
B. Genovese(2)                                                       |  |                         | 1,490,860  |                              |  |  | 7.0  | %



|(1) |  | CDS & Co. and Cede & Co., respectively, are the record holders of these
shares and in general the ultimate beneficial owners of these shares are not
known to Envoy.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Includes common shares held by family members.                                                                                                                      

See also Item 6.E. Share Ownership for information regarding outstanding
stock options to purchase 3,709,750 common shares, options on convertible
debentures to purchase 8,382,353 common shares, warrants on convertible
debentures to purchase up to 7,882,353 common shares, and certain other rights
to receive up to 154,321 common shares of Envoy.

Under the applicable Canadian provincial securities laws, insiders
(generally officers and directors of the Registrant and its subsidiaries) are
required to file individual insider reports of changes in their ownership in
the Registrants securities within 10 days following any trade in Envoys
securities. Copies of such reports are available for public inspection at the
offices of the British Columbia Securities Commission, Suite 1100, 865 Hornby
Street Vancouver, British Columbia V6Z 21-14 (telephone 604/660-4800), at the
offices of the Alberta Securities Commission, 410-300 5th Avenue, S.W.,
Calgary, Alberta T2P 3C4 (telephone 403/297-6454), at the offices of the Quebec
Securities Commission, Stock Tower Exchange, 800 Victoria Square, Montreal,
Quebec M42 1G3 (telephone 514/940-2150) and at the offices of the Ontario
Securities Commission, 20 Queen Street West, 18th Floor, Toronto, Ontario M5H
358 (telephone 416/597-0681).

Item 8.   FINANCIAL INFORMATION

See Item 18 Financial Statements.

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Item 9.   THE OFFER AND LISTING



|A. |  | Offer and Listing Details
|-- |  | -------------------------

Envoys common shares are listed for trading on the Toronto Stock Exchange
(the TSE) under the symbol ECG and on the Nasdaq Small Cap Market
(Nasdaq) under the symbol ECGI. The common shares began trading on Nasdaq
on June 6, 2000 and on the TSE on September 3, 1997. From March 1984 until
September 2, 1997 Envoys shares traded on the Vancouver Stock Exchange.

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

|                     |  |      |       |     |  |  |      | 
|-------------------- |  | ---- | ----- | --- |  |  | ---- | 
|                     |  | High |       | Low
|                     |  |      |       |    
|Fiscal 1998          |  |      | 4.70  |     |  |  | 3.47 | 
|Fiscal 1999          |  |      | 9.20  |     |  |  | 3.40 | 
|Quarterly 2000       |  |      |       |     |  |  |      | 
|First Quarter        |  |      | 8.95  |     |  |  | 4.80 | 
|Second Quarter       |  |      | 10.30 |     |  |  | 6.70 | 
|Third Quarter        |  |      | 10.35 |     |  |  | 6.00 | 
|Fourth Quarter       |  |      | 8.70  |     |  |  | 6.90 | 
|Quarterly 2001       |  |      |       |     |  |  |      | 
|First Quarter        |  |      | 8.75  |     |  |  | 3.01 | 
|Second Quarter       |  |      | 6.65  |     |  |  | 3.05 | 
|Third Quarter        |  |      | 4.99  |     |  |  | 3.04 | 
|Fourth Quarter       |  |      | 3.49  |     |  |  | 2.10 | 
|Quarterly 2002       |  |      |       |     |  |  |      | 
|First Quarter        |  |      | 2.90  |     |  |  | 1.45 | 
|Second Quarter       |  |      | 1.75  |     |  |  | 0.76 | 
|Third Quarter        |  |      | 1.16  |     |  |  | 0.41 | 
|Fourth Quarter       |  |      | 0.49  |     |  |  | 0.20 | 
|For the month ending |  |      |       |     |  |  |      | 
|January 31, 2003     |  |      | 0.32  |     |  |  | 0.24 | 
|December 31, 2002    |  |      | 0.41  |     |  |  | 0.22 | 

39



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|                   |  |      |      |     |  |  |      | 
|------------------ |  | ---- | ---- | --- |  |  | ---- | 
|                   |  | High |      | Low
|                   |  |      |      |    
|November 30, 2002  |  |      | 0.46 |     |  |  | 0.31 | 
|October 31, 2002   |  |      | 0.52 |     |  |  | 0.14 | 
|September 29, 2002 |  |      | 0.34 |     |  |  | 0.20 | 
|August 31, 2002    |  |      | 0.38 |     |  |  | 0.24 | 

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

|                     |  |      |       |     |  |  |      | 
|-------------------- |  | ---- | ----- | --- |  |  | ---- | 
|                     |  | High |       | Low
|                     |  |      |       |    
|Quarterly 2000       |  |      |       |     |  |  |      | 
|Second Quarter       |  |      | 10.50 |     |  |  | 5.50 | 
|Third Quarter        |  |      | 6.00  |     |  |  | 4.56 | 
|Fourth Quarter       |  |      | 5.81  |     |  |  | 4.34 | 
|Quarterly 2001       |  |      |       |     |  |  |      | 
|First Quarter        |  |      | 5.88  |     |  |  | 1.88 | 
|Second Quarter       |  |      | 4.56  |     |  |  | 1.97 | 
|Third Quarter        |  |      | 3.25  |     |  |  | 1.75 | 
|Fourth Quarter       |  |      | 2.25  |     |  |  | 1.40 | 
|Quarterly 2002       |  |      |       |     |  |  |      | 
|First Quarter        |  |      | 1.74  |     |  |  | 0.95 | 
|Second Quarter       |  |      | 0.70  |     |  |  | 0.51 | 
|Third Quarter        |  |      | 0.70  |     |  |  | 0.30 | 
|Fourth Quarter       |  |      | 0.34  |     |  |  | 0.13 | 
|For the month ending |  |      |       |     |  |  |      | 
|January 31, 2003     |  |      | 1.42  |     |  |  | .97  | 
|December 31, 2002    |  |      | 1.85  |     |  |  | 1.10 | 
|November 30, 2002    |  |      | 1.33  |     |  |  | 0.93 | 
|October 31, 2002     |  |      | 1.43  |     |  |  | 1.00 | 
|September 29, 2002   |  |      | 1.94  |     |  |  | 1.41 | 
|August 31, 2002      |  |      | 2.25  |     |  |  | 1.48 | 

40



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##### Table of Contents



On January 31, 2003, the closing price of the common shares as reported on
the TSE was $0.22, and on Nasdaq was US$0.14. As of January 31, 2003, there
were 21,258,694 outstanding common shares of Envoy of which 17,777,837 were
held of record by 34 Non-U.S. residents and 3,480,857 of which were held of
record by 111 U.S. residents. The foregoing information regarding the number
and the country of residence of Envoys shareholders does not reflect those
shareholders whose shares are being held of record by brokerage clearing houses
and in general the ultimate beneficial owners of these shares are not known to
Envoy.

See Item 6.E. with respect to Share Ownership for information regarding
outstanding stock options to purchase 3,709,750 common shares, options on
convertible debentures to purchase 8,382,353 common shares, warrants on
convertible debentures to purchase 7,882,353 common shares and other
contingents rights to receive 154,231 common shares.



|B. |  | Plan of Distribution
|-- |  | --------------------
|  
|   |  | Not applicable      
|  
|C. |  | Markets             

See above section A. Offer and listing details



|D. |  | Selling Shareholders 
|-- |  | ---------------------
|  
|   |  | Not applicable       
|  
|E. |  | Dilution             
|  
|   |  | Not applicable       
|  
|F. |  | Expenses of the issue
|  
|   |  | Not applicable       

Item 10. ADDITIONAL INFORMATION



|A. |  | Share Capital                         
|-- |  | --------------------------------------
|  
|   |  | Not applicable                        
|  
|B. |  | Memorandum and Articles of Association

Envoys memorandum and articles of association were previously filed with
our registration statement on Form 20-f dated April 20, 2000.



|C. |  | Material Contracts
|-- |  | ------------------
|  
|   |  | Not applicable    

41



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##### Table of Contents





|D. |  | Exchange Controls and Other Limitations Affecting Security Holders
|-- |  | ------------------------------------------------------------------

There is no governmental law, decree or regulation in Canada that
restricts the export or import of capital, or that affects the remittance of
dividends, interest or other payments to a non-resident holder of common shares
of Envoy, other than withholding tax requirement. See Item 10.E. Taxation.

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

The Investment Act generally prohibits implementation of a reviewable
investment by an individual, government or agency thereof, corporation,
partnership, trust or joint venture that is not a Canadian as defined in the
Investment Act (a non-Canadian), unless after review the minister responsible
for the Investment Act (the Minister) is satisfied that the investment is
likely to be of net benefit to Canada. An investment in common shares of Envoy
by a non-Canadian, other than a WTO investor (as defined in the Investment Act)
at any time Envoy is not controlled by a WTO investor, is reviewable under the
Investment Act if the investment is to acquire control of Envoy and the value
of the assets of Envoy is over $5,000,000 Cdn. for a direct acquisition and
over $50,000,000 Cdn. for an indirect acquisition or if an order for review is
made by the Federal Cabinet on the grounds that the investment relates to
Canadas cultural heritage or national identity. An investment in common
shares of Envoy by a WTO investor, or by a non-Canadian at any time Envoy is
controlled by a WTO investor, is reviewable under the Investment Act if the
investment is to acquire control of Envoy and the value of the assets of Envoy
is not less than Cdn. $150,000,000 in terms of constant 1992 dollars, which
for 2002 is $218,000,000 Cdn. A non-Canadian would acquire control of Envoy
for the purposes of the Investment Act if such investor acquired a majority of
the common shares of Envoy unless it could be established that, on the
acquisition, Envoy was not controlled in fact by the acquiror through the
ownership of common shares.

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



| | (a) |  | an acquisition of common shares of Envoy by a person in the
ordinary course of that persons business as a trader or dealer in
securities,                                                              
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | an acquisition of control of Envoy in connection with the
realization of security granted for a loan or other financial
assistance and not for a purpose related to the provision of the
Investment Act,
|
| | (c) |  | an acquisition of control of Envoy by reason of an
amalgamation, merger, consolidation or corporate reorganization
following which the ultimate direct or                                               

42



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##### Table of Contents





| |     |  | indirect control in fact of Envoy through the ownership of common
shares, remained unchanged,                                                                                                                                                                                                                                        
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (d) |  | an acquisition of voting interests by any person in the
ordinary course of a business carried on by that person that
consists of providing, in Canada, venture capital on terms and
conditions not inconsistent with such terms and conditions as may be
fixed by the Minister, and                                                  
|
| | (e) |  | an acquisition of control of a Canadian business for the
purpose of facilitating its financing and not for any purpose
related to the provisions of the Investment Act on the condition
that the acquirer divest itself of control within two years after it
is acquired or within such longer period as is approved by the
Minister.



|E. |  | Taxation
|-- |  | --------

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

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

The summary discusses the principal Canadian federal income tax
considerations under the ITA and the regulations thereunder generally
applicable to purchasers of common shares who at all times: (i) for purposes of
the ITA, are not, have not been and will not be or be deemed to be resident in
Canada while they held or hold common shares, deal at arms length with Envoy,
are not affiliated with Envoy, hold their common shares as capital property, do
not use or hold, and will not and will not be deemed to use or hold their
common shares in, or in the course of carrying on a business in Canada, and are
not financial institutions for the purposes of the mark-to-market rules, and
(ii) for purposes of the Convention, are residents of the U.S. and not
residents of Canada and will not hold their common shares as part of the
business property of, or

43



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##### Table of Contents



so that their common shares are effectively connected with, a permanent
establishment in Canada or in connection with a fixed base in Canada (a U.S.
Holder).

Amounts in respect of common shares paid or credited or deemed to be paid
or credited as, on account or in lieu of payment of, or in satisfaction of,
dividends to a U.S. Holder will generally be subject to Canadian non-resident
withholding tax. Such withholding tax is levied at a rate of 25%, which may be
reduced pursuant to the terms of the Convention. Under the Convention, the
rate of Canadian non-resident withholding tax on the gross amount of dividends
beneficially owned by a U.S. Holder is 15%. However, where such beneficial
owner is a company which owns at least 10% of the voting stock of Envoy, the
rate of such withholding is 5%.

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



|F. |  | Dividend and Paying Agents
|-- |  | --------------------------
|  
|   |  | Not applicable            
|  
|G. |  | Statement by experts      
|  
|   |  | Not applicable            
|  
|H. |  | Documents on Display      

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

44



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##### Table of Contents



SECs public reference facilities in Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549. You may also obtain copies of such
materials from the Public Reference Section of the SEC, Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. You
may call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. The SEC maintains a 67 Web site (http://www.sec.gov) that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the SEC. We began to file
electronically with the SEC in May 2000. You may read and copy any reports,
statements or other information that we file with the SEC at the addresses
indicated above and you may also access some of them electronically at the Web
site set forth above. These SEC filings are also available to the public from
commercial document retrieval services. We also file reports, statements and
other information with the Canadian Securities Administrators, or the CSAs, and
these can be accessed electronically at the CSAs System for Electronic
Document Analysis and Retrieval web-site at http://www.sedar.com.

Item 11.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

Interest rate riskThe Companys debt under its lending facilities is
described in Note 10 to the audited consolidated financial statements. Our
credit facility bears interest that is calculated at variable rates. As a
result we are vulnerable to changes in interest rates. At September 30, 2002
the effective interest rate on our facility was 8.50%.

Foreign Currency RiskThe Company is subject to currency risk through its
activities in the United States and United Kingdom. Unfavourable changes in
exchange rate may 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 enter into foreign currency
contracts to mitigate the associated risks. As at September 30, 2002, there
were no foreign currency contracts outstanding. As at September 30, 2002, the
Company has U.S. $2,002,704 outstanding on the U.S. portion of the bank credit
facility. Prior to June 30, 2002, the U.S. dollar borrowings were designated
as a hedge against the Companys net investment in its U.S. operations,
managing exposure to foreign currency risk. Commencing July 1, 2002, the
Company no longer hedged Watts US dollar borrowings provide an economic hedge
against such U.S. dollar receivables. The Companys promissory note payable
(see Note 3 (c) of the audited consolidated financial statements ), issued in
connection with its acquisition of Gilchrist serves as a hedge against the
Companys investment in its U.K. operations, managing exposure to foreign
currency risk.

Credit RiskEnvoy manages its credit risk with respect to accounts
receivable by acting as an agent for its customers, by dealing with large
creditworthy customers and by billing

45



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whenever possible in advance of rendering services or making commitments.
Management believes that the Company is not subject to significant
concentration risk. As at September 30, 2002, the Company had one customer,
who represented 11% of accounts receivable and one customer who represented 18%
as at September 30, 2001.



|B. |  | Interest of Management in Certain Transactions
|-- |  | ----------------------------------------------

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

Item 12.   DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not applicable

PART II

Item 13.   DEFAULTS, DIVIDENDS ARREARAGES AND DELINQUENCIES

A.     There has been no material default in the payment of principal, interest, a
sinking or purchase fund installment.

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

Item 14.   MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS

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

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

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

D.     Not applicable
46Table of Contents

E.     Not applicable

Item 15.   CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures that are designed to ensure
that the information required to be disclosed in our Exchange Act reports is
recorded, processed, summarized and reported within the time periods specified
in the SECs rules and forms, and that such information is accumulated and
communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure. After evaluating the effectiveness of the Companys disclosure
controls and procedures (as defined in Exchange Act Rules 13a-14(c) and
15d-14(c) on January 2, 2003, have concluded that as of such date, the
Companys disclosure controls and procedure were adequate and effective to
ensure that material information relating to the Company and its consolidated
subsidiaries would be made known to them by others within those entities.

There were no significant changes in our internal controls or in other
factors that could significantly affect these disclosure controls and
procedures subsequent to the date of their evaluation, including any
significant deficiencies or material weaknesses of internal controls that would
require corrective action.

Item 16.   RESERVED

Not applicable

PART III

Item 17.   FINANCIAL STATEMENTS

Envoy has elected to provide financial statements pursuant to Item 18.

Item 18.   FINANCIAL STATEMENTS



| |                                      
| | -------------------------------------
| | (a)   Envoy Communications Group Inc.

|      |  |                                                                                                                                                                       |  |    
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---
|(i)   |  | Auditors Report on the financial statements for the year
ended September 30, 2002 and 2001
Comments by auditors for U.S. readers on Canada-U.S.
reporting difference |  | F-1
|(ii)  |  | Consolidated Balance Sheets as at September 30, 2002 and 2001                                                                                                         |  | F-2
|(iii) |  | Consolidated Statements of Operations for the years ended
September 30, 2002, 2001 and 2000                                                                           |  | F-3
|(iv)  |  | Consolidated Statements of Retained Earnings for the years
ended September 30, 2002, 2001 and 2000                                                                    |  | F-4
|(v)   |  | Consolidated Statements of Cash Flows for the years ended
September 30, 2002, 2001 and 2000                                                                           |  | F-5
|(vi)  |  | Notes to Consolidated Financial Statements                                                                                                                            |  | F-6

47



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Item 19.   EXHIBITS

(a)  Exhibit 1 By-Law No. 1 of Envoy (as amended on May 2, 2000) &
Articles of Incorporation. Incorporated by reference from the
annual report, on form 20-F previously filed the Securities Exchange
Commission on May 15, 2000.

