Canaccord Capital Inc. Reports second quarter and first half of fiscal 2008 results



    (All dollar amounts are stated in Canadian dollars unless otherwise
    indicated)

    VANCOUVER, Nov. 1 /CNW/ - Canaccord Capital Inc.'s (TSX & AIM: CCI)
revenue for the three months ended September 30, 2007 was $154.5 million, down
1.0% from the same quarter a year ago. Net income for the same period was
$12.4 million, down 30.3% and diluted earnings per share (EPS) were $0.26,
down 29.7% from the same period a year ago. Commenting on the quarter, Paul
Reynolds, President and CEO said "While this was certainly not our best
quarter, we were able to generate a reasonable rate of return in a very
challenging market environment."
    An adjustment of $4.4 million related to third party asset-backed
commercial paper has been recorded at September 30, 2007 to reflect
management's view of current market conditions and the limited liquidity for
these notes. The fair value was estimated by management and the adjustment was
recorded as a loss within principal trading revenue for Q2/08.
    Revenue for the six months ended September 30, 2007 was $400.3 million,
up 10.5% from the same period a year ago. Net income was $51.4 million for the
six-month period representing an increase of 17.6% from the prior year.
Diluted earnings per share were $1.07, up 17.1% from $0.91 for the same period
a year ago.

    
    Highlights for the three months ended September 30, 2007 compared to the
    three months ended September 30, 2006:

    -   Revenue of $154.5 million, down 1.0% or $1.5 million from
        $156.0 million
    -   Expenses of $135.3 million, up 3.5% or $4.5 million from
        $130.8 million
    -   Net income of $12.4 million, down 30.3% or $5.4 million from
        $17.8 million
    -   Diluted EPS of $0.26, down 29.7% or $0.11 from $0.37
    -   Return on equity (ROE) of 12.8%, down from 22.1%
    -   Working capital increased by 12.8% to $294.0 million from
        $260.6 million
    -   Book value per diluted common share for the period end was $7.83, up
        14.5% or $0.99 from $6.84
    -   The Board of Directors approved a quarterly dividend of $0.125 per
        share on November 1, 2007, payable on December 10, 2007 with a record
        date of November 30, 2007.

    Highlights for the six months ended September 30, 2007 compared to the
    six months ended September 30, 2006:

    -   Revenue of $400.3 million, up 10.5% or $38.1 million from
        $362.2 million
    -   Expenses of $322.6 million, up 8.3% or $24.9 million from
        $297.7 million
    -   Net income of $51.4 million, up 17.6% or $7.7 million from
        $43.7 million
    -   Diluted EPS of $1.07, up 17.1% or $0.16 from $0.91
    -   ROE of 26.9%, down from 28.4%

    Highlights of Operations:

    -   Canaccord Adams ranked seventh in Canada for block trading market
        share(1) with 5.3% in Q2/08, up from 3.0% in Q2/07
    -   Canaccord Adams has led over $5.5 billion(2) in transactions globally
        from January 1 to September 30, 2007, surpassing our $4.5 billion
        total for the entire calendar year 2006
    -   Canaccord Adams ranked number three as bookrunner in Canada by
        Thomson Financial for raising $3.3 billion in total proceeds from 80
        transactions between January 1 and September 30, 2007
    -   Canaccord Adams ranked number one in the Brendan Wood Survey(3) for
        providing clients with top investment ideas
    -   Canaccord Adams ranked number one(4) for 46 completed Private
        Investment in Public Equity (PIPE) transactions in North America that
        raised over $1 billion in proceeds
    -   Canaccord Adams led 34 transactions(2) globally to raise total
        proceeds of more than $1.1 billion during Q2/08
    -   Canaccord Adams acted as advisor for Thunder Energy Trust on its
        $425 million acquisition by Overlord Financial Inc. and Public Sector
        Pension Investment Board
    -   During Q2/08, Canaccord Adams led and co-led the following equity
        transactions:
        -  $500.0 million on TSX for Niko Resources
        -  $80.0 million on TSX for Centenario Copper Corp.
        -  $60.3 million on AIM for Lewis Charles Romania Property Fund Ltd.
        -  $50.3 million on TSX and AIM for Dragonwave Inc.
        -  $37.9 million on TSX and AIM for Intermap Technologies Corp.
        -  $31.0 million on NASDAQ for Alphatec
    -   Including the led and co-led transactions referred to above,
        Canaccord Adams participated in a total of 80 transactions(2)
        globally to raise gross proceeds of more than $4.8 billion during
        Q2/08. Included in these totals:
        -  Canada participated in 68 transactions, which raised $4.0 billion
        -  UK participated in four transactions, which raised $592.6 million
        -  US participated in eight transactions, which raised $194.9 million
    -   Assets under administration (AUA) of $15.3 billion, up 10.6% from the
        same period a year ago and down 2.6% from Q1/08
    -   Assets under management (AUM)(5) of $777 million, up 4.3% from the
        same period a year ago and down 4.7% from Q1/08
    -   Canaccord had 453 Investment Advisors as of September 30, 2007, up 19
        from the same period a year ago and up 13 from Q1/08

    ----------------------------
    (1) Source: Canada Equity
    (2) Source: FP Infomart and company information. Transactions over
        $1.5 million
    (3) Source: Brendan Wood International Equity Research, Sales and Trading
        Performance in Canada 2007 Report
    (4) Source: PlacementTracker as of September 30, 2007
    (5) AUM has been reclassified commencing in Q1/07 to include all assets
        managed on a discretionary basis under our programs generally
        described as or known as the Independence Accounts, Separately
        Managed Accounts, and Advisor Managed Accounts.
    

    LETTER TO SHAREHOLDERS

    Like many of our peers in the financial services industry, we found the
July to September 2007 period to be among the most challenging periods in
recent memory. The business environment across all of our geographies during
Canaccord's Q2/08 was marked by dramatic swings in market valuations, investor
sentiment and credit market liquidity. Although the sharp downturn in August
presented us with a number of challenges in terms of risk management and
liquidity constraints, it also demonstrated the underlying strength of
Canaccord's global platform. While we are certainly not pleased with our
financial performance for the quarter, we did continue to generate revenues
and profits for shareholders. Moreover, we led one of our largest equity
transactions ever, and continued to invest in our capabilities across our
geographies.

    Asset-Backed Commercial Paper Market

    During Q2/08, a sharp contraction in credit market liquidity arose as a
result of worsening conditions in the US sub-prime mortgage market. In
reaction to those events, credit providers retreated and most third party
asset-backed commercial paper (ABCP) trusts in Canada were unable to refinance
maturing obligations thereby inhibiting liquidity for many note holders. In
mid-August 2007, Canaccord's clients held approximately $275 million of ABCP
notes in their accounts at Canaccord; Canaccord held $32 million in cash and
cash equivalents and $11 million in its principal trading accounts classified
under securities owned.
    In September 2007 we announced our support of and participation in the
Pan-Canadian Investors Committee for ABCP, which was formed to seek options
for an equitable restructuring of ABCP trusts or conduits. Canaccord has taken
a very active role in the Investors Committee as part of our ongoing efforts
to protect our clients' interests and those of all private note holders. The
standstill agreement put in place in August has been extended until
December 14, 2007 and we were encouraged to see the successful restructuring
of the Skeena conduit in October. We will continue our efforts as an active
member of this committee and an advocate for our clients until all of our
clients regain access to liquidity for their investments.
    An adjustment of $4.4 million has been recorded in principal trading as
of September 30, 2007. Canaccord estimates the fair value of the ABCP by
discounting expected future cash flows considering the best available data.
Canaccord expects resolution, a liquidity event and clarity with respect to
the ABCP within the next six months. We continue to believe that the valuation
issues relate to liquidity and not underlying asset quality.