Exhibit 2    Not Applicable

Exhibit 3    Not Applicable

Exhibit 4    Not Applicable

Exhibit 5    Not Applicable

Exhibit 6    Not Applicable

Exhibit 7    Not Applicable

Exhibit   8

Subsidiaries of Registrant

Envoy has operations in the United States, the United Kingdom, Continental
Europe and Canada. Significant subsidiaries are as follows:

|                                  |  |                |     |               |  |                 |                | 
|--------------------------------- |  | -------------- | --- | ------------- |  | --------------- | -------------- | 
|                                  |  |                |     |               |  | Jurisdiction of
|Company                           |  | % of ownership |     | incorporation
|                                  |  |                |     |               | 
|Communique Incentives Inc.        |  |                | 100 |               |  |                 | Ontario       
|The Communique Group Inc.         |  |                | 100 |               |  |                 | Ontario       
|Hampel Stefanides, Inc.           |  |                | 100 |               |  |                 | Delaware      
|Devlin Multimedia Inc.            |  |                | 100 |               |  |                 | Ontario       
|Watt International Inc.           |  |                | 100 |               |  |                 | Ontario       
|Sage Information Consultants Inc. |  |                | 100 |               |  |                 | Ontario       
|Gilchrist Brothers Limited        |  |                | 100 |               |  |                 | United Kingdom
|International Design Group Inc.   |  |                | 100 |               |  |                 | Ontario       
|John Street Inc.                  |  |                | 70  |               |  |                 | Ontario       

Exhibit 9   Not Applicable

Exhibit 10   Not Applicable

48



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##### Table of Contents



|                                                                 
|-----------------------------------------------------------------
|                                                                 
|                                                                 
|Consolidated Financial Statements
(Expressed in Canadian dollars)
|                                                                 
|ENVOY COMMUNICATIONS
GROUP INC.                                  
|                                                                 
|Years ended September 30, 2002, 2001 and 2000                    





---



##### Table of Contents



F-1







AUDITORS REPORT TO THE SHAREHOLDERS

We have audited the consolidated balance sheets of Envoy Communications Group
Inc. as at September 30, 2002 and 2001 and the consolidated statements of
operations, retained earnings (deficit) and cash flows for each of the years in
the three-year period ended September 30, 2002. These financial statements are
the responsibility of the Companys management. Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with Canadian generally accepted auditing
standards and United States generally accepted auditing standards. 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,
2002 and 2001 and the results of its operations and its cash flows for each of
the years in the three-year period ended September 30, 2002 in accordance with
Canadian generally accepted accounting principles.



(-s- KPMG LLP SIGNATURE)

Chartered Accountants

Toronto, Canada

January 9, 2003



---



##### Table of Contents



F-1




COMMENTS BY AUDITORS FOR U.S.
READERS ON CANADA-U.S. REPORTING DIFFERENCE

In the United States, reporting standards for auditors require the addition of
an explanatory paragraph (following the opinion paragraph) when the financial
statements are affected by conditions and events that cast substantial doubt on
the Companys ability to continue as a going concern, such as those described
in note 1 to the consolidated financial statements. Our report to the
shareholders dated January 9, 2003 is expressed in accordance with Canadian
reporting standards, which do not permit a reference to such events and
conditions in the auditors report when these are adequately disclosed in the
financial statements.



(-s- KPMG LLP SIGNATURE)

Chartered Accountants

Toronto, Canada

January 9, 2003



---



##### Table of Contents



F-2




ENVOY COMMUNICATIONS GROUP INC.Consolidated Balance Sheets
(Expressed in Canadian dollars)
September 30, 2002 and 2001



---

|                                                                                   |                                                                      |   |            |             |      |   |             |            | 
|---------------------------------------------------------------------------------- | -------------------------------------------------------------------- | - | ---------- | ----------- | ---- | - | ----------- | ---------- | 
|                                                                                   |                                                                      |   | 2002       |             | 2001
|                                                                                   |                                                                      |   |            |             |     
|Assets                                                                             |                                                                      |   |            |             |      |   |             |           
|Current assets:                                                                    |                                                                      |   |            |             |      |   |             |           
|                                                                                   | Cash                                                                 |   | $          | 469,909     |      |   | $           | 21,781,809 | 
|                                                                                   | Restricted cash (note 4)                                             |   |            | 1,831,085   |      |   |             | 158,500    | 
|                                                                                   | Accounts receivable (note 5)                                         |   |            | 20,528,048  |      |   |             | 26,940,137 | 
|                                                                                   | Income taxes recoverable                                             |   |            | 2,779,717   |      |   |             | 230,389    | 
|                                                                                   | Future income taxes (note 13)                                        |   |            | 855,000     |      |   |             | 712,000    | 
|                                                                                   | Prepaid expenses                                                     |   |            | 983,068     |      |   |             | 1,315,009  | 
|                                                                                   |                                                                      |   |            |             |      |   |             |            | 
|                                                                                   |                                                                      |   | 27,446,827 |             |      |   | 51,137,844  |           
|Capital assets (note 7)                                                            |                                                                      |   | 7,836,728  |             |      |   | 11,533,736  |           
|Goodwill (note 8)                                                                  |                                                                      |   | 11,314,283 |             |      |   | 49,675,115  |           
|Other assets (note 9)                                                              |                                                                      |   | 116,649    |             |      |   | 681,387     |           
|Future income taxes (note 13)                                                      |                                                                      |   | 2,459,228  |             |      |   | 822,156     |           
|                                                                                   |                                                                      |   |            |             |      |   |             |            | 
|                                                                                   |                                                                      | $ | 49,173,715 |             |      | $ | 113,850,238 |           
|                                                                                   |                                                                      |   |            |             |      |   |             |            | 
|Liabilities and Shareholders Equity                                               |                                                                      |   |            |             |      |   |             |           
|Current liabilities:                                                               |                                                                      |   |            |             |      |   |             |           
|                                                                                   | Accounts payable and accrued liabilities                             |   | $          | 21,019,267  |      |   | $           | 38,728,210 | 
|                                                                                   | Deferred revenue                                                     |   |            | 1,475,671   |      |   |             | 300,071    | 
|                                                                                   | Amounts collected in excess of pass-through costs incurred           |   |            | 2,104,522   |      |   |             | 1,574,407  | 
|                                                                                   | Bank credit facility and current portion of long-term debt
(note 10) |   |            | 10,589,114  |      |   |             | 10,965,089 | 
|                                                                                   |                                                                      |   |            |             |      |   |             |            | 
|                                                                                   |                                                                      |   | 35,188,574 |             |      |   | 51,567,777  |           
|Long-term debt (note 10)                                                           |                                                                      |   | 3,413,697  |             |      |   | 963,076     |           
|Long-term portion of restructuring costs (note 15)                                 |                                                                      |   | 792,275    |             |      |   |            |           
|Shareholders equity:                                                              |                                                                      |   |            |             |      |   |             |           
|                                                                                   | Share capital (note 12)                                              |   |            | 54,339,390  |      |   |             | 54,883,305 | 
|                                                                                   | Convertible debentures (note 11)                                     |   |            | 1,720,859   |      |   |             |           | 
|                                                                                   | Retained earnings (deficit)                                          |   |            | (47,629,529 | )    |   |             | 5,603,200  | 
|                                                                                   | Cumulative translation adjustment                                    |   |            | 1,348,449   |      |   |             | 832,880    | 
|                                                                                   |                                                                      |   |            |             |      |   |             |            | 
|Future operations (note 1)                                                        
|Commitments and contingencies
(notes 3 and 16)                                     |                                                                      |   |            |             |      |   |            
|Subsequent events (note 19)                                                       
|Reconciliation to United States generally accepted
accounting principles (note 20) |                                                                      |   |            |             |      |   |            
|                                                                                   |                                                                      |   |            |             |      |   |             |            | 
|                                                                                   |                                                                      | $ | 49,173,715 |             |      | $ | 113,850,238 |           
|                                                                                   |                                                                      |   |            |             |      |   |             |            | 

See accompanying notes to consolidated financial statements.

On behalf of the Board:

(-s- SIGNATURE)
Geoffrey B. Genovese

(-s- SIGNATURE)
John H. Bailey

1



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##### Table of Contents



F-3




ENVOY COMMUNICATIONS GROUP INC.Consolidated Statements of Operations
(Expressed in Canadian dollars)

Years ended September 30, 2002, 2001 and 2000



---

|                                                                                                                                                                                |                            |   |             |            |      |   |            |            |   |   |            |            | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | - | ----------- | ---------- | ---- | - | ---------- | ---------- | - | - | ---------- | ---------- | 
|                                                                                                                                                                                |                            |   | 2002        |            | 2001 |   | 2000      
|                                                                                                                                                                                |                            |   |             |            |      |   |           
|Net revenue                                                                                                                                                                     |                            | $ | 59,121,090  |            |      | $ | 82,785,541 |            |   | $ | 60,790,280 |           
|Operating expenses:                                                                                                                                                             |                            |   |             |            |      |   |            |            |   |   |            |           
|                                                                                                                                                                                | Salaries and benefits      |   |             | 45,096,981 |      |   |            | 53,653,694 |   |   |            | 35,132,814 | 
|                                                                                                                                                                                | General and administrative |   |             | 11,669,901 |      |   |            | 17,373,429 |   |   |            | 12,953,898 | 
|                                                                                                                                                                                | Occupancy costs            |   |             | 4,728,817  |      |   |            | 4,754,875  |   |   |            | 2,552,854  | 
|                                                                                                                                                                                |                            |   |             |            |      |   |            |            |   |   |            |           
|                                                                                                                                                                                |                            |   | 61,495,699  |            |      |   | 75,781,998 |            |   |   | 50,639,566 |           
|                                                                                                                                                                                |                            |   |             |            |      |   |            |            |   |   |            |           
|Earnings (loss) before depreciation,
amortization of intangible asset,
interest expense, unusual items,
restructuring costs, income taxes,
goodwill amortization and write-down |                            |   | (2,374,609  | )          |      |   | 7,003,543  |            |   |   | 10,150,714 |           
|Depreciation                                                                                                                                                                    |                            |   | 2,858,641   |            |      |   | 2,866,679  |            |   |   | 1,986,691  |           
|Amortization of intangible asset (note 9)                                                                                                                                       |                            |   | 24,197      |            |      |   |           |            |   |   |           |           
|Interest expense                                                                                                                                                                |                            |   | 1,245,126   |            |      |   | 743,600    |            |   |   | 407,473    |           
|                                                                                                                                                                                |                            |   |             |            |      |   |            |            |   |   |            |           
|Earnings (loss) before unusual items,
restructuring costs, income taxes,
goodwill amortization and write-down                                                                   |                            |   | (6,502,573  | )          |      |   | 3,393,264  |            |   |   | 7,756,550  |           
|Unusual items (note 14)                                                                                                                                                         |                            |   | 750,648     |            |      |   | 1,917,334  |            |   |   |           |           
|Restructuring costs (note 15)                                                                                                                                                   |                            |   | 10,857,534  |            |      |   |           |            |   |   |           |           
|                                                                                                                                                                                |                            |   |             |            |      |   |            |            |   |   |            |           
|Earnings (loss) before income taxes,
goodwill amortization and write-down                                                                                                       |                            |   | (18,110,755 | )          |      |   | 1,475,930  |            |   |   | 7,756,550  |           
|Income taxes (recovery), excluding
the undernoted                                                                                                                               |                            |   | (4,853,540  | )          |      |   | 1,259,731  |            |   |   | 3,252,354  |           
|Impact of tax rate changes                                                                                                                                                      |                            |   |            |            |      |   | 100,000    |            |   |   |           |           
|                                                                                                                                                                                |                            |   |             |            |      |   |            |            |   |   |            |           
|Earnings (loss) before goodwill amortization
and write-down                                                                                                                     |                            |   | (13,257,215 | )          |      |   | 116,199    |            |   |   | 4,504,196  |           
|Goodwill amortization, net of income tax
recovery of $24,000 (2001 - $24,000;
2000 - $24,000)                                                                                   |                            |   | 2,187,509   |            |      |   | 3,011,571  |            |   |   | 1,593,769  |           
|Write-down of goodwill (note 8)                                                                                                                                                 |                            |   | 37,934,711  |            |      |   |           |            |   |   |           |           
|                                                                                                                                                                                |                            |   |             |            |      |   |            |            |   |   |            |           
|Net earnings (loss)                                                                                                                                                             |                            | $ | (53,379,435 | )          |      | $ | (2,895,372 | )          |   | $ | 2,910,427  |           
|                                                                                                                                                                                |                            |   |             |            |      |   |            |            |   |   |            |           
|Earnings (loss) per share (notes 2(i)
and 12(e)):                                                                                                                               |                            |   |             |            |      |   |            |            |   |   |            |           
|                                                                                                                                                                                | Basic                      |   | $           | (2.54      | )    |   | $          | (0.14      | ) |   | $          | 0.15       | 
|                                                                                                                                                                                | Diluted                    |   |             | (2.54      | )    |   |            | (0.14      | ) |   |            | 0.15       | 
|Earnings (loss) per share before goodwill
amortization and write-down (notes 2(i)
and 12(e)):                                                                                   |                            |   |             |            |      |   |            |            |   |   |            |           
|                                                                                                                                                                                | Basic                      |   |             | (0.63      | )    |   |            | 0.01       |   |   |            | 0.24       | 
|                                                                                                                                                                                | Diluted                    |   |             | (0.63      | )    |   |            | 0.01       |   |   |            | 0.23       | 

See accompanying notes to consolidated financial statements.

2



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##### Table of Contents



F-4




ENVOY COMMUNICATIONS GROUP INC.Consolidated Statements of Retained Earnings (Deficit)
(Expressed in Canadian dollars)

Years ended September 30, 2002, 2001 and 2000



---

|                                          |  |      |             |      |  |      |            |   |  |   |           | 
|----------------------------------------- |  | ---- | ----------- | ---- |  | ---- | ---------- | - |  | - | --------- | 
|                                          |  | 2002 |             | 2001 |  | 2000
|                                          |  |      |             |      |  |     
|Retained earnings, beginning of year      |  | $    | 5,603,200   |      |  | $    | 8,403,367  |   |  | $ | 5,492,940 | 
|Gain on redemption of shares (note 12(c)) |  |      | 146,706     |      |  |      | 95,205     |   |  |   |          | 
|Net earnings (loss)                       |  |      | (53,379,435 | )    |  |      | (2,895,372 | ) |  |   | 2,910,427 | 
|                                          |  |      |             |      |  |      |            |   |  |   |           | 
|Retained earnings (deficit), end of year  |  | $    | (47,629,529 | )    |  | $    | 5,603,200  |   |  | $ | 8,403,367 | 
|                                          |  |      |             |      |  |      |            |   |  |   |           | 

See accompanying notes to consolidated financial statements.

3



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##### Table of Contents



F-5




ENVOY COMMUNICATIONS GROUP INC.Consolidated Statements of Cash Flows
(Expressed in Canadian dollars)