    Challenging Capital Markets Environment

    The credit tightening that took place during the second quarter of fiscal
2008 in Canadian, US and UK financial markets led to sharp, though
short-lived, corrections in equity markets. These downturns were very
pronounced in Canaccord's core areas of expertise, notably mid-market growth
equities, and impacted both our principal trading and investment banking
operations. Revenues, after the mark-to-market of the ABCP position, decreased
1.0% to $154.5 million. Expenses advanced 3.5% as we continued to make ongoing
investments in our business, particularly in US banking capabilities. As a
result, net income for Q2/08 was $12.4 million, a 30.3% decrease. Diluted
earnings per share declined 29.7% to $0.26 from $0.37 in Q2/07.

    Stable Capital Markets Activity

    Canaccord Adams' aggregate year-over-year performance was good during the
second quarter, especially in light of the challenges of prevailing equity
market conditions. Our teams led 34 transactions globally that raised total
proceeds of $1.1 billion. Two transactions were particularly notable: a
$500 million TSX transaction for Niko Resources, which we led, and the
$425 million acquisition of Thunder Energy Trust by Overlord Financial and
Public Sector Pension Investment Board, on which we acted as advisor.
    In Canada, Canaccord Adams' investment banking revenues advanced 1.8% to
$39.2 million compared to Q2/07. This was significantly lower than the record
first quarter of the current fiscal year due to uncertainties surrounding the
direction of equity markets as well as seasonality factors typical in the
summer months. Principal trading was also negatively affected during the
second quarter by weaker Canadian markets for mid-market growth equities and
by trading losses.
    In the United Kingdom, year-over-year revenues decreased approximately 4%
to $20.8 million in the second quarter. While the UK markets remained sluggish
during the quarter and confidence was taxed by a temporary liquidity crisis in
the UK, we remain well positioned, as a leading broker and Nominated Adviser
(Nomad), to benefit from increased underwriting interest in growth equities.
    We continue to see good traction in the United States as we build out our
banking capabilities to serve key sectors of the entrepreneurial economy. Even
though business volumes were affected by uncertainties in the US credit and
equity markets, second quarter revenues advanced by 12.1% to $19.8 million
compared to the second quarter of fiscal 2007. We have been an active
participant in Private Investment in Public Equity (PIPE) transactions,
completing 46 North American transactions so far in calendar 2007 with an
aggregate value of over $1 billion. We expect that our dedicated PIPE team in
the US will continue to build on the business momentum they have created for
the balance of this fiscal year.
    During the quarter we announced the formation of a dedicated M&A group to
provide strategic advice to growth companies in the Technology, Life Sciences
and Consumer sectors. The newly hired team, based in Boston, extends
Canaccord's proven M&A capability beyond its strength in the resource sectors.
In August, Canaccord Adams held its 27th Annual Global Growth Conference, one
of the longest-running conferences focused exclusively on emerging growth
companies. The event brought together more than 1,000 participants that led to
over 1,600 scheduled meetings between corporate and institutional clients, and
Canaccord bankers and traders.

    Steady performance in Private Client Services

    Overall revenue growth in Private Client Services (PCS) was significantly
impacted by the weak North American equity markets that prevailed throughout
much of the second quarter of fiscal 2008. Nevertheless, our PCS team took
advantage of stronger markets earlier in the period, which helped increase
revenues by 3% to $57.4 million - an increase of $1.8 million over Q2/07.
Expenses advanced 6.5%, driven primarily by two factors. Salaries and benefits
increased due to the hiring and training of 10 additional 'rookie' Investment
Advisors (IAs) year over year, part of a longer term strategy to build our
retail business. Interest expense also rose as clients held higher average
cash balances in their accounts during the quarter. As a result, income before
income taxes and corporate allocations declined 6.3% to $13.4 million compared
to Q2/07.
    Assets under administration grew $1.5 billion to $15.3 billion compared
to Q2/07. Assets under management rose 4.3% to $777 million. Despite the
continuing challenge of cost-effective recruiting of new IAs in Canada, on a
net basis we added 13 new professionals since Q1/08, bringing Canaccord's
total number of IAs to 453. During Q2/08 we hired 13 new IAs and had 10
'rookies' complete their training and become licensed, and hence they are now
included in the total number of IAs.

    Business Outlook

    We experienced one of the sharpest corrections in recent history during
Q2/08. We owe much to our dedicated employees and their commitment to provide
clients with ideas that count in any market environment. While the downturn
exposed areas of our operations that require more attention, our financial
performance for the quarter shows that the Company has developed fundamentally
strong businesses that are remarkably resilient in their ability to produce
revenues and profits for Canaccord shareholders. This is an excellent
endorsement of our longer term strategy to diversify our business by geography
and business line and to be a leading global dealer, focused on the
mid-market.
    Looking forward, we are already seeing a growing pipeline of new
business, improved market liquidity, and commodities such as gold and oil at
or near historic highs. Sentiment is improving and with it, we believe, will
come an increased appetite for the specialized expertise that Canaccord can
bring to private and institutional investors and to small- and mid-cap
companies looking for opportunities to enhance their prospects for growth.

    Paul D. Reynolds
    President & Chief Executive Officer

    ACCESS TO QUARTERLY RESULTS INFORMATION:

    Interested investors, the media and others may review this quarterly
earnings release and supplementary financial information at
www.canaccord.com/investor/financialreports.

    CONFERENCE CALL AND WEBCAST PRESENTATION:

    Interested parties can listen to our fiscal second quarter 2008 results
conference call with analysts and institutional investors, live and archived,
via the Internet and a toll free number. The conference call is scheduled for
Friday, November 2, 2007, at 5:00 a.m. (Pacific Time), 8:00 a.m. (Eastern
Time), and 1:00 p.m. (UK Time). At that time, senior executives will comment
on the results for the second quarter of fiscal 2008 and respond to questions
from analysts and institutional investors.
    The conference call may be accessed live and archived on a listen-only
basis via the Internet at: www.canaccord.com/investor/webcast

    
    Analysts and institutional investors can call in via telephone at:
    -  416-644-3415 (within Toronto)
    -  1-866-249-1964 (toll free outside Toronto)
    -  00-800-2288-3501 (toll free from the United Kingdom)

    A replay of the conference call can be accessed after 10:30 a.m. (Pacific
Time), 1:30 p.m. (Eastern Time) and 6:30 p.m. (UK Time) on November 2, 2007,
until 9:00 p.m. (Pacific Time), 12:00 a.m. (Eastern Time) and 5:00 a.m. (UK
Time) on November 25, 2007, at 416-640-1917 or 1-877-289-8525 by entering
passcode 21245579 followed by the number sign.

    ABOUT CANACCORD CAPITAL INC.:

    Through its principal subsidiaries, Canaccord Capital Inc. (TSX & AIM:
CCI) is a leading independent, full service investment dealer in Canada with
capital markets operations in the United Kingdom and the United States of
America. Canaccord is publicly traded on both the Toronto Stock Exchange and
AIM, a market operated by the London Stock Exchange. Canaccord has operations
in two of the principal segments of the securities industry: private client
services and capital markets. Together, these operations offer a wide range of
complementary investment products, brokerage services and investment banking
services to Canaccord's private, institutional and corporate clients.
Canaccord has approximately 1,689 employees worldwide in 30 offices, including
23 Private Client Services offices located across Canada. Canaccord Adams, the
international capital markets division, has operations in Toronto, London,
Boston, Vancouver, New York, Calgary, Montreal, San Francisco, Houston and
Barbados.

    FOR FURTHER INFORMATION, CONTACT:

    North American media:                Investor relations inquiries:
    Scott Davidson                       Katherine Young
    Managing Director, Global Head       Vice President, Investor Relations
    of Marketing & Communications        Phone: 604-643-7013, email:
    Phone: 416-869-3875, email:          katherine_young@canaccord.com
    scott_davidson@canaccord.com

    London media:                        Nominated Adviser and Broker:
    Bobby Morse or Ben Willey            Mark Dickenson
    Buchanan Communications (London)     Landsbanki Securities (UK) Limited
    Phone: +44 (0) 207 466 5000,         Phone: +44 (0) 207 426 9586, email:
    email: bobbym@buchanan.uk.com     Mark.Dickenson@landsbanki.com

    -------------------------------------------------------------------------
    None of the information on Canaccord's Web site at www.canaccord.com
    should be considered incorporated herein by reference.
    -------------------------------------------------------------------------
    


    Management's Discussion and Analysis

    Fiscal second quarter 2008 for the three months and six months ended
    September 30, 2007 - this document is dated November 1, 2007

    The following discussion of the financial condition and results of
operations for Canaccord Capital Inc. (Canaccord) is provided to enable the
reader to assess material changes in such financial condition and to assess
results for the three- and six-month periods ended September 30, 2007 compared
to the corresponding periods in the preceding fiscal year. The three- and
six-month periods ended September 30, 2007 are also referred to as the second
quarter 2008, Q2/08, fiscal Q2/08 and first-half fiscal year 2008 in the
following discussion. This discussion should be read in conjunction with the
unaudited interim consolidated financial statements for the three- and
six-month periods ended September 30, 2007 of this report; our Annual
Information Form dated June 26, 2007; and the 2007 annual Management's
Discussion and Analysis (annual MD&A) including the audited consolidated
financial statements for the fiscal year ended March 31, 2007 in Canaccord's
Annual Report dated June 26, 2007 (the Annual Report). There has been no
material change to the information contained in the annual MD&A for fiscal
2007 except as disclosed in this MD&A. Canaccord's financial information is
expressed in Canadian dollars unless otherwise specified. The financial
information presented in this document is prepared in accordance with Canadian
generally accepted accounting principles (GAAP) unless specifically noted. All
the financial data below is unaudited except for certain fiscal year data from
our 2007 audited financial statements.

    Caution regarding forward-looking statements

    This document may contain certain forward-looking statements. These
statements relate to future events or future performance and reflect
management's expectations or beliefs regarding future events including
business and economic conditions and Canaccord's growth, results of
operations, performance and business prospects and opportunities. Such
forward-looking statements reflect management's current beliefs and are based
on information currently available to management. In some cases,
forward-looking statements can be identified by terminology such as "may",
"will", "should", "expect", "plan", "anticipate", "believe", "estimate",
"predict", "potential", "continue", "target", "intend" or the negative of
these terms or other comparable terminology. By their very nature,
forward-looking statements involve inherent risks and uncertainties, both
general and specific, and a number of factors could cause actual events or
results to differ materially from the results discussed in the forward-looking
statements. In evaluating these statements, readers should specifically
consider various factors that may cause actual results to differ materially
from any forward-looking statement. These factors include, but are not limited
to, market and general economic conditions, the nature of the financial
services industry and the risks and uncertainties detailed from time to time
in Canaccord's interim and annual consolidated financial statements and its
Annual Report and Annual Information Form filed on sedar.com. These
forward-looking statements are made as of the date of this document, and
Canaccord assumes no obligation to update or revise them to reflect new events
or circumstances.

    Non-GAAP measures

    Certain non-GAAP measures are utilized by Canaccord as measures of
financial performance. Non-GAAP measures do not have any standardized meaning
prescribed by GAAP and are therefore unlikely to be comparable to similar
measures presented by other companies.
    Canaccord's capital is represented by common shareholders' equity and,
therefore, management uses return on average common equity (ROE) as a
performance measure.
    Assets under administration (AUA) and assets under management (AUM) are
non-GAAP measures of client assets that are common to the wealth management
aspects of the private client services industry. AUA is the market value of
client assets administered by Canaccord from which Canaccord earns commissions
or fees. This measure includes funds held in client accounts as well as the
aggregate market value of long and short security positions. Canaccord's
method of calculating AUA may differ from the methods used by other companies
and therefore may not be comparable to other companies. Management uses this
measure to assess operational performance of the Private Client Services
business segment. In Q1/08, our AUM definition was reclassified to include all
assets managed on a discretionary basis under our programs generally described
as or known as the Independence Accounts, Separately Managed Accounts, and
Advisor Managed Accounts. AUM including all these programs have been
reclassified commencing in Q1/07 on this basis. Services under these programs
include the selection of investments and the provision of investment advice.
AUM are also administered by Canaccord and are included in AUA.

    Overview

    Canaccord's business is cyclical and experiences considerable variations
in revenue and income from quarter to quarter and year to year due to factors
beyond Canaccord's control. In addition to general economic conditions and
international market factors, our business is affected by the overall
condition of the North American and European equity markets, including the
seasonal variance in these markets.

    Business environment

    During fiscal Q2/08, the reduction in credit market liquidity pushed
credit spreads to extremely high levels and increased volatility in equity
markets. Financial firms, particularly in Canada, came under pressure for
holding investments in third party asset-backed commercial paper (ABCP). This
ABCP became illiquid during the quarter as a result of the credit market
conditions, and is part of a larger global credit problem. Canaccord has taken
a seat on the Pan-Canadian Investors Committee for ABCP to represent and
defend our clients' interest and the interest of all private unitholders in
the marketplace. There has recently been an extension of the standstill
agreement until December 14, 2007. It is our view that this situation remains
a liquidity issue and not a deterioration of underlying asset quality.
    Also during the quarter, the Canadian economy saw the dollar increase to
parity with the US dollar for the first time in over 30 years. Despite the
pressures of this appreciation, the Canadian economy is expected to handle
this headwind in the long term given its strong commodity prices plus a low
interest rate environment relative to Canadian historical levels.
    The US economy is struggling with both the global credit crunch and the
continued downturn in the US housing market. To reduce the risk of an economic
slowdown, the US Federal Reserve lowered interest rates in September for the
first time in four years. The UK economy has also been troubled by the global
credit conditions, including a run on deposits of a large financial
institution that was only stabilized after significant central bank and
regulatory intervention. Furthermore, the UK Treasury cited weakness in the UK
housing market, which will likely prompt a slowdown in consumer spending to a
three-year low.
    The impact of these conditions was generally unfavourable for our
businesses across our geographies during Q2/08. However, we are cautiously
optimistic over the near to mid-term that markets will return to more normal
conditions.