Years ended September 30, 2002, 2001 and 2000



---

|                                      |                                                     |                                                            |                              |             |             |           |      |            |            |   |   |            |             |   | 
|------------------------------------- | --------------------------------------------------- | ---------------------------------------------------------- | ---------------------------- | ----------- | ----------- | --------- | ---- | ---------- | ---------- | - | - | ---------- | ----------- | - | 
|                                      |                                                     |                                                            |                              |             | 2002        |           | 2001 |            | 2000      
|                                      |                                                     |                                                            |                              |             |             |           |      |            |           
|Cash flows from operating activities: |                                                     |                                                            |                              |             |             |           |      |            |            |   |   |           
|                                      | Net earnings (loss)                                 |                                                            | $                            | (53,379,435 | )           |           | $    | (2,895,372 | )          |   | $ | 2,910,427  |            
|                                      | Items not involving cash:                           |                                                            |                              |             |             |           |      |            |            |   |   |            |            
|                                      |                                                     | Future income taxes                                        |                              |             | (1,780,072  | )         |      |            | (567,441   | ) |   |            | (285,344    | )
|                                      |                                                     | Depreciation                                               |                              |             | 2,858,641   |           |      |            | 2,866,679  |   |   |            | 1,986,691   |  
|                                      |                                                     | Amortization of intangible asset                           |                              |             | 24,197      |           |      |            |           |   |   |            |            |  
|                                      |                                                     | Goodwill amortization                                      |                              |             | 2,211,509   |           |      |            | 3,035,571  |   |   |            | 1,617,769   |  
|                                      |                                                     | Write-down of goodwill                                     |                              |             | 37,934,711  |           |      |            |           |   |   |            |            |  
|                                      |                                                     | Amortization of deferred financing
charges                 |                              |             | 96,263      |           |      |            | 65,936     |   |   |            | 9,990       |  
|                                      |                                                     | Write-down of deferred
financing charges                   |                              |             | 750,648     |           |      |            |           |   |   |            |            |  
|                                      |                                                     | Convertible debentures accretion                           |                              |             | 133,870     |           |      |            |           |   |   |            |            |  
|                                      |                                                     | Restructuring costs:                                       |                              |             |             |           |      |            |            |   |   |            |             |  
|                                      |                                                     |                                                            | Write-down of capital assets |             |             | 3,481,105 |      |            |            |  |   |            |             |  | 
|                                      |                                                     |                                                            | Other                        |             |             | 52,500    |      |            |            |  |   |            |             |  | 
|                                      | Net change in non-cash working capital
balances:    |                                                            |                              |             |             |           |      |            |            |   |   |            |            
|                                      |                                                     | Restricted cash                                            |                              |             | (1,672,585  | )         |      |            | 297,962    |   |   |            |            |  
|                                      |                                                     | Accounts receivable                                        |                              |             | 6,757,260   |           |      |            | 7,389,275  |   |   |            | 1,823,856   |  
|                                      |                                                     | Prepaid expenses                                           |                              |             | 353,652     |           |      |            | (174,654   | ) |   |            | 124,424     |  
|                                      |                                                     | Accounts payable and accrued liabilities                   |                              |             | (16,905,696 | )         |      |            | 12,440,922 |   |   |            | (10,519,909 | )
|                                      |                                                     | Income taxes payable/recoverable                           |                              |             | (2,606,457  | )         |      |            | (1,145,133 | ) |   |            | (787,622    | )
|                                      |                                                     | Deferred revenue                                           |                              |             | 1,175,600   |           |      |            | (758,380   | ) |   |            | 1,044,873   |  
|                                      |                                                     | Amounts collected in excess of
pass-through costs incurred |                              |             | (175,514    | )         |      |            | (777,930   | ) |   |            | 518,410     |  
|                                      |                                                     | Other                                                      |                              |             | (209,582    | )         |      |            | 159,003    |   |   |            | (126,812    | )
|                                      |                                                     |                                                            |                              |             |             |           |      |            |            |   |   |            |            
|                                      | Net cash provided by (used in)
operating activities |                                                            |                              | (20,899,385 | )           |           |      | 19,936,438 |            |   |   | (1,683,247 | )          
|Cash flows from financing activities: |                                                     |                                                            |                              |             |             |           |      |            |            |   |   |           
|                                      | Long-term debt borrowings                           |                                                            |                              | 1,580,459   |             |           |      | 8,137,183  |            |   |   | 5,198,442  |            
|                                      | Long-term debt repayments                           |                                                            |                              | (2,539,248  | )           |           |      | (8,097,536 | )          |   |   | (5,497,140 | )          
|                                      | Issuance of common shares                           |                                                            |                              |            |             |           |      | 383,670    |            |   |   | 10,939,807 |            
|                                      | Issuance of convertible debentures                  |                                                            |                              | 3,800,000   |             |           |      |           |            |   |   |           |            
|                                      | Redemption of common shares                         |                                                            |                              | (628,083    | )           |           |      | (1,295,475 | )          |   |   |           |            
|                                      | Reduction (increase) in restricted cash             |                                                            |                              |            |             |           |      | 394,625    |            |   |   | (277,330   | )          
|                                      | Long-term portion of restructuring costs            |                                                            |                              | 792,275     |             |           |      |           |            |   |   |           |            
|                                      | Other                                               |                                                            |                              |            |             |           |      | 190,143    |            |   |   |           |            
|                                      |                                                     |                                                            |                              |             |             |           |      |            |            |   |   |            |            
|                                      | Net cash provided by (used in)
financing activities |                                                            |                              | 3,005,403   |             |           |      | (287,390   | )          |   |   | 10,363,779 |            

4



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##### Table of Contents



F-5

ENVOY COMMUNICATIONS GROUP INC.Consolidated Statements of Cash Flows (continued)
(Expressed in Canadian dollars)

Years ended September 30, 2002, 2001 and 2000



---

|                                                   |                                                                                                                                |   |             |            |      |   |            |            |   |   |            |             |  
|-------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------ | - | ----------- | ---------- | ---- | - | ---------- | ---------- | - | - | ---------- | ----------- | -
|                                                   |                                                                                                                                |   | 2002        |            | 2001 |   | 2000      
|                                                   |                                                                                                                                |   |             |            |      |   |           
|Cash flows from investing activities:              |                                                                                                                                |   |             |            |      |   |            |            |   |   |            |            
|                                                   | Acquisition of subsidiaries, net of cash
acquired (bank indebtedness assumed)
of $919,201 (2001 - $214,179;
2000 - ($941,385)) |   |             | (1,904,742 | )    |   |            | (1,669,168 | ) |   |            | (14,640,994 | )
|                                                   | Purchase of capital assets                                                                                                     |   |             | (1,811,154 | )    |   |            | (3,756,134 | ) |   |            | (2,428,228  | )
|                                                   | Increase in other assets                                                                                                       |   |             |           |      |   |            |           |   |   |            | (67,356     | )
|                                                   |                                                                                                                                |   |             |            |      |   |            |            |   |   |            |             |  
|                                                   | Net cash used in investing activities                                                                                          |   |             | (3,715,896 | )    |   |            | (5,425,302 | ) |   |            | (17,136,578 | )
|Change in cash balance due to foreign
exchange     |                                                                                                                                |   | 297,978     |            |      |   | 452,645    |            |   |   | 261,010    |            
|                                                   |                                                                                                                                |   |             |            |      |   |            |            |   |   |            |             |  
|Increase (decrease) in cash                        |                                                                                                                                |   | (21,311,900 | )          |      |   | 14,676,391 |            |   |   | (8,195,036 | )          
|Cash, beginning of year                            |                                                                                                                                |   | 21,781,809  |            |      |   | 7,105,418  |            |   |   | 15,300,454 |            
|                                                   |                                                                                                                                |   |             |            |      |   |            |            |   |   |            |             |  
|Cash, end of year                                  |                                                                                                                                | $ | 469,909     |            |      | $ | 21,781,809 |            |   | $ | 7,105,418  |            
|                                                   |                                                                                                                                |   |             |            |      |   |            |            |   |   |            |             |  
|Cash flows from operations per share
(note 12(e)): |                                                                                                                                |   |             |            |      |   |            |            |   |   |            |            
|                                                   | Basic                                                                                                                          |   | $           | (0.36      | )    |   | $          | 0.12       |   |   | $          | 0.33        |  
|                                                   | Diluted                                                                                                                        |   |             | (0.36      | )    |   |            | 0.12       |   |   |            | 0.33        |  
|                                                   |                                                                                                                                |   |             |            |      |   |            |            |   |   |            |             |  
|Supplemental cash flow information:                |                                                                                                                                |   |             |            |      |   |            |            |   |   |            |            
|                                                   | Interest paid                                                                                                                  |   | $           | 643,926    |      |   | $          | 704,604    |   |   | $          | 407,474     |  
|                                                   | Income taxes paid                                                                                                              |   |             | 581,077    |      |   |            | 3,407,801  |   |   |            | 3,489,185   |  
|Supplemental disclosure of non-cash
transactions:  |                                                                                                                                |   |             |            |      |   |            |            |   |   |            |            
|                                                   | Shares issued for non-cash consideration                                                                                       |   |             | 265,500    |      |   |            | 3,908,156  |   |   |            | 6,850,311   |  
|                                                   | Capital assets acquired under capital
leases                                                                                   |   |             | 820,424    |      |   |            |           |   |   |            |            |  
|                                                   |                                                                                                                                |   |             |            |      |   |            |            |   |   |            |             |  

See accompanying notes to consolidated financial statements.

5



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##### Table of Contents



F-6




ENVOY COMMUNICATIONS GROUP INC.Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)

Years ended September 30, 2002, 2001 and 2000



---

The Company, continued under the Business Corporations Act (Ontario), has
operations in the United States, the United Kingdom and Canada and provides
integrated marketing and communication services. The core disciplines are:
advertising, branding and digital professional services, which include
strategy, creative design and technology infrastructure services necessary to
build and maintain successful e-businesses.



|1. |  | Basis of presentation:
|-- |  | ----------------------



| | (a) |  | These consolidated financial statements have been prepared on the
going concern basis, which assumes the Company will continue its
operations in the foreseeable future and will be able to realize its
assets and satisfy its liabilities in the normal course of business.
Certain conditions exist and events have occurred, as further
described below that provide uncertainty regarding the Companys
ability to continue as a going concern, with its existing operations.                                                                                                                                                                                                                                                                                                                                                             
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | During the year, the Company entered into a Forbearance Agreement with
the lenders, which requires the Company to make monthly principal
payments from December 31, 2002 through to March 31, 2003 and repay the
balance of the loan by April 30, 2003. Consequently the loan is
classified as a current liability and the working capital shortfall is
approximately $7.7 million as at September 30, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |     |  | The Companys ability to repay its bank borrowings is dependent upon
its ability to generate positive cash flow from operations, secure
additional debt or equity financing under private placements, refinance
or renegotiate its debt facility and/or sell all of, or a part of, its
operating businesses. There can be no assurances that the Company will
be successful in doing so. In the event the Company is unable to repay
or refinance the bank loans from the above sources then the application
of the going concern principle for financial statement reporting
purposes may no longer be appropriate. These consolidated financial
statements do not include any adjustments related to the recoverability
and classification of recorded asset amounts or the amounts and
classification of liabilities that may be necessary.
|
| | (b) |  | The consolidated financial statements have been prepared 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 20.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| | (c) |  | Certain 2001 comparative figures have been reclassified to
conform to the financial statement presentation adopted for 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

6



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##### Table of Contents



F-7

ENVOY COMMUNICATIONS GROUP INC.Notes to Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)

Years ended September 30, 2002, 2001 and 2000



---



|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
Communications Group Inc. Intercompany balances and transactions are
eliminated on consolidation.
|
| |     |  | Significant subsidiaries as at September 30, 2002 are as follows:                                                                                                                                                            

|                                  |  |           |     |                 |  |                |  | 
|--------------------------------- |  | --------- | --- | --------------- |  | -------------- |  | 
|                                  |  | % of      |     | Jurisdiction of
|Company                           |  | ownership |     | incorporation  
|                                  |  |           |     |                
|Communiqué Incentives Inc.        |  |           | 100 |                 |  | Ontario       
|Hampel Stefanides, Inc.           |  |           | 100 |                 |  | Delaware      
|Devlin Multimedia Inc.            |  |           | 100 |                 |  | Ontario       
|Watt International Inc.           |  |           | 100 |                 |  | Ontario       
|Sage Information Consultants Inc. |  |           | 100 |                 |  | Ontario       
|Gilchrist Brothers Limited        |  |           | 100 |                 |  | United Kingdom
|International Design Group        |  |           | 100 |                 |  | Ontario       
|John Street Inc.                  |  |           | 70  |                 |  | Ontario       



| | (b) |  | Use of estimates:
| | --- |  | -----------------



| |  |  | The preparation of financial statements in conformity with 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. Actual results could differ from those
estimates.
| |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

7



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##### Table of Contents



F-8

ENVOY COMMUNICATIONS GROUP INC.Notes to Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)

Years ended September 30, 2002, 2001 and 2000



---



|2. |  | Significant accounting policies (continued):
|-- |  | --------------------------------------------



| | (c) |  | Capital assets:                                                                                      
| | --- |  | -----------------------------------------------------------------------------------------------------
|
| |     |  | Capital assets are recorded at cost and are depreciated over their
estimated useful lives as follows:

|                                |  |                   |  |                     |          |   |  | 
|------------------------------- |  | ----------------- |  | ------------------- | -------- | - |  | 
|Asset                           |  | Basis             |  | Rate               
|                                |  |                   |  |                    
|Audiovisual equipment           |  | Straight line     |  | 2-5 years          
|Computer equipment and software |  | Declining balance |  |                     | 30% - 50 | %
|Furniture and equipment         |  | Declining balance |  |                     | 20       | %
|Leasehold improvements          |  | Straight line     |  | Over term of leases
|Equipment under capital leases  |  | Straight line     |  | 3-5 years          



| | (d) |  | Revenue recognition:                                                                                                                                             
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | The Company presents as net revenue its net commission and fee income
earned as compensation for its services. Further, the balance sheet
reflects the following:

|
|
|
|
|

|
|
|
|
|

8



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##### Table of Contents



F-9

ENVOY COMMUNICATIONS GROUP INC.Notes to Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)

Years ended September 30, 2002, 2001 and 2000



---



|2. |  | Significant accounting policies (continued):
|-- |  | --------------------------------------------



| |     |  | When the Companys compensation for its agency services is based on
commissions, net revenue is comprised of: (i) commissions earned from
media expenditures, which are recognized at the time the advertising
appears or is broadcast, or in respect of on-line advertising, either
ratably over the period of time the advertising appears or based on the
actual impressions delivered at the contractual rate per impression,
depending upon the terms of the arrangement; and (ii) commissions
earned on expenditures for the production of advertisements, which are
recognized upon the completion of the Companys services and acceptance
by the client, being the time at which the Company has no further
substantial obligations with respect thereto.
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | When the Companys compensation for its agency services is fee-based,
net revenue is comprised of non-refundable monthly agency fees, which
are recognized in the month earned.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |     |  | Pass-through costs related to production are accrued and recorded in
accounts receivable, as unbilled reimbursable costs, at the time the
third party suppliers render their services. Pass-through costs
related to media are accrued at the time the advertisement appears or
is broadcast.                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| | (e) |  | Goodwill:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |     |  | Goodwill acquired prior to July 1, 2001 is initially stated at cost
with amortization being provided on a straight-line basis over periods
ranging from 7 to 25 years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |     |  | As further described in notes 2(i)(ii) and 20(k)(ii)), in accordance
with new accounting standards, goodwill acquired after July 1, 2001 is
not amortized but is tested at least annually for impairment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |     |  | Annually, the Company assesses the recoverability of the carrying value
of its goodwill and the related amortization period. As part of the
evaluation, the Company considers several factors, including the
operating results and trends, movement in major clients and key client
service personnel, changes in client relationships and general economic
conditions. Significant changes in these factors could result in a
permanent impairment of goodwill.                                                                                                                                                                                                                                                                                                  

9



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##### Table of Contents



F-10

ENVOY COMMUNICATIONS GROUP INC.Notes to Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)

Years ended September 30, 2002, 2001 and 2000



---



|2. |  | Significant accounting policies (continued):
|-- |  | --------------------------------------------



| |     |  | Goodwill is considered to be impaired if the future anticipated
undiscounted operating cash flows from the acquired businesses are less
than the carrying value of the goodwill. These cash flow projections
require management to make certain assumptions regarding future revenue
and expenses. When impairment is determined, the related loss is
charged to earnings and is measured by the excess of the carrying value
of the goodwill over its fair value based on estimated discounted
future operating cash flows. The impact of such write-downs on the
amortization period is simultaneously assessed.                                                                                                                
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (f) |  | Foreign currency translation:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |     |  | The financial statements of the Companys foreign subsidiaries, all of
which are self-sustaining operations, are translated using the current
rate method, whereby the assets and liabilities of such foreign
operations 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 year. Translation gains or losses are deferred
and included as a separate component of shareholders equity.                                                                                                                                                                                                                                           
|
| |     |  | In respect of the Companys and its subsidiaries foreign currency
transactions, at the transaction date, each asset, liability, revenue
and expense is translated into Canadian dollars by the use of the
exchange rate in effect at that date. At the year-end date, monetary
assets and liabilities are translated into Canadian dollars by using
the exchange rate in effect at that date. The resulting foreign
exchange gains and losses are included in earnings in the current year.
However, unrealized gains or losses on long-term debt that is
designated as a hedge of investments in foreign subsidiaries are
deferred and recorded as a separate component of shareholders equity.                                
|
| | (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.