    Market data

    Both trading volumes and financing values on the TSX, TSX-Venture, and
AIM were higher during Q2/08 relative to Q2/07. Trading volume on the NASDAQ
declined slightly year over year while the total value of financings
increased. Financing values for Canaccord's focus sectors on the AIM increased
year-over-year; however, Q2/07 represents an unusually low base. Further
issuance in all focus sectors except for biotech drove the year over year
increase.

    
    Trading volume by exchange (billions of shares)
    -------------------------------------------------------------------------
                                                          Increase  Increase
                                                         (decrease)(decrease)
                                                              from      from
                                                  Fiscal    fiscal    fiscal
                    Jul 07    Aug 07    Sep 07     Q2/08     Q2/07     Q1/08
    -------------------------------------------------------------------------
    TSX                7.8       8.0       7.1      22.9     33.3%    (7.7)%
    TSX-Venture        3.6       3.3       4.1      11.0     69.3%   (17.9)%
    AIM               12.0      10.7       9.3      32.0      8.2%   (12.1)%
    NASDAQ            21.7      26.2      17.2      65.1    (5.0)%      8.0%
    -------------------------------------------------------------------------


    Total financing value by exchange
    -------------------------------------------------------------------------
                                                          Increase (Decrease)
                                                              from      from
                                                  Fiscal    fiscal    fiscal
                    Jul 07    Aug 07    Sep 07     Q2/08     Q2/07     Q1/08
    -------------------------------------------------------------------------
    TSX and
     TSX-Venture
     (C$ billions)     3.8       4.2       2.1      10.1     22.2%   (44.2)%
    AIM ((pnds stlg)
     billions)         1.9       1.2       0.2       3.3     84.5%   (52.9)%
    NASDAQ
     (US$ billions)    3.0       3.1       4.4      10.5     23.8%   (42.6)%
    -------------------------------------------------------------------------


    Financing value for relevant AIM industry sectors
    -------------------------------------------------------------------------
    ((pnds stlg)                                          Increase
     millions,                                           (decrease)(Decrease)
     except for                                               from      from
     percentage                                   Fiscal    fiscal    fiscal
     amounts)       Jul 07    Aug 07    Sep 07     Q2/08     Q2/07     Q1/08
    -------------------------------------------------------------------------
    Oil and gas       76.9      94.4      22.0     193.2     83.6%   (48.5)%
    Mining           172.2     166.1      11.1     349.4    108.3%   (60.8)%
    Biotech           24.4      15.7       2.9      43.0   (47.3)%   (36.1)%
    Media             95.5      12.0      88.0     195.5    126.5%   (71.3)%
    Technology        49.2      50.9      34.2     134.3    200.6%   (54.5)%
                    ---------------------------------------------------------
    Total            418.2     339.1     158.3     915.4     88.5%   (60.4)%
    -------------------------------------------------------------------------
    Source: TSX Statistics, LSE AIM Statistics, Thomson One, and Equidesk

    About Canaccord's operations

    Canaccord Capital Inc.'s operations are divided into two business
segments: Canaccord Adams (our capital markets operations) and Private Client
Services.
    Revenue from Canaccord Adams is generated from commissions and fees earned
in connection with investment banking transactions and institutional sales and
trading activity as well as trading gains and losses from Canaccord's
principal and international trading operations.
    Revenue from Private Client Services is generated through traditional
commission-based brokerage services; the sale of fee-based products and
services; client-related interest; and fees and commissions earned by
Investment Advisors (IAs) in respect of investment banking and venture capital
transactions by private clients.
    Canaccord's administrative segment, described as Corporate and Other,
includes correspondent brokerage services, bank and other interest, and
foreign exchange revenue and expenses not specifically allocable to either the
Private Client Services or Canaccord Adams divisions. Also included in this
segment are Canaccord's operations and support services, which are responsible
for front- and back-office information technology systems, compliance and risk
management, operations, finance and all administrative functions.


    Consolidated operating results

    Second quarter and first-half fiscal 2008 summary data(1)
    -------------------------------------------------------------------------
    (C$ thousands,    Three months                   Six months
     except              ended       Year-over-        ended       Year-over-
     per share,       September 30        year      September 30        year
     employee and ------------------- increase  ------------------- increase
     % amounts)       2007      2006 (decrease)     2007      2006 (decrease)
    -------------------------------------------------------------------------
    Canaccord
     Capital Inc.

    Revenue
      Commission  $ 65,728  $ 63,556      3.4%  $151,503  $141,610      7.0%
      Investment
       banking      73,731    70,118      5.2%   202,356   172,958     17.0%
      Principal
       trading      (8,324)    5,390      n.m.    (1,511)   13,174      n.m.
      Interest      16,273    14,259     14.1%    32,583    27,897     16.8%
      Other          7,062     2,708    160.8%    15,409     6,519    136.4%
    -------------------------------------------------------------------------
    Total revenue $154,470  $156,031    (1.0)%  $400,340  $362,158     10.5%
    Expenses
      Incentive
       compensation 71,416  $ 74,974    (4.7)%   192,822  $179,929      7.2%
      Salaries and
       benefits     12,649    10,643     18.8%    26,918    23,136     16.3%
      Other
       overhead
       expenses(2)  51,277    45,164     13.5%   102,822    94,668      8.6%
    -------------------------------------------------------------------------
    Total
     expenses     $135,342  $130,781      3.5%  $322,562  $297,733      8.3%
    Income before
     income taxes   19,128    25,250   (24.2)%    77,778    64,425     20.7%
    Net income      12,411    17,806   (30.3)%    51,440    43,748     17.6%
    Earnings per
     share (EPS)
     - diluted        0.26      0.37   (29.7)%      1.07      0.91     17.1%
    Return on
     average common
     equity (ROE)    12.8%     22.1%  (9.3)p.p     26.9%     28.4%  (1.5)p.p
    Book value
     per share -
     period end       7.83  $   6.84     14.5%
    Number of
     employees       1,689     1,562      8.1%
    -------------------------------------------------------------------------
    (1) Data is considered to be GAAP except for ROE, book value per share
        and number of employees.
    (2) Consists of trading costs, premises and equipment, communication
        and technology, interest, general and administrative, amortization
        and development costs.
    p.p.: percentage points
    n.m.: not meaningful


    Geographic distribution of revenue(1)
    -------------------------------------------------------------------------
                      Three months                   Six months
                         ended       Year-over-        ended       Year-over-
    (C$ thousands,    September 30        year      September 30        year
     except %                         increase                      increase
     amounts)         2007      2006 (decrease)     2007      2006 (decrease)
    -------------------------------------------------------------------------
    Canada        $112,876  $108,408      4.1%  $274,969  $241,658     13.8%
    UK              20,807    21,643    (3.9)%    68,308    70,535    (3.2)%
    US              20,737    18,745     10.6%    47,159    42,730     10.4%
    Other Foreign
     Location           50     7,235      n.m.     9,904     7,235     36.9%
    -------------------------------------------------------------------------
    Total         $154,470  $156,031    (1.0)%  $400,340  $362,158     10.5%
    -------------------------------------------------------------------------
    (1)   For a business description of Canaccord's geographic distribution
          please refer to the "About Canaccord's Operations" section
    n.m.: not meaningful
    

    Second quarter 2008 vs. second quarter 2007

    Revenue is generated through five activities: commissions and fees
associated with agency trading and private client wealth management activity,
investment banking, principal trading, interest and other. Revenue for the
three months ended September 30, 2007 was $154.5 million, down $1.5 million
compared to the same period a year ago.
    For the second quarter of fiscal 2008, revenue generated from commissions
was $65.7 million, up 3.4% compared to the same period a year ago and is
largely due to strength in market activity early in the quarter. Investment
banking revenue was $73.7 million, up $3.6 million primarily due to increased
activity from Canadian equity markets and merger and acquisition fees.
Principal trading experienced a loss of $8.3 million compared to a gain of
$5.4 million during the same period a year ago. The primary focus of
Canaccord's principal trading activity is in small- to mid-cap equities, which
experienced significant valuation challenges during the quarter due to the
credit contraction and its related impact on the equity markets. The lower
valuations and wider bid-ask spreads resulted in mark-to-market losses, much
of which was unrealized at the end of the quarter. Canaccord has re-focused
its principal trading operations to reduce certain market exposures through
rebalancing internal capital allocations. Capital is being prudently managed
and allocations to various businesses will expand and contract based on market
conditions and expectations. Also contributing to the loss in principal
trading was an adjustment of $4.4 million. This adjustment reflects the
current illiquidity of Canaccord's ABCP and the uncertainty in market
conditions, and is referred to in the 'Critical Accounting Estimates' section.
Interest revenue was $16.3 million, up 14.1% mainly due to higher client
interest revenue.
    Second quarter revenue in Canada was $112.9 million, up 4.1% or
$4.5 million from the same period a year ago. Our operations in Canada
benefited from greater activity in the Canadian equity markets early in the
quarter. Revenue in the UK was $20.8 million, down 3.9% from the same period a
year ago. In the US, revenue was $20.7 million, up 10.6% from Q2/07.

    First-half fiscal year 2008 vs. first-half fiscal year 2007

    Revenue for the six months ended September 30, 2007 was $400.3 million,
up 10.5% or $38.2 million compared to the same period a year ago. Revenue
generated from commissions increased by 7.0% to $151.5 million compared to the
same period a year ago largely due to healthier market conditions in Q1/08 and
in early Q2/08. Investment banking revenue was $202.3 million, up 17.0%
primarily due to increased financing activity in Canadian equity markets and
from higher merger and acquisition fees. Principal trading experienced a loss
of $1.5 million compared to a gain of $13.2 million last year with Q2/08
contributing to these results as explained above. Interest revenue was
$32.6 million, up 16.8% for the same reasons mentioned above. Year-to-date
revenue in Canada was $275.0 million, up 13.8% or $33.3 million from the same
period a year ago. Our operations in Canada benefited from greater activity in
the first four months of this period in the Canadian equity markets, largely
due to the continued global demand for commodities and related equities. First
half of fiscal 2008 revenue in the UK was $68.3 million, down $2.2 million
from the same period a year ago. Revenue from Other Foreign Location was
$9.9 million, up $2.7 million year over year, and in the US revenue was
$47.2 million, up $4.4 million from the same period a year ago.

    
    Expenses as a percentage of revenue
    -------------------------------------------------------------------------
                      Three months                   Six months
                         ended       Year-over-        ended       Year-over-
                      September 30        year      September 30        year
    in percentage                     increase                      increase
     points           2007      2006 (decrease)     2007      2006 (decrease)
    -------------------------------------------------------------------------
    Incentive
     compensation    46.2%     48.1%  (1.9)p.p.    48.2%     49.7%  (1.5)p.p.
    Salaries and
     benefits         8.2%      6.8%    1.4p.p.     6.7%      6.4%    0.3p.p.
    Other
     overhead
     expenses(1)     33.2%     28.9%    4.3p.p.    25.7%     26.1%  (0.4)p.p.
    -------------------------------------------------------------------------
    Total            87.6%     83.8%    3.8p.p.    80.6%     82.2%  (1.6)p.p.
    -------------------------------------------------------------------------
    (1)   Consists of trading costs, premises and equipment, communication
          and technology, interest, general and administrative, amortization
          and development costs.
    p.p.: percentage points
    

    Second quarter 2008 vs. second quarter 2007

    Expenses for the three months ended September 30, 2007 were
$135.3 million, up 3.5% or $4.6 million from a year ago. The overall increase
in expenses is largely due to higher salaries and benefits, up $2.0 million;
development costs, up $2.4 million; and general and administrative expenses,
up $1.5 million. Incentive compensation expense was $71.4 million for the
quarter, down 4.7% due to a restructuring of certain elements of our incentive
compensation program which provides for an equity-based compensation component
which vests over a three-year period. This change to our incentive
compensation program resulted in a 1.9 percentage point decline to 46.2% in
consolidated incentive compensation as a percentage of total revenue.
    Salaries and benefits expense was $12.6 million in the second quarter of
fiscal 2008, up 18.8% from the same period a year ago largely due to the
increased contribution by the firm towards the Employee Stock Purchase Plan
(ESPP), which is discussed in our fiscal year 2007 Annual Report. In May 2007
the matching contribution by the firm increased from a maximum of $1,500 per
eligible employee to a contribution of $3,000. Also contributing to the
increase in salaries and benefits expense is the overall hiring increase of
115 net new employees across all areas of the firm. The total compensation
(incentive compensation plus salaries) payout as a percentage of consolidated
revenue for Q2/08 was 54.4%, down from 54.9% in Q2/07.

    First-half fiscal year 2008 vs. first-half fiscal year 2007

    Expenses for the six months ended September 30, 2007 were $322.6 million,
up $24.8 million or 8.3% from a year ago. Incentive compensation expense was
$192.8 million, up 7.2% due to the increase in incentive-based revenue.
Consolidated incentive compensation as a percentage of total revenue was
48.2%, down 1.5 percentage points for reasons discussed previously.
    Salaries and benefits expense was $26.9 million, up 16.3% in the first
half of fiscal 2008 compared to the same period a year ago for the same
reasons mentioned above. The total compensation (incentive compensation plus
salaries) payout as a percentage of consolidated revenue was 54.9%, down from
56.1% in the first six months of fiscal 2007.