10



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##### Table of Contents



F-11

ENVOY COMMUNICATIONS GROUP INC.Notes to Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)

Years ended September 30, 2002, 2001 and 2000



---



|2. |  | Significant accounting policies (continued):
|-- |  | --------------------------------------------



| | (h) |  | Stock-based compensation:                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | The Company has a stock option plan for key employees and officers.
All stock options issued under this plan have an exercise price equal
to or greater than the fair market value of the underlying common
shares on the date of the grant. The Company does not record
compensation expense on the grant or modification of options under the
Plan. Consideration paid by employees on the exercise of stock options
is recorded as share capital. The stock option plan is described in
note 12(d).
|
| | (i) |  | Changes in accounting policies:                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

|
|
|
|
|
|
|

11



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##### Table of Contents



F-12

ENVOY COMMUNICATIONS GROUP INC.Notes to Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)

Years ended September 30, 2002, 2001 and 2000



---



|3. |  | Acquisition of subsidiaries:
|-- |  | ----------------------------



| | (a) |  | Effective October 1, 2001, the Company acquired 100% of the
outstanding shares of Commodore Conference Planners Inc.
(Commodore), a conference and event marketing company. Under the
terms of the acquisition, the initial purchase price consisted of
$611,113 in cash consideration excluding acquisition costs. Of this
cash consideration, $50,000 is included in accounts payable at
September 30, 2002 and will be paid upon the receipt of income taxes
recoverable as provided in the purchase agreement. Additional
consideration, to a maximum of $475,000 cash, may be paid over a
two-year period if certain performance milestones are achieved for the
12-month periods ending September 30, 2002 and 2003. For the twelve
months ended September 30, 2002, an earnout payment of $193,000 is
owing and is included in accounts payable. As additional milestones
are met, the amounts will be accounted for as additional goodwill.
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | The acquisition of Commodore has been accounted for using the purchase
method of accounting. The fair value of the net assets acquired at
October 1, 2001 and consideration accounted for to date was as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

|                                                                                      |  |   |          |  
|------------------------------------------------------------------------------------- |  | - | -------- | -
|Capital assets                                                                        |  | $ | 11,160   |  
|Non-compete agreement                                                                 |  |   | 72,590   |  
|Non-cash working capital                                                              |  |   | (517,544 | )
|                                                                                      |  |   |          |  
|Net liabilities                                                                       |  |   | (433,794 | )
|Consideration, less cash acquired of $919,200, October 1, 2001                        |  |   | (171,187 | )
|Additional cash consideration included in accounts payable,
earn-out for 2002         |  |   | 193,000  |  
|                                                                                      |  |   |          |  
|Excess of purchase price over fair value of
net assets acquired allocated to goodwill |  | $ | 455,607  |  
|                                                                                      |  |   |          |  



| |  |  | The amount assigned to the non-compete agreement is amortized over the
term of the agreement. As a result of the adoption of new accounting
standards for business combinations, the goodwill arising in connection
with this acquisition is not amortized (note 2(i)(ii)).
| |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

12



---



##### Table of Contents



F-13

ENVOY COMMUNICATIONS GROUP INC.Notes to Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)

Years ended September 30, 2002, 2001 and 2000



---



|3. |  | Acquisition of subsidiaries (continued):
|-- |  | ----------------------------------------



| | (b) |  | Effective January 1, 2001, the Company acquired 100% of the
outstanding shares of International Design Group, a Toronto-based
international retail planning and design firm. Under the terms of the
acquisition, the initial purchase price, which consisted of $1,090,000
in cash consideration and 61,728 common shares of the Company with a
fair value of $284,332, was paid upon closing. Additional
consideration may be paid over a three-year period if certain
performance milestones are achieved for the 12-month periods ending
December 31. The earn-out amounts earned will be satisfied by a
maximum of $2,000,000 in cash and a maximum of 154,321 common shares
of the Company. No amounts were owing by the Company in 2002 under
the earn-out agreements. The acquisition has been accounted for using
the purchase method of accounting.
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | The fair value of the net assets acquired was $1,198,684, excluding
cash acquired of $214,179. The net assets acquired consisted of
working capital and capital assets. The resulting excess purchase
price over the fair value of the net assets acquired of $336,382 was
allocated to goodwill and is being amortized over 25 years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| | (c) |  | Effective July 1, 2000, the Company acquired 100% of the
outstanding shares of Gilchrist Brothers Limited (Gilchrist), a
United Kingdom-based digital imaging and design firm, in exchange for
cash consideration of $3,235,798 (£1,460,000) and a $5,325,215
(£2,402,750) non-interest bearing promissory note, repayable in
semi-annual instalments over the next two years to June 30, 2002. The
present value of the promissory note of $5,067,763 (£2,261,486),
together with the initial cash consideration, represent the total
purchase price. At September 30, 2002, $295,615 (£118,749) (2001 -
$2,689,781 (£1,156,200) is included in long-term debt (note 10). The
acquisition has been accounted for using the purchase method of
accounting and the resulting goodwill is being amortized over 20
years.                                    

13



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##### Table of Contents



F-14

ENVOY COMMUNICATIONS GROUP INC.Notes to Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)

Years ended September 30, 2002, 2001 and 2000



---



|3. |  | Acquisition of subsidiaries (continued):
|-- |  | ----------------------------------------



| |  |  | The fair value of the net assets acquired at July 1, 2000 and
consideration accounted for to date was as follows:
| |  |  | -----------------------------------------------------------------------------------------------------------------

|                                                                                      |  |   |            |  
|------------------------------------------------------------------------------------- |  | - | ---------- | -
|Non-cash working capital                                                              |  | $ | 1,046,094  |  
|Capital assets                                                                        |  |   | 2,001,319  |  
|Long-term debt                                                                        |  |   | (2,165,325 | )
|                                                                                      |  |   |            |  
|Net assets                                                                            |  |   | 882,088    |  
|Total consideration, including bank indebtedness assumed                              |  |   | 8,593,970  |  
|                                                                                      |  |   |            |  
|Excess of purchase price over fair value
of net assets acquired allocated to goodwill |  | $ | 7,711,882  |  
|                                                                                      |  |   |            |  



| | (d) |  | Effective June 1, 2000, the Company, acquired 100% of the
outstanding shares of Sage Information Consultants Inc. (Sage), a
digital professional service firm operating in the United States and
Canada, in exchange for cash consideration of $6,750,000 and the
issuance of 503,145 common shares of the Company with a fair value of
$4,000,000.                                                                                                                                                                                                                                                                                                                                                                                           
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | In June 2001, the Company determined that additional consideration was
payable based on Sages operating results for the 12 months ended May
31, 2001 and agreed to amend the terms of the purchase agreement with
respect to the payment of the earnout for this period. Under the
amended terms, the Company agreed to pay $1,392,154 in cash
consideration, rather than the issuance of cash and shares under the
original terms. The excess of the cash consideration payable over the
fair value of the cash and shares otherwise issuable amounted to
$362,485 and is required to be expensed under generally accepted
accounting principles. As a result, only $1,029,669 of the amount
payable has been recorded as additional goodwill.
|
| |     |  | In March 2002, a settlement of the Companys obligations under the
earn-out agreements was reached and a final payment of $225,000 in cash
and 150,000 common shares with a value of $213,000 was made by the
Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |     |  | The acquisition has been accounted for using the purchase method of
accounting and the resulting goodwill is being amortized over 10 years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

14



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##### Table of Contents



F-15

ENVOY COMMUNICATIONS GROUP INC.
Notes to Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)

Years ended September 30, 2002, 2001 and 2000



---



|3. |  | Acquisition of subsidiaries (continued):                                                                         
|-- |  | -----------------------------------------------------------------------------------------------------------------
|  
|   |  | The fair value of the net assets acquired at June 1, 2000 and
consideration accounted for to date was as follows:

|                                                                                      |                      |   |            |         | 
|------------------------------------------------------------------------------------- | -------------------- | - | ---------- | ------- | 
|Non-cash working capital                                                              |                      | $ | 104,663    |        
|Capital assets                                                                        |                      |   | 141,578    |        
|Future income taxes                                                                   |                      |   | 53,000     |        
|                                                                                      |                      |   |            |        
|Net assets                                                                            |                      |   | 299,241    |        
|Total consideration, including bank indebtedness
assumed, June 1, 2000                |                      |   | 12,270,724 |        
|Additional cash consideration in 2001                                                 |                      |   | 1,029,669  |        
|Settlement of final purchase price in 2002:                                           |                      |   |            |        
|                                                                                      | Cash payment         |   |            | 225,000 | 
|                                                                                      | Common shares issued |   |            | 213,000 | 
|                                                                                      |                      |   |            |        
|Total consideration, including bank indebtedness assumed,
September 30, 2002          |                      |   | 13,738,393 |        
|                                                                                      |                      |   |            |        
|Excess of purchase price over fair value
of net assets acquired allocated to goodwill |                      | $ | 13,439,152 |        
|                                                                                      |                      |   |            |        



| | (e) |  | Effective October 1, 1998, the Company acquired 100% of the
outstanding shares of Hampel Stefanides, Inc. (Hampel Stefanides), a
full-service advertising and commercial design agency operating in the
United States, in exchange for initial cash consideration of
$5,587,349 (U.S. $3,649,000) and the issuance of 581,395 common shares
with a fair value of $2,296,800 (U.S. $1,500,000). In September 1999,
the Company recorded additional consideration of $4,134,002. The
consideration was paid on November 4, 1999 by way of a cash payment of
$1,703,802 and the issuance of 450,040 common shares of the Company
with a fair value of $2,430,200. During fiscal 2000, additional cash
consideration of $554,788 (U.S. $375,000) was paid. Additional cash
consideration of $375,875 (U.S. $250,000) is included in accounts
payable and accrued liabilities as at September 30, 2001 and has been
included as part of total consideration.
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | In September 2000, the Company determined that additional consideration
was owing, in the form of cash and shares of the Company, based on
Hampel Stefanides operating results for the year ended September 30,
2000 and such amount has been recorded as at September 30, 2000. The
aggregate consideration of $5,348,600 was paid on November 1, 2000 by
way of a cash payment of $1,724,776, which is included in accounts
payable and accrued liabilities, and the issuance of 444,641 common
shares of the Company with a fair value of $3,623,824, which were
included in share capital as at September 30, 2000.                                                                                                                                                                                                                                                                                                                                 

15



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##### Table of Contents



F-16

ENVOY COMMUNICATIONS GROUP INC.
Notes to Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)

Years ended September 30, 2002, 2001 and 2000



---



|3. |  | Acquisition of subsidiaries (continued):
|-- |  | ----------------------------------------



| |  |  | In December 2001, the Company determined that additional consideration
was owing in the form of cash and shares, based on Hampel Stefanides
operating results for the year ended September 30, 2001 and such amount
has been recorded as at September 30, 2001. The aggregate
consideration of $2,909,150 consists of cash consideration of
$1,900,929, which is included in accounts payable and accrued
liabilities, and the issuance of 466,769 common shares of the Company
with a fair value of $1,008,221, which were included in share capital
as at September 30, 2001 as shares to be issued (note 12(a)).
Subsequent to September 30, 2001, 34,626 common shares related to the
2001 earn-out were not issued. Correspondingly the share capital of
the Company has been reduced by $34,626.
| |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | The Company has no remaining obligations under the earn-out agreement
in connection with Hampel Stefanides.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  |  | The acquisition has been accounted for using the purchase method of
accounting and the resulting goodwill is being amortized over 25 years.
The fair value of the net liabilities acquired on October 1, 1998 and
consideration accounted for to date was as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

|                                                                                |                                            |   |            |           |  
|------------------------------------------------------------------------------- | ------------------------------------------ | - | ---------- | --------- | -
|Non-cash working capital deficiency                                             |                                            | $ | (6,171,687 | )        
|Capital assets                                                                  |                                            |   | 1,676,664  |          
|Restricted cash                                                                 |                                            |   | 765,600    |          
|                                                                                |                                            |   |            |          
|Net liabilities                                                                 |                                            |   | (3,729,423 | )        
|Consideration, less cash acquired, September 30, 1999                           |                                            |   | 7,475,961  |          
|Additional consideration, September 30, 2000:                                   |                                            |   |            |          
|                                                                                | Cash                                       |   |            | 1,724,776 |  
|                                                                                | Issuance of 444,641 common shares          |   |            | 3,623,824 |  
|Additional consideration, September 30, 2001:                                   |                                            |   |            |          
|                                                                                | Cash                                       |   |            | 1,900,929 |  
|                                                                                | Issuance of 466,769 common shares          |   |            | 1,008,221 |  
|Additional consideration, September 30, 2002:                                   |                                            |   |            |          
|                                                                                | Shares not issued relating to 2001 earnout |   |            | (34,626   | )
|                                                                                |                                            |   |            |          
|Total consideration, less cash acquired, September 30, 2002                     |                                            |   | 15,699,085 |          
|                                                                                |                                            |   |            |          
|Purchase price and fair value of net liabilities
acquired allocated to goodwill |                                            | $ | 19,428,508 |          
|                                                                                |                                            |   |            |          

16



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##### Table of Contents



F-17

ENVOY COMMUNICATIONS GROUP INC.
Notes to Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)

Years ended September 30, 2002, 2001 and 2000



---



|4. |  | Restricted cash:                                                                                                                          
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Restricted cash includes a trust account established for Communiqué
Incentives Inc. for customer deposits of $1,831,085 (2001  $158,500).
|  
|5. |  | Accounts receivable:                                                                                                                      

|                            |  |      |            |      |  |   |            | 
|--------------------------- |  | ---- | ---------- | ---- |  | - | ---------- | 
|                            |  | 2002 |            | 2001
|                            |  |      |            |     
|Trade receivables           |  | $    | 12,433,301 |      |  | $ | 20,501,517 | 
|Accrued revenue             |  |      | 6,719,441  |      |  |   | 4,100,289  | 
|Unbilled pass-through costs |  |      | 1,375,306  |      |  |   | 2,338,331  | 
|                            |  |      |            |      |  |   |            | 
|                            |  | $    | 20,528,048 |      |  | $ | 26,940,137 | 
|                            |  |      |            |      |  |   |            | 



|6. |  | Related party transactions:                                                                                                                                                                                                  
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Subsequent to September 30, 2002 (note 19(a)), the Company sold the
operations of Devlin Multimedia Inc. (Devlin) and Sage to certain
executives of the respective subsidiaries.                                           
|  
|   |  | Included in accounts receivable as at September 30, 2001 is a net balance
of $321,893 owing from the former owner of Sage in respect of indemnified
receivables, net of the earnout payment owing by the Company (note 3(d)).
|  
|   |  | Related party transactions are recorded at the exchange amount, being the
amount agreed to by the related parties.                                                                                                           
|  
|7. |  | Capital assets:                                                                                                                                                                                                              

|                                |  |      |            |              |  |             |            |          |  |   |           | 
|------------------------------- |  | ---- | ---------- | ------------ |  | ----------- | ---------- | -------- |  | - | --------- | 
|                                |  |      |            |              |  | Accumulated |            | Net book
|2002                            |  | Cost |            | depreciation |  | value      
|                                |  |      |            |              |  |            
|Audiovisual equipment           |  | $    | 780,918    |              |  | $           | 762,386    |          |  | $ | 18,532    | 
|Computer equipment and software |  |      | 13,115,157 |              |  |             | 8,665,300  |          |  |   | 4,449,857 | 
|Furniture and equipment         |  |      | 1,427,777  |              |  |             | 1,151,402  |          |  |   | 276,375   | 
|Leasehold improvements          |  |      | 8,233,909  |              |  |             | 6,316,255  |          |  |   | 1,917,654 | 
|Equipment under capital leases  |  |      | 1,940,971  |              |  |             | 766,661    |          |  |   | 1,174,310 | 
|                                |  |      |            |              |  |             |            |          |  |   |           | 
|                                |  | $    | 25,498,732 |              |  | $           | 17,662,004 |          |  | $ | 7,836,728 | 
|                                |  |      |            |              |  |             |            |          |  |   |           | 

17



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##### Table of Contents



F-18

ENVOY COMMUNICATIONS GROUP INC.
Notes to Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)

Years ended September 30, 2002, 2001 and 2000



---



|7. |  | Capital assets (continued):
|-- |  | ---------------------------

|                                |  |      |            |              |  |             |            |          |  |   |            | 
|------------------------------- |  | ---- | ---------- | ------------ |  | ----------- | ---------- | -------- |  | - | ---------- | 
|                                |  |      |            |              |  | Accumulated |            | Net book
|2001                            |  | Cost |            | depreciation |  | value      
|                                |  |      |            |              |  |            
|Audiovisual equipment           |  | $    | 780,919    |              |  | $           | 750,126    |          |  | $ | 30,793     | 
|Computer equipment and software |  |      | 10,704,399 |              |  |             | 7,575,183  |          |  |   | 3,129,216  | 
|Furniture and equipment         |  |      | 3,967,088  |              |  |             | 2,714,054  |          |  |   | 1,253,034  | 
|Leasehold improvements          |  |      | 9,700,446  |              |  |             | 3,209,833  |          |  |   | 6,490,613  | 
|Equipment under capital leases  |  |      | 1,393,849  |              |  |             | 763,769    |          |  |   | 630,080    | 
|                                |  |      |            |              |  |             |            |          |  |   |            | 
|                                |  | $    | 26,546,701 |              |  | $           | 15,012,965 |          |  | $ | 11,533,736 | 
|                                |  |      |            |              |  |             |            |          |  |   |            | 



|8. |  | Goodwill:
|-- |  | ---------

|         |  |      |            |              |  |             |            |          |  |   |            | 
|-------- |  | ---- | ---------- | ------------ |  | ----------- | ---------- | -------- |  | - | ---------- | 
|         |  |      |            |              |  | Accumulated |            | Net book
|2002     |  | Cost |            | amortization |  | value      
|         |  |      |            |              |  |            
|Goodwill |  | $    | 57,417,846 |              |  | $           | 46,103,563 |          |  | $ | 11,314,283 | 

|         |  |      |            |              |  |             |           |          |  |   |            | 
|-------- |  | ---- | ---------- | ------------ |  | ----------- | --------- | -------- |  | - | ---------- | 
|         |  |      |            |              |  | Accumulated |           | Net book
|2001     |  | Cost |            | amortization |  | value      
|         |  |      |            |              |  |            
|Goodwill |  | $    | 55,644,858 |              |  | $           | 5,969,743 |          |  | $ | 49,675,115 | 



| |  | The Company performed an assessment of the carrying values of goodwill
recorded in connection with its various businesses. The assessment was
performed because a number of factors indicated that an impairment had
arisen commencing in the period ending March 31, 2002. The main indicators
of impairment were significant negative industry and economic trends
impacting both current operating results and expected future growth rates
and loss of significant clients. Based on these factors, the Company
concluded that significant permanent impairment existed with respect to the
Companys goodwill and other assets, which primarily related to the
goodwill associated with the businesses of Sage, Promanad and Hampel
Stefanides.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

18



---



##### Table of Contents



F-19

ENVOY COMMUNICATIONS GROUP INC.
Notes to Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)