    
    Other overhead expenses
    -------------------------------------------------------------------------
                      Three months                   Six months
                         ended       Year-over-        ended       Year-over-
    (C$ thousands,    September 30        year      September 30        year
     except %                         increase                      increase
     amounts)         2007      2006 (decrease)     2007      2006 (decrease)
    -------------------------------------------------------------------------
    Trading costs $  7,249  $  6,119     18.5%  $ 14,207  $ 14,678    (3.2)%
    Premises and
     equipment       5,735     5,814    (1.4)%    10,994    11,751    (6.4)%
    Communication
     and technology  5,813     5,387      7.9%    11,552    10,450     10.5%
    Interest         6,413     5,402     18.7%    12,581    10,384     21.2%
    General and
     administrative 15,755    14,287     10.3%    34,026    33,394      1.9%
    Amortization     2,146     2,366    (9.3)%     4,123     4,355    (5.3)%
    Development
     costs           8,166     5,789     41.1%    15,339     9,656     58.9%
    -------------------------------------------------------------------------
    Total other
     overhead
     expenses     $ 51,277  $ 45,164     13.5%  $102,822  $ 94,668      8.6%
    -------------------------------------------------------------------------
    

    Second quarter 2008 vs. second quarter 2007

    Other overhead expenses increased 13.5% to $51.3 million for the second
quarter of fiscal 2008 compared to the same period a year ago. Contributing to
the overall increase in other overhead expenses were development costs, which
increased by 41.1% largely due to Canaccord's growth across all geographies.
Trading costs rose 18.5% due to higher trading volumes in Canada and in the
US. Interest expense was also up by 18.7% due to higher interest rates, larger
cash balances in client accounts and subordinated debt entered into on
March 30, 2007.
    General and administrative expense was up $1.5 million in Q2/08. This was
largely due to an increase in promotion and travel expense resulting from
increased business travel as a result of our geographically diverse business
and from business development costs such as conferences and seminars.
    Development costs for Q2/08 were $8.2 million, up 41.1% or $2.4 million
from the previous year, and include hiring incentives and systems development
costs. Hiring incentives are one of our tools to recruit new IAs and capital
markets professionals. Hiring incentives also includes retention costs related
to the acquisition of Adams Harkness Financial Group, Inc. Systems development
costs are expenditures to enhance our information technology platform. Hiring
incentives increased by 43.3% this quarter largely due to increased
recruitment of Canaccord Adams' professionals in the US. Systems development
costs increased by 32.2% due to enhancements to our technological platform
associated with our growth.
    Net income for Q2/08 was $12.4 million, down $5.4 million from a year
ago. Diluted EPS were $0.26, down $0.11 or 29.7%. ROE for Q2/08 was 12.8%
compared to an ROE of 22.1% a year ago. The decrease in EPS is largely due to
the decline in net income resulting from investments made across our global
operations and from unfavourable market conditions in August and September.
Book value per common share for Q2/08 was up 14.5% year over year to $7.83.
    Income taxes were $6.7 million for the quarter reflecting an effective
tax rate of 35.1%, up from 29.5% a year ago. The increase in the effective tax
rate in Q2/08 relative to Q2/07 is related to the geographical composition of
Canaccord's net income.

    First-half fiscal year 2008 vs. first-half fiscal year 2007

    Other overhead expenses for the six months ended September 30, 2007 were
up 8.6% or $8.2 million to $102.8 million from the same period a year ago.
Contributing to the overall increase in other overhead expenses were
development costs, which increased by 58.9% or $5.7 million to $15.3 million,
and communications and technology costs up $1.1 million. These increases are
largely related to Canaccord's growth across all geographies. Additionally,
interest expense was up $2.2 million compared to the same period a year ago
due to higher interest rates, larger cash balances in client accounts and
subordinated debt entered into on March 30, 2007. Offsetting the increase in
overhead expenses were lower premises and equipment costs, down 6.4%.
    General and administrative expense was up $0.6 million. The increase in
general and administrative expense for the first half of fiscal 2008 was
largely due to an increase in promotion and travel expense, up 22.0%, which is
largely due to an increase in business travel as a result of our
geographically diverse business. This increase was offset by decreases in
reserves and client expenses.
    Development costs were $15.3 million, up 58.9% or $5.7 million from the
previous year, and include hiring incentives and systems development costs. A
large portion of the 68.5% increase in hiring incentives is for the
recruitment of Canaccord Adams' professionals and for the retention plan
associated with the acquisition of Adams Harkness Financial Group Inc. Overall
systems development costs for the first six months of fiscal 2008 increased
37.1% due to enhancements to our technological platform associated with our
growth.
    Net income for the first half of fiscal 2008 was $51.4 million, up 17.6%
or $7.7 million from the same period a year ago. Diluted EPS were $1.07, up
$0.16 and ROE was 26.9% compared to an ROE of 28.4% a year ago. The increase
in EPS is largely due to growth in net income and the investments made across
our global operations. Book value per common share was up 14.5% to $7.83.
Income taxes were $26.3 million for the first half of fiscal 2008 reflecting
an effective tax rate of 33.9%, up from 32.1% a year ago.

    
    Results of operations

    Canaccord Adams
    -------------------------------------------------------------------------
                      Three months                   Six months
    (C$ thousands,       ended       Year-over-        ended       Year-over-
     except           September 30        year      September 30        year
     employees and                    increase                      increase
     % amounts)       2007      2006 (decrease)     2007      2006
    -------------------------------------------------------------------------
    Canaccord Adams

    Revenue
      Canada -
       Investment
       Banking and
       equities     39,210    38,533      1.8%   101,759    81,283     25.2%
      Canada -
       International
       Trading,
       Registered
       Traders and
       Fixed Income  8,031     7,940      1.1%    17,869    18,779    (4.8)%
    -------------------------------------------------------------------------
      Total
       Canada     $ 47,241    46,473      1.7%   119,628   100,062     19.6%
      UK            20,807    21,643    (3.9)%    68,308    70,535    (3.2)%
      Other Foreign
       Location         50     7,235      n.m      9,904     7,235     36.9%
      US            19,827    17,682     12.1%    45,108    40,307     11.9%
    -------------------------------------------------------------------------
    Total revenue $ 87,925  $ 93,033    (5.5)%  $242,948  $218,139     11.4%
    Expenses
      Incentive
       compensation 42,205    45,305    (6.8)%   118,408   111,253      6.4%
      Salaries and
       benefits      3,194     2,228     43.4%     7,213     5,416     33.2%
      Other
       overhead
       expenses     27,583    23,170     19.0%    53,710    45,556     17.9%
    -------------------------------------------------------------------------
    Total
     expenses     $ 72,982  $ 70,703      3.2%  $179,331  $162,225     10.5%
    Income before
     income
     taxes(1)       14,943    22,330   (33.1)%    63,617    55,914     13.8%
    Number of
     employees         535       494      8.3%
    -------------------------------------------------------------------------
    (1)  Income before income taxes excludes allocated overhead expenses that
         are included in Corporate and Other segment expenses.
    n.m. not meaningful
    

    Revenue from Canaccord Adams (our capital markets segment) is generated
from commissions and fees earned in connection with investment banking
transactions and institutional sales and trading activity as well as trading
gains and losses from Canaccord's principal and international trading
operations.

    Second quarter 2008 vs. second quarter 2007

    Revenue

    Total revenue for Canaccord Adams in Q2/08 was $87.9 million, down
$5.1 million from the same quarter a year ago due to challenging market
conditions as described in the "Business environment" section. Despite these
market challenges our Canadian operations generated fiscal second quarter
revenue of $47.2 million, up 1.7% compared to a year ago. Within this revenue,
$39.2 million is derived from Investment Banking and equities activity while
$8.0 million is derived from our International Trading, Registered Traders and
Fixed Income operations. This revenue is offset by a $1.1 million adjustment
of the total $4.4 million adjustment for the corporately held ABCP in
securities owned. Canadian growth is largely due to the continued global
demand for Canadian equities, particularly in the earlier part of the quarter.
Our Canadian revenue represents 53.7% of Canaccord Adams' total revenue.
Revenue from our UK operations was $20.8 million, down 3.9% from the same
period a year ago due to a general slowdown in the market. UK revenue of $20.8
million represents 23.7% of Canaccord Adams' total revenue. In the US, revenue
was $19.8 million, up 12.1% from a year ago, and represents 22.6% of Canaccord
Adams' total revenue. Revenue in Other Foreign Location declined to $50
thousand in Q2/08, down from $7.2 million a year ago. In any quarter, revenue
in this region represents a small number of transactions and is therefore very
irregular.

    Expenses

    Expenses for Q2/08 were $73.0 million, up $2.3 million. The largest
increases in non-compensation expenses were in development costs, up
$2.3 million, general and administrative expense, up $1.4 million. Within
general and administrative expense, promotion and travel rose by 38.0% largely
due to business development costs, including conferences and seminars. The
increase in general and administrative expense was offset by a decrease in
reserves expense.
    The decrease in incentive compensation for the quarter of $3.1 million is
largely attributable to the decline in revenue during the quarter. Salary and
benefits expense for the quarter was up 43.4% to $3.2 million compared to a
year ago. This increase is largely due to the higher contributions made by the
firm towards the ESPP and the hiring of 41 net new Canaccord Adams employees
across all geographies compared to last year. The total compensation expense
payout as a percentage of revenue for the quarter was 51.6%, which is down 0.5
percentage points from Q2/07.
    Income before income taxes and corporate overhead allocations for the
quarter was $14.9 million, down $7.4 million or 33.1%, from the same quarter a
year ago.

    First-half fiscal year 2008 vs. first-half fiscal year 2007

    Revenue for Canaccord Adams for the first half of fiscal 2008 was
$242.9 million, up $24.8 million from the same period last year due to
relatively strong capital markets in all geographies, particularly during the
first four months of fiscal 2008. In Canada, revenue was $119.6 million, up
19.6% from the same period a year ago. Within Canada, $101.7 million is
derived from Investment Banking and equities activity while $17.9 million is
from our International Trading, Registered Traders and Fixed Income
operations. This revenue is offset by a $1.1 million adjustment in Q2/08 for
the ABCP. The overall growth in Canada is largely due to our growing market
share and from the continued global demand for commodities and for Canadian
equities relative to the same period a year ago. Overall, our Canadian revenue
represents 49.2% of Canaccord Adams' total revenue. Our UK revenue was
$68.3 million, down $2.2 million from the same period a year ago due to slower
market conditions compared to the same period a year ago. UK revenue of
$68.3 million represents 28.1% of Canaccord Adams' total revenue. In the US,
revenue was $45.1 million, representing 18.6% of Canaccord Adams' total
revenue. Revenue from Other Foreign Location was $9.9 million, representing
4.1% of Canaccord Adams' total revenue.

    Expenses

    Expenses for the first half of fiscal 2008 were $179.3 million, up
$17.1 million. The largest increases in non-compensation expenses were in
development costs, up $5.3 million, general and administrative expense, up
$3.1 million. Within general and administrative expense, promotion and travel
was up 33.9% or $3.0 million.
    The increase in incentive compensation for the period of $7.2 million is
mainly attributable to the increase in incentive-based revenue growth during
the first half of fiscal 2008. Salary and benefits expense for the first half
of fiscal 2008 was up by $1.8 million from a year ago for the same reasons
mentioned above.
    The total compensation expense payout as a percentage of revenue for the
first-half of fiscal 2008 was 51.7%, down 1.8 percentage points from 53.5% for
the same period a year ago.
    Income before income taxes and corporate overhead allocations for the
period was $63.6 million, up $7.7 million from the same period a year ago.

    
    Private Client Services
    -------------------------------------------------------------------------
    (C$ thousands,
     except assets
     under
     administration
     and assets under
     management,
     which are in
     C$ millions;     Three months                   Six months
     employees;          ended       Year-over-        ended       Year-over-
     Investment       September 30        year      September 30        year
     Advisors,                        increase                      increase
     and % amounts)   2007      2006 (decrease)     2007      2006 (decrease)
    -------------------------------------------------------------------------
    Revenue       $ 57,415  $ 55,626      3.2%  $133,498  $127,912      4.4%
    Expenses
      Incentive
       compensation 25,351    24,885      1.9%    63,031    58,253      8.2%
      Salaries and
       benefits      3,510     2,854     23.0%     7,559     6,284     20.3%
      Other
       overhead
       expenses     15,178    13,607     11.6%    30,597    32,026    (4.5)%
    -------------------------------------------------------------------------
    Total
     expenses     $ 44,039  $ 41,346      6.5%  $101,187  $ 96,563      4.8%
    Income before
     income
     taxes(1)       13,376    14,280    (6.3)%    32,311    31,349      3.1%
    Assets under
     management
     (AUM)             777       745      4.3%
    Assets under
     administration
     (AUA)          15,288    13,826     10.6%
    Number of
     Investment
     Advisors (IAs)    453       434      4.4%
    Number of
     employees         784       719      9.0%
    -------------------------------------------------------------------------
    (1) Income before income taxes excludes allocated overhead expenses that
        are included in Corporate and Other segment expenses.
    

    Revenue from Private Client Services is generated through traditional
commission-based brokerage services; the sale of fee-based products and
services; client-related interest; and fees and commissions earned by IAs in
respect of investment banking and venture capital transactions by private
clients.

    Second quarter 2008 vs. second quarter 2007

    Revenue from Private Client Services was $57.4 million, up $1.8 million
mainly due to favourable market conditions in North America at the beginning
of the quarter. AUA increased by $1.5 billion to $15.3 billion compared to
Q2/07. AUM grew by 4.3% year over year. There were 453 IAs at the end of the
second quarter of fiscal 2008, up from 434 a year ago. Despite an extremely
competitive recruiting environment we successfully recruited net 19 IAs,
including 10 additional 'rookie' IAs. Fee-related revenue as a percentage of
total Private Client Services revenue was up 1.7 percentage points to 28.5%
from the same period last year.
    Expenses for Q2/08 were $44.0 million, up $2.7 million. For the quarter
the largest increases in expenses were in interest expense, up 22.6% due to
higher interest rates and larger cash balances in our client accounts this
year versus last year, general and administrative expense, up 39.8% resulting
from increases in reserves expense, up $0.4 million, and an increase in client
expenses of $0.4 million. Salaries and benefits expense was 23.0% higher this
quarter largely due to the increase in the number of net new employees
compared to the same period a year ago. A large part of the increase in new
employees was due to the hiring of 'rookie' IAs, who receive a salary in their
first year. Another large part of the increase in salaries and benefits
expense is due to the increased contribution by the firm towards the ESPP. The
total compensation expense payout as a percentage of revenue for the quarter
was 50.3%, up 0.4 percentage points from 49.9% for the same period a year ago.
    Income before income taxes and corporate allocations for the quarter was
$13.4 million, down 6.3% from the same period a year ago.