Years ended September 30, 2002, 2001 and 2000



---



|8. |  | Goodwill (continued):                                                                                                                                                                                                                                                                                                                                                                         
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | In quantifying the impairment charge, the Company compared the expected
future cash flows of each acquisition, to the respective carrying value of
the assets of the business, including assigned goodwill. The cash flow
periods used ranged between 5 and 25 years, consistent with the remaining
goodwill amortization period.                                                             
|  
|   |  | As a result of the review, the Company determined that the carrying values
of certain acquired businesses were not fully recoverable. Accordingly,
the Company recorded two write-downs: $28,426,266 in the second quarter of
2002 and $9,508,445 in the fourth quarter of 2002 based on the amount by
which the goodwill exceeded the expected future cash flows of the
respective operation.
|  
|9. |  | Other assets:                                                                                                                                                                                                                                                                                                                                                                                 

|                                                                              |  |      |         |      |  |   |         | 
|----------------------------------------------------------------------------- |  | ---- | ------- | ---- |  | - | ------- | 
|                                                                              |  | 2002 |         | 2001
|                                                                              |  |      |         |     
|Deferred financing charges                                                    |  | $    |        |      |  | $ | 634,936 | 
|Non-compete agreement, net of accumulated
amortization of $24,197 (note 3(a)) |  |      | 48,394  |      |  |   |        | 
|Other                                                                         |  |      | 68,255  |      |  |   | 46,451  | 
|                                                                              |  |      |         |      |  |   |         | 
|                                                                              |  | $    | 116,649 |      |  | $ | 681,387 | 
|                                                                              |  |      |         |      |  |   |         | 

19



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##### Table of Contents



F-20

ENVOY COMMUNICATIONS GROUP INC.
Notes to Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)

Years ended September 30, 2002, 2001 and 2000



---



|10. |  | Bank credit facility and other debt:
|--- |  | ------------------------------------

|                                                                                                                                                                                                       |  |      |            |      |  |   |            | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---- | ---------- | ---- |  | - | ---------- | 
|                                                                                                                                                                                                       |  | 2002 |            | 2001
|                                                                                                                                                                                                       |  |      |            |     
|Bank credit facility (a)                                                                                                                                                                               |  | $    | 9,838,192  |      |  | $ | 7,841,329  | 
|Promissory note, 8% per annum, repayable in five
monthly instalments commencing June 30, 2002 (b)                                                                                                      |  |      | 295,615    |      |  |   | 2,689,781  | 
|Loan payable to landlord, 3.5% per annum, due
July 1, 2009, repayable in monthly instalments
of $7,665 principal and interest                                                                          |  |      | 553,992    |      |  |   | 625,382    | 
|Loan payable to landlord, 0.925% per annum,
due December 1, 2002, repayable in monthly
instalments of $6,728 principal and interest                                                                    |  |      | 20,185     |      |  |   | 100,925    | 
|Loan payable to landlord, 10.0% per annum, due
March 1, 2010, repayable in monthly instalments of
$3,956 principal and interest                                                                        |  |      | 251,444    |      |  |   | 357,016    | 
|Loan payable to landlord, 10.0% per annum, due
April 1, 2005, repayable in monthly instalments of
$742 principal and interest                                                                          |  |      | 37,001     |      |  |   |           | 
|Loan payable to landlord, 8.0% per annum, due
April 1, 2010, repayable in monthly instalments of
$561 principal and interest                                                                           |  |      | 38,337     |      |  |   |           | 
|Capital lease, 12.3% over the lease period, repayable
in quarterly instalments of $63,056 (£25,330)
(2001 - $60,129 (£25,330)) principal and interest,
due January 2003                                |  |      | 64,123     |      |  |   | 284,507    | 
|Capital leases, 10.3% to 13.9% over the lease period,
repayable in quarterly instalments of $15,997 (£6,426);
(2001 - $14,950 (£19,750)) principal and interest,
due between March 2002 and April 2002 |  |      |           |      |  |   | 29,225     | 
|Capital leases, 10.2% to 14% over the lease period,
repayable in monthly instalments of $33,136 principal
and interest, due between January 2005 and
February 2005                                     |  |      | 820,424    |      |  |   |           | 
|Convertible debentures (note 11)                                                                                                                                                                       |  |      | 2,083,498  |      |  |   |           | 
|                                                                                                                                                                                                       |  |      |            |      |  |   |            | 
|                                                                                                                                                                                                       |  |      | 14,002,811 |      |  |   | 11,928,165 | 
|Less current portion                                                                                                                                                                                   |  |      | 10,589,114 |      |  |   | 10,965,089 | 
|                                                                                                                                                                                                       |  |      |            |      |  |   |            | 
|                                                                                                                                                                                                       |  | $    | 3,413,697  |      |  | $ | 963,076    | 
|                                                                                                                                                                                                       |  |      |            |      |  |   |            | 

20



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##### Table of Contents



F-21

ENVOY COMMUNICATIONS GROUP INC.
Notes to Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)

Years ended September 30, 2002, 2001 and 2000



---



|10. |  | Bank credit facility and other debt (continued):
|--- |  | ------------------------------------------------



| | (a) |  | During the year, the Company was in violation of certain
provisions under its bank credit facility. As at September 30, 2002,
the Company has entered into a Forebearance Agreement with the lenders
under its bank credit facility, under which the Company is required to
maintain certain financial tests. Under the Forebearance Agreement,
unless there are further violations or defaults by the Company, the
lenders have agreed not to enforce their rights or remedies under
security agreements. The lenders still have the right to demand
repayment of the borrowings at any time. The terms of the
Forebearance Agreement require the Company to make a principal
repayment of $2,000,000 in December 2002 and $1,000,000 in each of
January, February and March 2003, with the balance due on April 30,
2003.
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | As permitted under the Forebearance Agreement, and subsequent
amendments, the Company has letters of credit available to be issued in
the amount of £250,000 and U.S. $500,000. The letters of credit expire
on April 30, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |     |  | Interest rates on the facility are variable based on certain leverage
ratios and, at September 30, 2002, the effective interest rate was
8.50% (2001  4.25%). The facility is secured by a general security
agreement guarantee against the Company and all of its subsidiaries.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |     |  | Of the outstanding borrowings, $3,178,691 (U.S. $2,002,704) is
denominated in U.S. dollars.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| | (b) |  | During the third quarter, the Company negotiated new repayment
terms for a promissory note originally due on June 30, 2002 in respect
of the Gilchrist acquisition (note 3(c)) (the Gilchrist note).
Under the revised terms, the Gilchrist note is to be repaid in five
monthly instalments commencing July 1, 2002 with interest on the
principal balance charged at 8% per annum.                                                                                                                                                                                                                                                                                                                                                                                                                                     

21



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##### Table of Contents



F-22

ENVOY COMMUNICATIONS GROUP INC.
Notes to Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)

Years ended September 30, 2002, 2001 and 2000



---



|10. |  | Bank credit facility and other debt (continued):                                                   
|--- |  | ---------------------------------------------------------------------------------------------------
|   
|    |  | Principal repayments on long-term debt, excluding convertible debentures
(note 11), are as follows:

|           |  |   |            | 
|---------- |  | - | ---------- | 
|2003       |  | $ | 10,589,114 | 
|2004       |  |   | 478,660    | 
|2005       |  |   | 265,071    | 
|2006       |  |   | 118,900    | 
|2007       |  |   | 189,599    | 
|Thereafter |  |   | 277,969    | 
|           |  |   |            | 
|           |  | $ | 11,919,313 | 
|           |  |   |            | 



|11. |  | Convertible debentures:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | On April 29, 2002, the Company issued $1,800,000 in 10% convertible
debentures which mature on April 29, 2007. The debentures are convertible
until the maturity date into 2,500,000 units of the Company at a conversion
price of $0.72 per unit. Each unit consists of one common share in the
capital of the Company and one purchase warrant of the Company. Each
purchase warrant entitles the holder to purchase one common share (2.5
million common shares in aggregate) within the earlier of (a) 12 months of
the date of conversion of the debenture, and (b) the maturity date at a
price of $0.90 per common share. Holders also have the right to require
the Company to purchase all or a portion of their debentures on or after
April 29, 2004 at the issue price plus accrued and unpaid interest. In
addition, upon a change in control occurring on or before April 29, 2004,
the Company will be required to offer to purchase the debentures at a
purchase price equal to 101% of the issue price plus accrued and unpaid
interest to the repurchase date. The debentures are secured by a charge
over the Companys assets and undertakings, which charge will be subject
only to security interests in favour of the Companys bankers, equipment
leases and non-consensual liens. The net proceeds from the sale of the
debentures were used for general corporate purposes.
|   
|    |  | The debentures are bifurcated into a debt component, representing a yield
to maturity of 25.4% per annum over the five-year life, and an equity
component with proceeds allocated as $1,017,770 to long-term debt and
$782,230 to shareholders equity. That portion of offering expenses
related to the debt component, being $60,587 has been recorded as deferred
financing fees which are classified in prepaid expenses, and the remaining
$46,565 applied to reduce the equity component.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

22



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##### Table of Contents



F-23

ENVOY COMMUNICATIONS GROUP INC.
Notes to Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)

Years ended September 30, 2002, 2001 and 2000



---



|11. |  | Convertible debentures (continued):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | The principal amount of the debentures will increase as interest is
compounded using an effective interest rate method over two years, being
the earliest date at which they are redeemable at the option of the holder.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|    |  | On September 12, 2002, the Company issued $2,000,000 in 10% convertible
debentures which mature on September 12, 2007. The debentures are
convertible until the maturity date into 5,882,353 units of the Company at
a conversion price of $0.34 per unit. Each unit consists of one common
share in the capital of the Company and one purchase warrant of the
Company. Each purchase warrant entitles the holder to purchase one common
share (5,882,353 common shares in aggregate) within the earlier of (a)
twelve months of the date of conversion of the debenture, and (b) the
maturity date at a price of $0.34 per common share. Holders also have the
right to require the Company to purchase all or a portion of their
debentures on or after September 12, 2004 at the issue price plus accrued
and unpaid interest. In addition, upon a change in control occurring on or
before September 12, 2004, the Company will be required to offer to
purchase the debentures at a purchase price equal to 101% of the issue
price plus accrued and unpaid interest to the repurchase date. The
debentures are secured by a charge over the Companys assets and
undertakings, which charge will be subject only to security interests in
favour of the Companys bankers, equipment leases and non-consensual liens.
The net proceeds from the sale of the debentures were used for general
corporate purposes.
|   
|    |  | The debentures are bifurcated into a debt component, representing a yield
to maturity of 31.5% per annum over the five-year life, and an equity
component with proceeds allocated as $931,858 to long-term debt and
$1,068,142 to shareholders equity. That portion of the offering expenses
related to the debt component, being $72,365, has been recorded as deferred
financing fees which are classified in prepaid expenses, and the remaining
$82,948 applied to reduce the equity component.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|    |  | The principal amount of the debentures will increase as interest is
compounded using an effective interest rate method over two years, being
the earliest date at which they are redeemable at the option of the holder.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|    |  | As at September 30, 2002, the aggregate debt component carrying values of
all of the Companys convertible debentures is $2,083,498. Principal
repayments, based on scheduled maturity dates, is $3,800,000 in 2007.
However, this date may be accelerated to 2004, at the option of the holders
of the debentures.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

23



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##### Table of Contents



F-24

ENVOY COMMUNICATIONS GROUP INC.
Notes to Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)

Years ended September 30, 2002, 2001 and 2000



---



|12. |  | Share capital:
|--- |  | --------------



| | (a) |  | Authorized:                                                                      
| | --- |  | ---------------------------------------------------------------------------------
|
| |     |  | 50,000,000 common shares without par value
(2001  50,000,000; 2000  50,000,000)
|
| |     |  | Issued:                                                                          

|                                                                       |                                                           |  |            |          |        |   |            |          |        |  |            |          |        |   |            |            |   |  |            |           |  |   |            |            | 
|---------------------------------------------------------------------- | --------------------------------------------------------- |  | ---------- | -------- | ------ | - | ---------- | -------- | ------ |  | ---------- | -------- | ------ | - | ---------- | ---------- | - |  | ---------- | --------- |  | - | ---------- | ---------- | 
|                                                                       |                                                           |  | 2002       |          | 2001   |   | 2000      
|                                                                       |                                                           |  |            |          |        |   |           
|                                                                       |                                                           |  | Number     |          |        |   |            |          | Number |  |            |          |        |   | Number     |            |   |  |           
|                                                                       |                                                           |  | of shares  |          | Amount |   | of shares  |          | Amount |  | of shares  |          | Amount
|                                                                       |                                                           |  |            |          |        |   |            |          |        |  |            |          |       
|Balance, beginning of year                                             |                                                           |  | 21,192,719 |          |        | $ | 54,883,305 |          |        |  | 21,098,222 |          |        | $ | 54,597,762 |            |   |  | 18,349,005 |           |  | $ | 35,613,907 |           
|Common shares issued
for cash pursuant to:                             |                                                           |  |            |          |        |   |            |          |        |  |            |          |        |   |            |            |   |  |            |           |  |   |            |           
|                                                                       | Public offering                                           |  |            |         |        |   |            |         |        |  |            |         |        |   |            |           |   |  |            | 1,533,571 |  |   |            | 10,128,823 | 
|                                                                       | Stock options exercised                                   |  |            |         |        |   |            |         |        |  |            | 101,000  |        |   |            | 383,670    |   |  |            | 214,000   |  |   |            | 811,100    | 
|                                                                       | Acquisitions (note 3)                                     |  |            | 150,000  |        |   |            | 213,000  |        |  |            | 61,728   |        |   |            | 284,332    |   |  |            | 557,005   |  |   |            | 4,420,108  | 
|                                                                       | Repurchase of shares
pursuant to share
issuer bid         |  |            | (299,400 | )      |   |            | (774,789 | )      |  |            | (535,000 | )      |   |            | (1,390,680 | ) |  |            |          |  |   |            |           | 
|                                                                       | Shares issued to
settle liability
with landlord
(note 15) |  |            | 250,000  |        |   |            | 52,500   |        |  |            |         |        |   |            |           |   |  |            |          |  |   |            |           | 
|                                                                       |                                                           |  |            |          |        |   |            |          |        |  |            |          |        |   |            |            |   |  |            |           |  |   |            |           
|                                                                       |                                                           |  | 21,293,319 |          |        |   | 54,374,016 |          |        |  | 20,725,950 |          |        |   | 53,875,084 |            |   |  | 20,653,581 |           |  |   | 50,973,938 |           
|Shares to be issued in
respect of contingent
consideration (note 3(e)) |                                                           |  | (34,626    | )        |        |   | (34,626    | )        |        |  | 466,769    |          |        |   | 1,008,221  |            |   |  | 444,641    |           |  |   | 3,623,824  |           
|                                                                       |                                                           |  |            |          |        |   |            |          |        |  |            |          |        |   |            |            |   |  |            |           |  |   |            |           
|Balance, end of year                                                   |                                                           |  | 21,258,693 |          |        | $ | 54,339,390 |          |        |  | 21,192,719 |          |        | $ | 54,883,305 |            |   |  | 21,098,222 |           |  | $ | 54,597,762 |           
|                                                                       |                                                           |  |            |          |        |   |            |          |        |  |            |          |        |   |            |            |   |  |            |           |  |   |            |           



| | (b) |  | Public offering:                                                                                                                                                                                                                                                                                                              
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | On June 5, 2000, the Company issued 1,533,571 common shares through a
public share offering for gross proceeds of $7.00 per share and
aggregate proceeds of $10,734,997. Net proceeds recorded as share
capital were $10,128,823 after deducting issue costs of $1,195,965 and
recording the related tax recovery of $589,791.

24



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##### Table of Contents



F-25

ENVOY COMMUNICATIONS GROUP INC.
Notes to Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)

Years ended September 30, 2002, 2001 and 2000



---



|12. |  | Share capital (continued):
|--- |  | --------------------------



| | (c) |  | Repurchase of shares:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | During 2002, pursuant to a normal course issuer bid, the Company
repurchased and cancelled 299,400 common shares at an average price of
$2.10 per common share for total cash consideration of $628,083. As a
result of these purchases, $146,706 was recorded in retained earnings
as a gain on redemption.                                                                                                                                                                                                                           
|
| |     |  | During 2001, pursuant to a normal course issuer bid, the Company
repurchased and cancelled 535,000 common shares at an average price of
$2.42 per common share for total consideration of $1,295,475. As a
result of these repurchases, $95,205 was recorded as a gain on
redemption of shares in retained earnings. Under the terms of the
normal course issuer bid, the Company may repurchase and cancel up to
10% of the public float to July 26, 2002.                                                                            
|
| | (d) |  | Stock option plan:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |     |  | The Company has reserved 4,000,000 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. Options granted after November
1997 have vesting periods ranging from date of grant and up to five
years. Options granted prior to November 1997 vested upon grant. Once
vested, options are exercisable at any time until expiry. Expiry dates
range between 2002 and 2007.
|
| |     |  | In 2002, the Company obtained approval to re-price options. All
employees, excluding insiders and U.S. employees, were given the
opportunity to cancel their existing stock options with an exercise
price greater than $6 per share and replace them with new stock
options. Options were cancelled on January 31, 2002 and new options to
acquire 50% of the number of options cancelled were granted on August
2, 2002 at an exercise price of $3.05.                                                                               

25



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##### Table of Contents



F-26

ENVOY COMMUNICATIONS GROUP INC.
Notes to Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)

Years ended September 30, 2002, 2001 and 2000



---



|12. |  | Share capital (continued):
|--- |  | --------------------------



| |  |  | Details of the options are as follows:
| |  |  | --------------------------------------

|                                        |  |            |            |           |  |          |      | 
|--------------------------------------- |  | ---------- | ---------- | --------- |  | -------- | ---- | 
|                                        |  |            |            |           |  | Weighted
|                                        |  |            |            |           |  | average 
|                                        |  |            |            |           |  | exercise
|                                        |  | Number     |            | price per
|                                        |  | of options |            | share    
|                                        |  |            |            |          
|Options outstanding, September 30, 1999 |  |            | 2,076,500  |           |  | $        | 4.30 | 
|Options granted                         |  |            | 774,000    |           |  |          | 7.43 | 
|Options exercised                       |  |            | (214,000   | )         |  |          | 3.79 | 
|Options cancelled                       |  |            | (296,000   | )         |  |          | 4.72 | 
|                                        |  |            |            |           |  |          |      | 
|Options outstanding, September 30, 2000 |  |            | 2,340,500  |           |  |          | 5.33 | 
|Options granted                         |  |            | 780,000    |           |  |          | 5.30 | 
|Options exercised                       |  |            | (101,000   | )         |  |          | 3.80 | 
|Options cancelled                       |  |            | (340,000   | )         |  |          | 5.87 | 
|                                        |  |            |            |           |  |          |      | 
|Options outstanding, September 30, 2001 |  |            | 2,679,500  |           |  |          | 5.31 | 
|Options granted                         |  |            | 1,719,000  |           |  |          | 1.15 | 
|Options cancelled                       |  |            | (1,199,500 | )         |  |          | 5.37 | 
|                                        |  |            |            |           |  |          |      | 
|Options outstanding, September 30, 2002 |  |            | 3,199,000  |           |  |          | 3.06 | 
|                                        |  |            |            |           |  |          |      | 
|Options exercisable, September 30, 2002 |  |            | 2,322,084  |           |  | $        | 3.35 | 
|                                        |  |            |            |           |  |          |      | 
|Options exercisable, September 30, 2001 |  |            | 1,491,510  |           |  | $        | 5.07 | 
|                                        |  |            |            |           |  |          |      | 



| |  |  | The range of exercise prices for options outstanding and options
exercisable at September 30, 2002 are as follows:
| |  |  | ------------------------------------------------------------------------------------------------------------------

|               |  |                     |           |                     |  |                  |      |          |  |            |  |  |           |          |  |          |      |  |  | 
|-------------- |  | ------------------- | --------- | ------------------- |  | ---------------- | ---- | -------- |  | ---------- |  |  | --------- | -------- |  | -------- | ---- |  |  | 
|               |  | Options outstanding |           | Options exercisable
|               |  |                     |           |                    
|               |  |                     |           |                     |  | Weighted         |      |          |  |            |  |  |           |          |  | Weighted
|               |  |                     |           |                     |  | average          |      | Weighted |  |            |  |  |           | average 
|Range of       |  |                     |           |                     |  | exercise         |      | average  |  |            |  |  |           | exercise
|exercise price |  | Number              |           | price               |  | contractual life |      | Number   |  | price     
|               |  |                     |           |                     |  |                  |      |          |  |           
|$0.61 - $3.05  |  |                     | 1,799,000 |                     |  | $                | 1.32 |          |  | 4.47 years |  |  | 1,055,000 |          |  | $        | 1.03 | 
|$3.62 - $4.70  |  |                     | 755,000   |                     |  |                  | 3.96 |          |  | 0.90 years |  |  | 668,750   |          |  |          | 3.95 | 
|$6.20 - $8.15  |  |                     | 645,000   |                     |  |                  | 6.84 |          |  | 0.32 years |  |  | 598,334   |          |  |          | 6.78 | 

26



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##### Table of Contents



F-27

ENVOY COMMUNICATIONS GROUP INC.
Notes to Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)

Years ended September 30, 2002, 2001 and 2000



---



|12. |  | Share capital (continued):
|--- |  | --------------------------



| | (e) |  | Earnings (loss) and cash flows from operations per share:                                     
| | --- |  | ----------------------------------------------------------------------------------------------
|
| |     |  | The following table sets forth the computation of basic and diluted
earnings (loss) per share:

|                                                      |                                                                                           |                     |                                      |            |             |   |            |            |            |   |            |            |           |         | 
|----------------------------------------------------- | ----------------------------------------------------------------------------------------- | ------------------- | ------------------------------------ | ---------- | ----------- | - | ---------- | ---------- | ---------- | - | ---------- | ---------- | --------- | ------- | 
|                                                      |                                                                                           |                     |                                      |            | 2002        |   | 2001       |            | 2000      
|                                                      |                                                                                           |                     |                                      |            |             |   |            |            |           
|Numerator:                                            |                                                                                           |                     |                                      |            |             |   |            |            |            |   |            |           
|                                                      |                                                                                           | Net earnings (loss) |                                      | $          | (53,379,435 | ) |            | $          | (2,895,372 | ) |            | $          | 2,910,427 |        
|                                                      |                                                                                           |                     |                                      |            |             |   |            |            |            |   |            |            |           |        
|Denominator:                                          |                                                                                           |                     |                                      |            |             |   |            |            |            |   |            |           
|                                                      | Denominator for basic net
earnings (loss) per share -
weighted average shares
outstanding |                     |                                      | 20,998,397 |             |   |            | 21,160,616 |            |   |            | 19,156,626 |          
|                                                      | Effect of dilutive potential
common shares:                                               |                     |                                      |            |             |   |            |            |            |   |            |            |          
|                                                      |                                                                                           |                     | Shares issuable pursuant to
warrants |            |             |  |            |            |            |  |            |            |           | 75      | 
|                                                      |                                                                                           |                     | Shares issuable under stock
options  |            |             |  |            |            |            |  |            |            |           | 516,263 | 
|                                                      |                                                                                           |                     |                                      |            |             |   |            |            |            |   |            |            |           |        
|Denominator for diluted net
earnings (loss) per share |                                                                                           |                     | 20,998,397                           |            |             |   | 21,160,616 |            |            |   | 19,672,964 |           
|                                                      |                                                                                           |                     |                                      |            |             |   |            |            |            |   |            |            |           |        

27



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##### Table of Contents



F-28

ENVOY COMMUNICATIONS GROUP INC.
Notes to Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)

Years ended September 30, 2002, 2001 and 2000



---



|12. |  | Share capital (continued):
|--- |  | --------------------------



| |  |  | As the Company experienced a loss for the years ended September 30,
2002 and 2001, all potential common shares outstanding from dilutive
securities are considered anti-dilutive and are excluded from the
calculation of loss per share. Details of potential dilutive
securities are as follows:
| |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                            |                                                            |  |      |           |      |  |      |           |  |  |  |           | 
|------------------------------------------- | ---------------------------------------------------------- |  | ---- | --------- | ---- |  | ---- | --------- |  |  |  | --------- | 
|                                            |                                                            |  | 2002 |           | 2001 |  | 2000
|                                            |                                                            |  |      |           |      |  |     
|Effect of dilutive potential common
shares: |                                                            |  |      |           |      |  |      |           |  |  |  |          
|                                            | Shares issuable pursuant to
warrants                       |  |      | 7,882,353 |      |  |      |          |  |  |  | 75        | 
|                                            | Shares issuable under stock
options                        |  |      | 3,199,000 |      |  |      | 2,679,500 |  |  |  | 2,340,500 | 
|                                            | Shares to be issued in respect
of contingent consideration |  |      |          |      |  |      | 1,772,241 |  |  |  | 2,172,246 | 
|                                            | Shares issuable upon
conversion of convertible
debentures  |  |      | 8,382,353 |      |  |      |          |  |  |  |          | 



| |  |  | Basic and diluted cash flows from operations per share have been
calculated using the cash flows from operating activities, excluding
net changes in non-cash working capital balances.
| |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|13. |  | Income taxes:                                                                                   
|--- |  | ------------------------------------------------------------------------------------------------
|   
|    |  | Income tax expense (recovery) for the years ended September 30, 2002, 2001
and 2000 consists of:

|        |  |      |            |      |  |      |           |   |  |   |           |  
|------- |  | ---- | ---------- | ---- |  | ---- | --------- | - |  | - | --------- | -
|        |  | 2002 |            | 2001 |  | 2000
|        |  |      |            |      |  |     
|Current |  | $    | (3,073,468 | )    |  | $    | 1,927,172 |   |  | $ | 3,537,698 |  
|Future  |  |      | (1,780,072 | )    |  |      | (567,441  | ) |  |   | (285,344  | )
|        |  |      |            |      |  |      |           |   |  |   |           |  
|        |  | $    | (4,853,540 | )    |  | $    | 1,359,731 |   |  | $ | 3,252,354 |  
|        |  |      |            |      |  |      |           |   |  |   |           |  

28



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##### Table of Contents



F-29

ENVOY COMMUNICATIONS GROUP INC.
Notes to Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)

Years ended September 30, 2002, 2001 and 2000



---



|13. |  | Income taxes (continued):                                                                                                                                                                                                                                     
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | The income tax expense (recovery) attributable to income (loss) from
continuing operations differs from the amounts computed by applying the
Canadian statutory rates of 39.5% (2001  42.5%; 2000  44.1%) pretax
income (loss) as a result of the following.

|                                                    |                                                                                          |   |            |           |      |  |       |      |    |   |           |          |   |  |      |       |    |   |           |          |   |  |      |      |   
|--------------------------------------------------- | ---------------------------------------------------------------------------------------- | - | ---------- | --------- | ---- |  | ----- | ---- | -- | - | --------- | -------- | - |  | ---- | ----- | -- | - | --------- | -------- | - |  | ---- | ---- | --
|                                                    |                                                                                          |   | 2002       |           | 2001 |  | 2000 
|                                                    |                                                                                          |   |            |           |      |  |      
|Income tax expense (recovery)
at statutory rates    |                                                                                          | $ | (7,153,748 | )         |      |  | (39.5 | )%   |    | $ | 627,270   |          |   |  | 42.5 | %     |    | $ | 3,420,638 |          |   |  | 44.1 | %   
|Increase (decrease) in
income taxes resulting
from: |                                                                                          |   |            |           |      |  |       |      |    |   |           |          |   |  |      |       |    |   |           |          |   |  |      |     
|                                                    | Adjustment to future tax
assets for substantively
enacted changes in tax
laws and rates  |   |            | 654,691   |      |  |       | 3.6  | %  |   |           | 100,000  |   |  |      | 6.8   | %  |   |           |         |   |  |      |     |   
|                                                    | Expenses deducted in the
accounts which have no
corresponding deduction
for income taxes |   |            | 276,996   |      |  |       | 1.5  | %  |   |           | 665,323  |   |  |      | 45.1  | %  |   |           | 168,476  |   |  |      | 2.1  | % 
|                                                    | Impact of different tax
rate on earnings of
foreign subsidiaries                         |   |            | (483,406  | )    |  |       | (2.5 | )% |   |           | (185,524 | ) |  |      | (12.6 | )% |   |           | (111,815 | ) |  |      | (1.4 | )%
|                                                    | Change in valuation
allowance                                                            |   |            | 2,407,144 |      |  |       | 13.3 | %  |   |           |         |   |  |      |      |    |   |           |         |   |  |      |     |   
|                                                    | Other                                                                                    |   |            | (555,217  | )    |  |       | (3.1 | )% |   |           | 152,662  |   |  |      | 10.4  | %  |   |           | (224,945 | ) |  |      | (2.9 | )%
|                                                    |                                                                                          |   |            |           |      |  |       |      |    |   |           |          |   |  |      |       |    |   |           |          |   |  |      |     
|                                                    |                                                                                          | $ | (4,853,540 | )         |      |  | (26.7 | )%   |    | $ | 1,359,731 |          |   |  | 92.2 | %     |    | $ | 3,252,354 |          |   |  | 41.9 | %   
|                                                    |                                                                                          |   |            |           |      |  |       |      |    |   |           |          |   |  |      |       |    |   |           |          |   |  |      |     

29



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##### Table of Contents



F-30

ENVOY COMMUNICATIONS GROUP INC.
Notes to Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)

Years ended September 30, 2002, 2001 and 2000



---



|13. |  | 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, 2002 are
presented below:

|                            |                                                   |   |           |           |      |   |           |         | 
|--------------------------- | ------------------------------------------------- | - | --------- | --------- | ---- | - | --------- | ------- | 
|                            |                                                   |   | 2002      |           | 2001
|                            |                                                   |   |           |           |     
|Future tax assets:          |                                                   |   |           |           |      |   |           |        
|                            | Capital assets                                    |   | $         | 1,263,019 |      |   | $         | 333,006 | 
|                            | Share issuance costs                              |   |           | 422,369   |      |   |           | 530,891 | 
|                            | Non-capital losses expiring in 2009 (2001 - 2009) |   |           | 3,890,104 |      |   |           | 712,000 | 
|                            | Other                                             |   |           | 189,845   |      |   |           |        | 
|                            |                                                   |   |           |           |      |   |           |         | 
|                            |                                                   |   | 5,765,337 |           |      |   | 1,575,897 |        
|Less valuation allowance    |                                                   |   | 2,407,144 |           |      |   |          |        
|                            |                                                   |   |           |           |      |   |           |         | 
|Net future tax assets       |                                                   |   | 3,358,193 |           |      |   | 1,575,897 |        
|Future tax liabilities:     |                                                   |   |           |           |      |   |           |        
|                            | Goodwill                                          |   |           | 43,965    |      |   |           | 41,741  | 
|                            |                                                   |   |           |           |      |   |           |         | 
|Total net future tax assets |                                                   |   | 3,314,228 |           |      |   | 1,534,156 |        
|Less current portion        |                                                   |   | 855,000   |           |      |   | 712,000   |        
|                            |                                                   |   |           |           |      |   |           |         | 
|                            |                                                   | $ | 2,459,228 |           |      | $ | 822,156   |        
|                            |                                                   |   |           |           |      |   |           |         | 



| |  | At September 30, 2002, the Company has non-capital losses of approximately
$9,340,000 available to reduce future years taxable income, which expire
as follows:
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

|     |  |   |           | 
|---- |  | - | --------- | 
|2008 |  | $ | 3,175,000 | 
|2009 |  |   | 6,165,000 | 
|     |  |   |           | 
|     |  | $ | 9,340,000 | 
|     |  |   |           | 



| |  | The Company also has non-capital losses available for carryforward for
United States State and City tax purposes amounting to approximately
$8,000,000, expiring in 2022.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

30



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##### Table of Contents



F-31

ENVOY COMMUNICATIONS GROUP INC.
Notes to Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)

Years ended September 30, 2002, 2001 and 2000



---



|14. |  | Unusual items:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | During 2002, as a result of changes in the banking loan arrangements, the
Company was no longer allowed to fully utilize its line of credit and,
accordingly, the remaining unamortized portion of deferred financing
charges totalling $750,648 were written off.                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|    |  | During 2001, the Company announced that it was terminating its discussions
in connection with the proposed acquisition of Leagas Delaney. Generally
accepted accounting principles require that the $1,917,334 of costs
incurred in connection with the proposed acquisition and the related equity
financing be expensed in full as of the date of abandonment. Costs include
legal, accounting, consulting and other out-of-pocket expenses incurred in
the negotiation and preparation of legal documents and preparation of
long-form prospectus materials prepared in connection with the abandoned
acquisition.                                                    
|   
|15. |  | Restructuring costs:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|    |  | In response to a general economic downturn impacting the Companys
business, management implemented a restructuring plan during the first half
of this fiscal year in order to bring costs more in line with expected
revenues. The restructuring involved downsizing its workforce, exiting
excess office space and writing off redundant fixed assets. Accordingly,
the Company has recorded a restructuring expense of $10,857,534. The
restructuring includes a reduction of staff, as well as the abandonment of
leased office space in New York City. As part of the settlement with the
landlord, the Company issued 250,000 common shares with a cost of $52,500.

|                             |  |      |           |          |  |           |           |      |  |       |            |               |  |            |           | 
|---------------------------- |  | ---- | --------- | -------- |  | --------- | --------- | ---- |  | ----- | ---------- | ------------- |  | ---------- | --------- | 
|                             |  |      |           |          |  |           |           |      |  |       |            |               |  | Provision,
|                             |  |      |           |          |  |           |           |      |  | Total |            | September 30,
|                             |  | Cash |           | Non-cash |  | provision |           | 2002
|                             |  |      |           |          |  |           |           |     
|Severance                    |  | $    | 3,268,261 |          |  | $         |          |      |  | $     | 3,268,261  |               |  | $          | 1,013,424 | 
|Write-down of capital assets |  |      |          |          |  |           | 3,481,105 |      |  |       | 3,481,105  |               |  |            |          | 
|Lease exit costs             |  |      | 4,055,668 |          |  |           | 52,500    |      |  |       | 4,108,168  |               |  |            | 1,481,196 | 
|                             |  |      |           |          |  |           |           |      |  |       |            |               |  |            |           | 
|Total restructuring charge   |  | $    | 7,323,929 |          |  | $         | 3,533,605 |      |  | $     | 10,857,534 |               |  | $          | 2,494,620 | 
|                             |  |      |           |          |  |           |           |      |  |       |            |               |  |            |           | 

31



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##### Table of Contents



F-32

ENVOY COMMUNICATIONS GROUP INC.
Notes to Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)

Years ended September 30, 2002, 2001 and 2000



---



|15. |  | Restructuring costs (continued):                                          
|--- |  | --------------------------------------------------------------------------
|   
|    |  | Total restructuring costs accrued at September 30, 2002 are classified as:

|                                         |  |   |           | 
|---------------------------------------- |  | - | --------- | 
|Accounts payable and accrued liabilities |  | $ | 1,702,345 | 
|Long-term portion of restructuring costs |  |   | 792,275   | 
|                                         |  |   |           | 
|                                         |  | $ | 2,494,620 | 
|                                         |  |   |           | 



|16. |  | Commitments and contingencies:
|--- |  | ------------------------------



| | (a) |  | The Company has entered into operating lease agreements for
office premises and equipment with minimum annual lease payments over
the next five years as follows:
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

|           |  |   |            | 
|---------- |  | - | ---------- | 
|2003       |  | $ | 4,402,963  | 
|2004       |  |   | 4,036,683  | 
|2005       |  |   | 3,840,998  | 
|2006       |  |   | 3,253,230  | 
|2007       |  |   | 8,932,271  | 
|Thereafter |  |   | 77,213     | 
|           |  |   |            | 
|           |  | $ | 24,543,358 | 
|           |  |   |            | 



| |     |  | Rent expense under operating leases for the year ended September 30,
2002 amounted to $2,041,417 (2001  $1,980,592; 2000  $1,680,822).                                                                                                                                                                                                                                                                                     
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | The Company has letters of credit outstanding of Cdn. $150,000,
U.S. $500,000 and £250,000 all of which expire on April 30, 2003.                                                                                                                                                                                                                                                                                            
|
| | (c) |  | The shares held by the minority shareholders of John Street Inc.,
representing a 30% interest, are mandatorily redeemable by the Company
at September 30, 2004 for cash consideration and as such represents a
financial liability of the Company. No amount has been accrued in the
financial statements as the purchase price will be determined and paid
over a three-year period based on certain performance milestones.
|
| | (d) |  | In the ordinary course of business, the Company and its
subsidiaries have legal proceedings brought against them. Management
does not expect the outcome of these proceedings, in aggregate, to
have a material adverse effect on the Companys consolidated financial
position or results of operations.                                                                                                                    

32



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##### Table of Contents



F-33

ENVOY COMMUNICATIONS GROUP INC.
Notes to Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)

Years ended September 30, 2002, 2001 and 2000



---



|17. |  | Financial instruments:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | The estimated fair value of a financial instrument is the amount at which
the instrument could be exchanged in a current transaction between willing
parties, other than a forced or liquidation sale. These estimates,
although based on the relevant market information about the financial
instrument, are subjective in nature and involve uncertainties and matters
of significant judgment and, therefore, cannot be determined with
precision. Changes in assumptions could significantly affect the
estimates.



| | (a) |  | The carrying values and estimated fair values of the Companys
financial instruments are as follows:
| | --- |  | ----------------------------------------------------------------------------------------------------

|
|
|
|
|
|
|
|
|

33



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##### Table of Contents



F-34

ENVOY COMMUNICATIONS GROUP INC.
Notes to Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)

Years ended September 30, 2002, 2001 and 2000



---



|17. |  | Financial instruments (continued):
|--- |  | ----------------------------------



| | (iv) |  | The fair value of foreign currency contracts are
estimated by obtaining quotes of the amount that the Company would
have to pay counterparties to terminate agreements. As at
September 30, 2001, the carrying amounts of the contracts were
($104,218) and their fair values were ($189,224). The Company had
no such contracts as at September 30, 2002.
| | ---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|
|
|

|
|
|
|
|
|
|
|
|

34



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##### Table of Contents



F-35

ENVOY COMMUNICATIONS GROUP INC.
Notes to Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)

Years ended September 30, 2002, 2001 and 2000



---



|17. |  | Financial instruments (continued):
|--- |  | ----------------------------------



| | (ii) |  | Credit risk:                                                                                                                                                                                                                                                                                                                                                                                                     
| | ---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |      |  | The Company manages its credit risk with respect to accounts
receivable by acting as an agent for its customers, by dealing
primarily with large creditworthy customers and by billing whenever
possible in advance of rendering services. As at September 30,
2002, the Company has one customer, which represents 11% of accounts
receivable (2001  one customer which represents 18% of accounts
receivable).
|
| |      |  | The Company is exposed to credit risk in the event of
non-performance by counterparties in connection with its foreign
currency contracts. The Company does not obtain collateral or other
security to support financial instruments subject to credit risk but
mitigates this risk by dealing with financially sound counterparties
only and, accordingly, does not anticipate loss for non-performance.        



|18. |  | Segmented information:                                                                                                                                                                                                                                                                 
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | The Company provides integrated marketing communication services to its
clients. While the Company has subsidiaries in Canada, the United States,
the United Kingdom and Continental Europe, it operates as an international
business and has no distinct reportable business segments.
|   
|    |  | The tables below set out the following information:                                                                                                                                                                                                                                    



| | (a) |  | The Companys external net revenue by geographic region based on
the region in which the customer is located is as follows:
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------

|             |                                       |   |            |            |      |   |            |            |  |   |            |            | 
|------------ | ------------------------------------- | - | ---------- | ---------- | ---- | - | ---------- | ---------- |  | - | ---------- | ---------- | 
|             |                                       |   | 2002       |            | 2001 |   | 2000      
|             |                                       |   |            |            |      |   |           
|Net revenue: |                                       |   |            |            |      |   |            |            |  |   |            |           
|             | Canada                                |   | $          | 15,982,433 |      |   | $          | 21,826,277 |  |   | $          | 24,164,713 | 
|             | United States                         |   |            | 27,708,424 |      |   |            | 40,970,400 |  |   |            | 32,559,550 | 
|             | United Kingdom and
Continental Europe |   |            | 15,430,233 |      |   |            | 19,988,864 |  |   |            | 4,066,017  | 
|             |                                       |   |            |            |      |   |           
|             |                                       | $ | 59,121,090 |            |      | $ | 82,785,541 |            |  | $ | 60,790,280 |           
|             |                                       |   |            |            |      |   |           

35



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F-36

ENVOY COMMUNICATIONS GROUP INC.
Notes to Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)

Years ended September 30, 2002, 2001 and 2000



---



|18. |  | Segmented information (continued):
|--- |  | ----------------------------------



| | (b) |  | The Companys identifiable assets for each geographic area in
which it has operations are as follows:
| | --- |  | -----------------------------------------------------------------------------------------------------

|                |                                       |   |           |           |      |   |            |           | 
|--------------- | ------------------------------------- | - | --------- | --------- | ---- | - | ---------- | --------- | 
|                |                                       |   | 2002      |           | 2001
|                |                                       |   |           |           |     
|Capital assets: |                                       |   |           |           |      |   |            |          
|                | Canada                                |   | $         | 5,363,424 |      |   | $          | 7,997,668 | 
|                | United States                         |   |           | 261,566   |      |   |            | 1,316,098 | 
|                | United Kingdom and Continental Europe |   |           | 2,211,738 |      |   |            | 2,219,970 | 
|                |                                       |   |           |           |      |   |            |           | 
|                |                                       | $ | 7,836,728 |           |      | $ | 11,533,736 |          
|                |                                       |   |           |           |      |   |            |           | 

|          |                                       |   |            |           |      |   |            |            | 
|--------- | ------------------------------------- | - | ---------- | --------- | ---- | - | ---------- | ---------- | 
|          |                                       |   | 2002       |           | 2001
|          |                                       |   |            |           |     
|Goodwill: |                                       |   |            |           |      |   |            |           
|          | Canada                                |   | $          | 3,087,766 |      |   | $          | 21,956,307 | 
|          | United States                         |   |            |          |      |   |            | 19,706,227 | 
|          | United Kingdom and Continental Europe |   |            | 8,226,517 |      |   |            | 8,012,581  | 
|          |                                       |   |            |           |      |   |            |            | 
|          |                                       | $ | 11,314,283 |           |      | $ | 49,675,115 |           
|          |                                       |   |            |           |      |   |            |            | 



| | (c) |  | The Companys external net revenue by type of service is as
follows:
| | --- |  | --------------------------------------------------------------------

|             |            |   |            |            |      |   |            |            |  |   |            |            | 
|------------ | ---------- | - | ---------- | ---------- | ---- | - | ---------- | ---------- |  | - | ---------- | ---------- | 
|             |            |   | 2002       |            | 2001 |   | 2000      
|             |            |   |            |            |      |   |           
|Net revenue: |            |   |            |            |      |   |            |            |  |   |            |           
|             | Marketing  |   | $          | 12,428,558 |      |   | $          | 24,374,986 |  |   | $          | 28,772,421 | 
|             | Design     |   |            | 38,203,746 |      |   |            | 43,437,449 |  |   |            | 24,431,398 | 
|             | Technology |   |            | 8,488,786  |      |   |            | 14,973,106 |  |   |            | 7,586,461  | 
|             |            |   |            |            |      |   |            |            |  |   |            |            | 
|             |            | $ | 59,121,090 |            |      | $ | 82,785,541 |            |  | $ | 60,790,280 |           
|             |            |   |            |            |      |   |            |            |  |   |            |            | 



| | (d) |  | In 2002, the Company had three customers, which represented 19%,
12% and 12% of net revenue. In each of 2001 and 2000, the Company had
two customers which represented 13.6% and 11.3% of net revenue,
respectively.
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

36



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##### Table of Contents



F-37

ENVOY COMMUNICATIONS GROUP INC.
Notes to Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)

Years ended September 30, 2002, 2001 and 2000



---



|19. |  | Subsequent events:
|--- |  | ------------------



| | (a) |  | In October and November 2002, the Company sold the operations of
Devlin and Sage to certain executives of the respective subsidiaries
in exchange for cash proceeds of approximately $330,000. In addition
to the cash payment on the sale of Sage, the Company is entitled to a
fee on sales to certain former customers of Sage.                                                                                                                                                                                        
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | In December 2002, the Company established a $500,000 line of
credit with a new lender and borrowed the full amount of the facility.
The loan is repayable on June 30, 2003 and bears interest at a rate
of 15% per annum. The net proceeds of the loan were used for purposes
of providing working capital. The loan is secured by a general
security agreement against the assets of the Company subordinated to
the borrowings under the existing bank credit facilities, capital
leases and the convertible debentures.



|20. |  | 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 earnings (loss)
for the years ended September 30, 2002, 2001 and 2000 required in order to
conform to U.S. GAAP.

|                                                                      |         |   |             |       |      |   |            |       |   |   |           |      | 
|--------------------------------------------------------------------- | ------- | - | ----------- | ----- | ---- | - | ---------- | ----- | - | - | --------- | ---- | 
|                                                                      |         |   | 2002        |       | 2001 |   | 2000      
|                                                                      |         |   |             |       |      |   |           
|Net earnings (loss) based on
Canadian GAAP                            |         | $ | (53,379,435 | )     |      | $ | (2,895,372 | )     |   | $ | 2,910,427 |     
|Stock-based compensation expense (a)                                  |         |   |            |       |      |   | (886,000   | )     |   |   |          |     
|Foreign currency contracts, net of
income tax recovery of $35,703 (d) |         |   | 49,303      |       |      |   | (49,303    | )     |   |   |          |     
|Convertible debentures (e)                                            |         |   | (1,065,915  | )     |      |   |           |       |   |   |          |     
|                                                                      |         |   |             |       |      |   |            |       |   |   |           |     
|Net earnings (loss) based on
U.S. GAAP                                |         | $ | (54,396,047 | )     |      | $ | (3,830,675 | )     |   | $ | 2,910,427 |     
|                                                                      |         |   |             |       |      |   |            |       |   |   |           |     
|Earnings (loss) per share:                                            |         |   |             |       |      |   |            |       |   |   |           |     
|                                                                      | Basic   |   | $           | (2.59 | )    |   | $          | (0.18 | ) |   | $         | 0.15 | 
|                                                                      | Diluted |   |             | (2.59 | )    |   |            | (0.18 | ) |   |           | 0.15 | 
|                                                                      |         |   |             |       |      |   |            |       |   |   |           |     

37



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##### Table of Contents



F-38

ENVOY COMMUNICATIONS GROUP INC.
Notes to Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)

Years ended September 30, 2002, 2001 and 2000



---



|20. |  | 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:

|                                                                      |  |      |            |      |  |   |            |  
|--------------------------------------------------------------------- |  | ---- | ---------- | ---- |  | - | ---------- | -
|                                                                      |  | 2002 |            | 2001
|                                                                      |  |      |            |     
|Shareholders equity based on Canadian GAAP                           |  | $    | 9,779,169  |      |  | $ | 61,319,385 |  
|Foreign currency contracts, net of income tax
recovery of $35,703 (d) |  |      |           |      |  |   | (49,303    | )
|Convertible debentures (e)                                            |  |      | (1,598,418 | )    |  |   |           |  
|                                                                      |  |      |            |      |  |   |            |  
|Shareholders equity based on U.S. GAAP                               |  | $    | 8,180,751  |      |  | $ | 61,270,082 |  
|                                                                      |  |      |            |      |  |   |            |  



| |  | 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) |  | Stock-based compensation expense:                                                                                                                                                                                                                                                                                                                      
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | U.S. GAAP requires the Company to record compensation expense when
modifications are made which extend the lives of options. During the
year ended September 30, 2001, the Company extended the life of an
individuals option award and has therefore recorded the intrinsic
value of the option at the date of the extension as compensation
expense.
|
| | (b) |  | Business combinations:                                                                                                                                                                                                                                                                                                                                 
|
| |     |  | U.S. GAAP requires the disclosure of the unaudited pro forma U.S. GAAP
consolidated results of operations for the year ended September 30,
2000 giving effect to the acquisition of Gilchrist as if it had
occurred as of October 1, 1999 which are as follows:                                                                                        

|                               |  |   |            | 
|------------------------------ |  | - | ---------- | 
|Net revenue                    |  | $ | 68,242,235 | 
|Net earnings                   |  |   | 2,602,527  | 
|Basic net earnings per share   |  |   | 0.14       | 
|Diluted net earnings per share |  |   | 0.13       | 

38



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##### Table of Contents



F-39

ENVOY COMMUNICATIONS GROUP INC.
Notes to Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)

Years ended September 30, 2002, 2001 and 2000



---



|20. |  | Reconciliation to United States generally accepted accounting principles
(continued):
|--- |  | -------------------------------------------------------------------------------------



| |  |  | U.S. GAAP requires the disclosure of the unaudited pro forma U.S. GAAP
consolidated results of operations for the year ended September 30,
2000 giving effect to the acquisition of Sage as if it had occurred as
of October 1, 1999 which are as follows:
| |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                               |  |   |            | 
|------------------------------ |  | - | ---------- | 
|Net revenue                    |  | $ | 63,102,395 | 
|Net earnings                   |  |   | 950,950    | 
|Basic net earnings per share   |  |   | 0.05       | 
|Diluted net earnings per share |  |   | 0.05       | 



| | (c) |  | Stock-based compensation disclosures:                                                                                                                                                                                                                                                                                                                                                                      
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | The Company measures compensation expense relating to employee stock
option plans for U.S. GAAP purposes using the intrinsic value method
specified by APB Opinion No. 25, which in the Companys circumstances
would not be materially different from compensation expense as
determined under Canadian GAAP, except as disclosed in note 20(a).                                                          
|
| |     |  | Had the Company determined compensation costs based on the fair value
at the grant date of its stock options consistent with the method
prescribed under Financial Accounting Standards Board (FASB)
Statement of Financial Accounting Standards No. 123 (SFAS 123), the
Companys net earnings (loss) and earnings (loss) per share would have
been reported as the pro forma amounts indicated below:

|                                                             |  |      |             |      |  |      |            |   |  |   |           | 
|------------------------------------------------------------ |  | ---- | ----------- | ---- |  | ---- | ---------- | - |  | - | --------- | 
|                                                             |  | 2002 |             | 2001 |  | 2000
|                                                             |  |      |             |      |  |     
|Net earnings (loss) in accordance
with U.S. GAAP as reported |  | $    | (54,396,047 | )    |  | $    | (3,830,675 | ) |  | $ | 2,910,427 | 
|Pro forma net earnings (loss)                                |  |      | (55,373,470 | )    |  |      | (4,719,780 | ) |  |   | 1,853,385 | 
|                                                             |  |      |             |      |  |      |            |   |  |   |           | 
|Pro forma basic earnings (loss)
per share                    |  | $    | (2.64       | )    |  | $    | (0.22      | ) |  | $ | 0.10      | 
|Pro forma diluted earnings (loss)
per share                  |  |      | (2.64       | )    |  |      | (0.22      | ) |  |   | 0.09      | 
|                                                             |  |      |             |      |  |      |            |   |  |   |           | 

39



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##### Table of Contents



F-40

ENVOY COMMUNICATIONS GROUP INC.
Notes to Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)

Years ended September 30, 2002, 2001 and 2000



---



|20. |  | Reconciliation to United States generally accepted accounting principles
(continued):
|--- |  | -------------------------------------------------------------------------------------



| |  |  | Pro forma net earnings (loss) reflect only those options granted during
the seven years ended September 30, 2002. Therefore, the full impact
of calculating compensation costs for stock options under SFAS 123 is
not reflected in the pro forma net earnings amounts presented above
because compensation cost is reflected over the expected lives of the
options and the compensation cost for options granted prior to October
1, 1995 is not considered. The notional compensation expense
associated with the Companys options is not deductible for Canadian
income tax purposes. Accordingly, the full amount of compensation
expense is reflected in the pro forma figures above, without any
related tax recovery.
| |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | The weighted average estimated fair value at the date of the grant, as
defined by SFAS 123, for options granted in fiscal 2002 was $0.16 per
share (2001  $2.39; 2000 -$3.07).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  |  | The fair value of each option granted was estimated on the date of the
grant using the Black-Scholes fair value option pricing model with the
following assumptions:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

|                                                                                     |  |            |      |            |  |            |      |   |  |  |      |  
|------------------------------------------------------------------------------------ |  | ---------- | ---- | ---------- |  | ---------- | ---- | - |  |  | ---- | -
|                                                                                     |  | 2002       |      | 2001       |  | 2000      
|                                                                                     |  |            |      |            |  |           
|Risk-free interest rate                                                              |  |            | 4.00 | %          |  |            | 4.70 | % |  |  | 4.70 | %
|Dividend yield                                                                       |  |            |     |            |  |            |     |   |  |  |     |  
|Volatility factor of the future expected
market price of the Companys
common shares |  |            | 76   | %          |  |            | 65   | % |  |  | 60   | %
|Weighted average expected life of the
options                                        |  | 1.36 years |      | 2.33 years |  | 2.56 years



| |  |  | The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions, including
the expected price volatility. Because the Companys employee share
options have characteristics significantly different from those of
traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in managements opinion,
the existing models do not necessarily provide a reliable single
measure of the fair value of its employee share options.
| |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | For the purposes of pro forma disclosures, the estimated fair value of
the options is amortized to expense over the options vesting period on
a straight-line basis.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

40



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##### Table of Contents



F-41

ENVOY COMMUNICATIONS GROUP INC.
Notes to Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)

Years ended September 30, 2002, 2001 and 2000



---



|20. |  | Reconciliation to United States generally accepted accounting principles
(continued):
|--- |  | -------------------------------------------------------------------------------------



| | (d) |  | Derivative financial instruments:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | The Company enters into forward contracts to manage its exposure to
fluctuations in foreign exchange rates. Effective October 1, 2000, the
Company adopted the provisions of FASB Statement No. 133, Accounting
For Derivatives and Hedging Activities. SFAS No. 133 requires that
all derivatives be recognized as assets and liabilities on the balance
sheet and measured at fair value. Hedge accounting is only applied to
derivatives if the hedging relationship has been identified, and the
Company has formally documented the designation of the hedging
relationship and the method for assessing the effectiveness of the
hedging relationship. Both at inception of the hedging relationship
and throughout its term, the relationship must be effective in
achieving offsetting changes in the cash flows of the hedged item.
|
| |     |  | Under SFAS No. 133 for derivatives designated and effective as hedges
of future cash flows, changes in the fair value of the derivative are
recognized in other comprehensive income, with no impact on net
earnings until the hedged item is recognized in earnings. To the
extent the hedge is ineffective, or not designated or documented as a
hedge, the change in fair value of the hedge would be recognized in
earnings each period. During 2001, the Company had not designated and
documented its foreign exchange contracts as a hedge of future cash
flows and, therefore, must record the change in fair value as a charge
against earnings.                                                                                                                                                                                     
|
| |     |  | Under Canadian GAAP, no accounting recognition is given to the fair
value of those forward contracts which are a hedge of future cash
flows. As at September 30, 2001, the fair value of foreign exchange
forward contracts, which were otherwise designated as a hedge of future
cash flows for Canadian GAAP, totalled ($85,006). This amount
represents an additional liability under U.S. GAAP, and this amount net
of the related tax recovery is recorded as a charge to U.S. GAAP net
earnings.                                                                                                                                                                                                                                                                                                                                        
|
| |     |  | As at September 30, 2002, there were no foreign currency contracts
outstanding.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

41



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##### Table of Contents



F-42

ENVOY COMMUNICATIONS GROUP INC.
Notes to Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)

Years ended September 30, 2002, 2001 and 2000



---



|20. |  | Reconciliation to United States generally accepted accounting principles
(continued):
|--- |  | -------------------------------------------------------------------------------------



| | (e) |  | Convertible debentures:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | During 2002, the Company issued $3.8 million in convertible debentures.
The debentures are convertible at any time at the option of the holder
into common shares and common share purchase warrants of the Company
(note 11). Under Canadian GAAP, the debentures are bifurcated into a
debt component and an equity component, based on relative fair values,
which resulted in aggregate proceeds of $1,949,628 allocated to
long-term debt and $1,850,372 to shareholders equity, respectively for
the aggregate $3.8 million debentures. Under Canadian GAAP, the
discount resulting from allocating proceeds to the equity component
must be recorded as an additional interest expense, using an effective
yield method, over the minimum period to redemption being two years.
As a result of accreting the debentures, $133,870 has been charged as
interest expense for 2002. Under Canadian GAAP, issue costs are
allocated between the debt and equity components which resulted in
$129,513 of the aggregate $262,465 issue costs being applied to reduce
the equity allocation.
|
| |     |  | Under U.S. GAAP, any excess of the fair value of the share and the
option (using an option pricing model) over the conversion price is
considered a beneficial conversion feature. For the two debentures
issued during 2002, an aggregate beneficial conversion feature of
$1,188,356 must be recorded as additional interest expense over the
minimum period to the earliest conversion date. As a result of the
Companys debentures being convertible at any time at the option of the
holder, such amount must be expensed fully at the date of issuance.
Under U.S. GAAP, costs associated with issuance of the debentures
cannot be apportioned between the debt and equity components.
Accordingly, deferred financing fees under U.S. GAAP would be $129,513
higher, for which $11,429 would be amortized in the current period.                                                                                                                                                                                                                                                     

42



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##### Table of Contents



F-43

ENVOY COMMUNICATIONS GROUP INC.
Notes to Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)

Years ended September 30, 2002, 2001 and 2000



---



|20. |  | Reconciliation to United States generally accepted accounting principles
(continued):
|--- |  | -------------------------------------------------------------------------------------



| | (f) |  | Comprehensive income:                                                                                                                                                             
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | The Companys comprehensive income represents U.S. GAAP net earnings
plus the change in the cumulative translation adjustment account in
respect of foreign operations as follows:

|                                                              |  |      |             |      |  |      |            |   |  |   |           | 
|------------------------------------------------------------- |  | ---- | ----------- | ---- |  | ---- | ---------- | - |  | - | --------- | 
|                                                              |  | 2002 |             | 2001 |  | 2000
|                                                              |  |      |             |      |  |     
|Net earnings (loss) for the year in
accordance with U.S. GAAP |  | $    | (54,396,047 | )    |  | $    | (3,830,675 | ) |  | $ | 2,910,427 | 
|Change in cumulative translation
adjustment account           |  |      | 515,569     |      |  |      | 1,147,208  |   |  |   | 180,516   | 
|                                                              |  |      |             |      |  |      |            |   |  |   |           | 
|                                                              |  | $    | (53,880,478 | )    |  | $    | (2,683,467 | ) |  | $ | 3,090,943 | 
|                                                              |  |      |             |      |  |      |            |   |  |   |           | 



| | (g) |  | Reduction of capital:                                                                                                                                                                                                                                                                                                                                                                                                                          
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | 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. This reduction in capital is not permitted under
U.S. GAAP. While the adjustment has no impact on shareholders equity,
under U.S. GAAP, capital stock would be increased by $9,886,961 and
retained earnings would be decreased by $9,886,961 as at September 30,
2002 and 2001.
|
| | (h) |  | Statements of cash flows:                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |     |  | The Company has disclosed cash flows from operations per share, which
is not permitted under U.S. GAAP.                                                                                                                                                                                                                                                                                                                                        
|
| | (i) |  | Other disclosures:                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |     |  | U.S. GAAP and the United States Securities and Exchange Commission
require the Company to disclose the following items, for which
disclosure is not required under Canadian GAAP:                                                                                                                                                                                                                                                              
|

| | (i) |  | The allowance for doubtful accounts as at September 30,
2002 was $226,037 (2001  $1,432,668).
| | --- |  | ----------------------------------------------------------------------------------------------

43



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##### Table of Contents



F-44

ENVOY COMMUNICATIONS GROUP INC.
Notes to Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)

Years ended September 30, 2002, 2001 and 2000



---



|20. |  | Reconciliation to United States generally accepted accounting principles
(continued):
|--- |  | -------------------------------------------------------------------------------------



| | (ii)  |  | As at September 30, 2002, the Company had a nil (2001 -
$32,158,672) unused line of credit.                                                                                                                                                                                                                                                                                                                                                                                         
| | ----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (iii) |  | U.S. GAAP requires the disclosure of accrued
liabilities. Accrued liabilities included in accounts payable and
accrued liabilities as at September 30, 2002 were $4,779,517 (2001
- $6,330,821). As at September 30, 2002, Envoy had accrued
$1,122,745 for the termination of certain leased premises of
Hampel Stefanides. At September 30, 2001, accrued liabilities
include $2,263,266 related to additional consideration for the
acquisition of Hampel Stefanides (note 3(e)).
|
| |       |  | At September 30, 2002, there were no other accrued liabilities that
exceeded 5% of current liabilities.                                                                                                                                                                                                                                                                                                                                                                             
|
| | (iv)  |  | The Company has disclosed both net earnings before
goodwill amortization and net earnings per share before goodwill
amortization, which are not permitted disclosures under U.S. GAAP.                                                                                                                                                                                                                                                                                              

|
|
|
|
|
|
|
|

| | (i) |  | In October 2001, the FASB issued SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets.
SFAS No. 144 addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. This statement
supersedes SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of and
related literature and establishes a single accounting model,
based on the framework established in SFAS No. 121, for long-lived
assets to be disposed of by sale. The Company is required to
adopt SFAS No. 144 for its fiscal year beginning October 1, 2002.
The Company has not determined the impact of the adoption of SFAS
No. 144 on its consolidated financial statements.
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

44



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##### Table of Contents



F-45

ENVOY COMMUNICATIONS GROUP INC.
Notes to Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)

Years ended September 30, 2002, 2001 and 2000



---



|20. |  | Reconciliation to United States generally accepted accounting principles
(continued):
|--- |  | -------------------------------------------------------------------------------------



| | (ii) |  | In September 2001, the CICA issued Handbook Sections
1581, Business Combinations and 3062, Goodwill and Other
Intangible Assets. The new standards mandate the purchase method
of accounting for business combinations and require that goodwill
no longer be amortized but instead be tested for impairment at
least annually. The standards also specify criteria that
intangible assets must meet to be recognized and reported apart
from goodwill. The standards require that the value of the shares
issued in a business combination be 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. Previously,
the consummation date was used to value the shares issued in a
business combination. The new standards are substantially
consistent with United States GAAP.
| | ---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |      |  | Under the new standards for Business Combinations, effective July 1,
2001, goodwill acquired in business combinations completed after
June 30, 2001 is not amortized. In addition, the criteria for
recognition of intangible assets apart from goodwill and the
valuation of the shares issued in a business combination must be
applied to business combinations completed after June 30, 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |      |  | The Company is required to adopt the new standards for goodwill and
other intangible assets effective October 1, 2002, at which time,
the Company will discontinue amortization of all existing goodwill
and test for impairment in accordance with the new standards.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |      |  | In connection with transitional goodwill impairment evaluation, as
specified in the new standard, the Company is required to assess
whether goodwill is impaired as of October 1, 2002. The Company has
up to six months to determine the fair value of its reporting units
and compare that to the reporting units carrying amounts. To the
extent a reporting units carrying amount exceeds its fair value,
the Company must perform a second step to measure the amount of
impairment in a manner similar to a purchase price allocation. This
second step is to be completed no later than September 30, 2003.
Any transitional impairment will be recognized as an effect of a
change in accounting principle which under Canadian GAAP, is
recorded as a charge to opening retained earnings as of October 1,
2002.                                                   

45



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##### Table of Contents



F-46

ENVOY COMMUNICATIONS GROUP INC.
Notes to Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)

Years ended September 30, 2002, 2001 and 2000



---



|20. |  | Reconciliation to United States generally accepted accounting principles
(continued):
|--- |  | -------------------------------------------------------------------------------------



| |       |  | As of September 30, 2002, the Company had unamortized goodwill of
$11,421,498, other than $455,607, resulting from an acquisition
during 2002 which is not being amortized and is subject to the
transitional provisions of Sections 1581 and 3062. Amortization
expense related to goodwill was $2,211,509 for 2002. Because of the
extensive effort required to comply with the remaining provisions of
Sections 1581 and 3062, the Company has not estimated the impact of
these provisions on its financial statements, beyond discontinuing
goodwill amortization.                                                                                                                
| | ----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (iii) |  | In August 2001, the FASB issued SFAS No. 143,
Accounting for Asset Retirement Obligations. This statement
addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and
for the associated asset retirement costs. SFAS No. 143 is
effective for the Companys fiscal year beginning October 1, 2002.
The Company does not believe that the adoption of SFAS No. 143
will have a material impact on its consolidated financial
statements.                                                                                                                                                                           
|
| | (iv)  |  | Effective October 1, 2002, the Company will adopt the new
Canadian accounting standard for stock-based compensation and
other stock-based payments. The new standards will require
additional disclosures for options granted to employees and that a
compensation cost be recorded for the fair value of options
granted to non-employees and awards to employees that call for
settlement in cash or other assets, including stock appreciation
rights. The new standards for non-employees will be similar in
many respects to SFAS No. 123. The Company does not believe that
the adoption of these standards will have a material impact on its
consolidated financial statements.
|
| | (v)   |  | Effective October 1, 2003, the Company will be required
to adopt the new Canadian Accounting Guideline, Hedging
Relationships, that establishes standards for the documentation
and effectiveness of hedging relationships that are substantially
similar to the corresponding requirements in SFAS No. 133. The
Company does not believe that the adoption of these standards will
have a material impact on its consolidated financial statements.                                                                                                                                                                                                                                 

46



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##### Table of Contents



F-47

ENVOY COMMUNICATIONS GROUP INC.
Notes to Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)

Years ended September 30, 2002, 2001 and 2000



---



|20. |  | Reconciliation to United States generally accepted accounting principles
(continued):
|--- |  | -------------------------------------------------------------------------------------



| | (vi) |  | In December 2002, the CICA issued Handbook Section 3063,
Impairment of Long-Lived Assets, and revised Section 3475,
Disposal of Long-Lived Assets and Discontinued Operations.
These new rules supersede the write-down and disposal provisions
of CICA Handbook Section 3061, Property, Plant and Equipment, as
well as current Handbook Section 3475, Discontinued Operations.
The new standards are based on SFAS 144. Under revised Handbook
Section 3475, new standards are established for the recognition,
measurement, presentation and disclosure of the disposal of
long-lived assets as well as for the presentation and disclosure
of discontinued operations. New Handbook Section 3063 establishes
standards for the recognition, measurement and disclosure of the
impairment of long-lived assets held for use. Under the new
standards, an impairment loss is recognized when the carrying
amount of an asset held for use exceeds the sum of the
undiscounted cash flows expected from its use and eventual
disposition. An impairment loss is measured as the amount by
which the assets carrying amount exceeds its fair value.
| | ---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |      |  | The new accounting recommendations contained in Handbook Section
3063 on the impairment of long-lived assets held for use should be
applied for years beginning on or after April 1, 2003. The revised
accounting recommendations contained in Handbook Section 3475 on
disposal of long-lived assets and discontinued operations should be
applied to disposal activities initiated by a companys commitment
to a plan on or after May 1, 2003. The Company has not determined
the impact of the adoption of these standards on its consolidated
financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

47



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##### Table of Contents



SIGNATURES

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

|                        |  |                                                                                  
|----------------------- |  | ---------------------------------------------------------------------------------
|                        |  | Envoy Communications Group Inc.                                                  
|                       
|Date: February 17, 2003 |  | /s/ Geoffrey B. Genovese                                                         
|                        |  |                                                                                  
|                        |  | Name: Geoffrey B. Genovese
Title: Chairman, President and Chief
Executive Officer





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##### Table of Contents



CERTIFICATIONS

I, Geoffrey B. Genovese, Chairman, President and Chief Executive Officer
of Envoy Communications Group Inc., certify that:



|1. |  | I have reviewed this annual report on Form 20-F of Envoy Communications
Group Inc.;                                                                                                                                                                                                                                     
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;                   
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:                                                                                                  

(a)  Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;

(b)  Evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the Evaluation Date); and

(c)  Presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;



|5. |  | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (and persons performing the
equivalent function):
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(a)  All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and

(b)  Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and





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##### Table of Contents





|6. |  | The registrants other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date: February 17, 2003

|    |  |                                                                                              
|--- |  | ---------------------------------------------------------------------------------------------
|By: |  | /s/ Geoffrey B. Genovese
Geoffrey B. Genovese
Chairman, President and Chief Executive
Officer





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##### Table of Contents



I, J. Joseph Leeder, Vice President and Chief Financial Officer of Envoy
Communications Group Inc., certify that:



|1. |  | I have reviewed this annual report on Form 20-F of Envoy Communications
Group Inc.;                                                                                                                                                                                                                                     
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;                   
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:                                                                                                  

(a)  Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;

(b)  Evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the Evaluation Date); and

(c)  Presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;



|5. |  | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (and persons performing the
equivalent function):
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(a)  All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and

(b)  Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and





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##### Table of Contents





|6. |  | The registrants other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date: February 17, 2003

|    |  |                                                                                 
|--- |  | --------------------------------------------------------------------------------
|By: |  | /s/ J. Joseph Leeder
J. Joseph Leeder
Vice President and Chief Financial Officer