    First-half fiscal year 2008 vs. first-half fiscal year 2007

    Revenue from Private Client Services was $133.5 million, up $5.6 million
mainly due to favourable market conditions in North America during the first
four months of fiscal 2008. Fee-related revenue as a percentage of total
Private Client Services revenue was up 2.6 percentage points to 25.5% from the
same period last year.
    Expenses for the six months ended September 30, 2007 were $101.2 million,
up $4.6 million. The largest increases in expenses were in incentive
compensation expenses, up $4.8 million, and interest expense, up $1.8 million
due to higher interest rates and larger cash balances in our client accounts
this year versus last year. This increase was offset by a decrease in general
and administrative expense, down $2.3 million largely related to provisions
made in Q2/07. The total compensation expense payout as a percentage of
revenue for the first six months of fiscal 2008 was 52.9%, up 2.4 percentage
points from 50.5% for the same period a year ago.
    Income before income taxes and corporate allocations for the first half
of fiscal 2008 was $32.3 million, up 3.1% from the same period a year ago.

    
    Corporate and Other
    -------------------------------------------------------------------------
                      Three months                   Six months
    (C$ thousands,       ended       Year-over-        ended       Year-over-
     except           September 30        year      September 30        year
     employees and                    increase                      increase
     % amounts)       2007      2006 (decrease)     2007      2006 (decrease)
    -------------------------------------------------------------------------
    Revenue       $  9,130  $  7,372     23.8%    23,894  $ 16,107     48.3%
    Expenses
      Incentive
       compensation  3,860     4,784   (19.3)%    11,383    10,423      9.2%
      Salaries and
       benefits      5,945     5,561      6.9%    12,146    11,436      6.2%
      Other
       overhead
       expenses      8,516     8,387      1.5%    18,515    17,086      8.4%
    -------------------------------------------------------------------------
    Total
     expenses     $ 18,321  $ 18,732    (2.2)%    42,044  $ 38,945      8.0%
    (Loss) before
     income taxes   (9,191)  (11,360)  (19.1)%   (18,150)  (22,838)  (20.5)%
    Number of
     employees         370       349      6.0%
    -------------------------------------------------------------------------
    

    Canaccord's administrative segment, described as Corporate and Other,
includes correspondent brokerage services, bank and other interest, and
foreign exchange revenue and expenses not specifically allocable to either the
Private Client Services or Canaccord Adams divisions. Also included in this
segment are Canaccord's operations and support services, which are responsible
for front- and back-office information technology systems, compliance and risk
management, operations, finance, and all administrative functions.

    Second quarter 2008 vs. second quarter 2007

    Revenue for the three months ended September 30, 2007 was $9.1 million,
up $1.7 million from the same quarter a year ago largely due to increases in
interest rates and correspondent business revenue. This revenue is offset by a
$3.3 million adjustment of the $4.4 million total adjustment related to the
corporately held ABCP originally in treasury.
    Fiscal 2008 second quarter expenses were $18.3 million, down 2.2%. Loss
before income taxes was $9.2 million, representing a $2.2 million improvement
from the same quarter a year ago.

    First-half fiscal year 2008 vs. first-half fiscal year 2007

    Revenue was $23.9 million, up $7.8 million from the same period a year
ago for the same reasons mentioned above.
    Expenses for the first half of fiscal 2008 were $42.0 million, up
$3.1 million. The largest increases in expenses were recorded in interest
expense, up $1.0 million, largely attributable to our subordinated debt
facility, incentive compensation expense, up $1.0 million, and development
cost of $0.7 million.
    Loss before income taxes was $18.1 million representing a $4.7 million
improvement from the same period a year ago.

    Financial condition

    Below are specific changes in selected balance sheet items.

    Cash and cash equivalents

    Cash and cash equivalents were $379.7 million on September 30, 2007
compared to $506.6 million on March 31, 2007. Operating activities provided
cash of $32.6 million for the quarter due to net changes in non-cash working
capital items comprising mostly a decrease in accounts receivable of
$257.6 million offset by a decrease in accounts payable and accrued
liabilities of $195.0 million.

    Accounts receivable

    Client security purchases are entered into on either a cash or a margin
basis. When securities are purchased on margin, Canaccord extends a loan to
the client, using securities purchased and/or securities in the client's
account as collateral. Client accounts receivable were $766.0 million on
September 30, 2007 compared to $694.1 million on March 31, 2007. These
receivables vary significantly on a day-to-day basis, as they are based on
trading volumes. On September 30, 2007 total accounts receivable were
$1.8 billion compared with $1.7 billion on March 31, 2007 mainly due to
increases in brokers', dealers' and clients' accounts at fiscal quarter end.

    Call loans

    Loan facilities utilized by Canaccord may vary significantly on a
day-to-day basis and depend on securities trading activity. On September 30,
2007 the amount borrowed pursuant to call loan facilities was $48.1 million
compared with nil on March 31, 2007.

    Off-balance sheet arrangements

    At September 30, 2007 Canaccord has credit facilities with Canadian,
American and United Kingdom banks in an aggregate amount of $512.1 million.
These credit facilities, consisting of call loans, letters of credit and
daylight overdraft facilities are collateralized by either unpaid securities
and/or securities owned by the Company. Canaccord Capital Corporation has
provided a bank letter of credit in the amount of $1.3 million as a guarantee
for lease obligations of Canaccord Adams Limited. Canaccord Adams Inc. has
also entered into irrevocable standby letters of credit from a financial
institution totalling $2.3 million (US$2.3 million) as rent guarantees for its
leased premises in Boston, New York and San Francisco. As of September 30,
2007 there were no outstanding balances under these standby letters of credit.

    Liquidity and capital resources

    Canaccord has a capital structure comprising share capital, retained
earnings and accumulated other comprehensive income (losses). On September 30,
2007 cash and cash equivalents net of call loans were $379.6 million, down
$127.0 million from $506.6 million as of March 31, 2007. During the quarter
ended September 30, 2007 financing activities used cash in the amount of
$18.0 million, which was primarily due to the purchase of common shares
related to Canaccord's long term incentive plan (LTIP) of $9.7 million, and
dividend payments of $5.9 million. Investing activities used cash in the
amount of $3.2 million for the purchase of equipment and leasehold
improvements. Operating activities provided cash in the amount of
$32.6 million for the quarter, which was due to net change in non-cash working
capital items, net income and items not affecting cash.
    Canaccord's business requires capital for operating and regulatory
purposes. The majority of current assets reflected on Canaccord's balance
sheet are highly liquid. The majority of the positions held as securities
owned are readily marketable and all are recorded at their market value. The
market value of these securities fluctuates daily as factors such as changes
in market conditions, economic conditions and investor outlook affect market
prices. Client receivables are secured by readily marketable securities and
are reviewed daily for impairment in value and collectibility. Receivables and
payables from brokers and dealers represent the following: current open
transactions that generally settle within the normal three-day settlement
cycle; collateralized securities borrowed and/or loaned in transactions that
can be closed within a few days on demand, and balances on behalf of
introducing brokers representing net balances in connection with their client
accounts.
    The addition of subordinated debt at the end of fiscal 2007 provides
additional regulatory capital to support business activities across our global
platform. Subordinated debt supports regulatory capital in our operating
subsidiaries. Therefore, this addition of leverage to our balance sheet
supports our ongoing growth initiatives.

    
    Outstanding share data
    -------------------------------------------------------------------------
                                       Outstanding shares as of September 30
    -------------------------------------------------------------------------
                                                           2007         2006
    -------------------------------------------------------------------------
    Issued shares excluding unvested shares(1)       44,548,023   46,199,726
    Issued shares outstanding(2)                     47,866,229   47,827,350
    Diluted shares(3)                                48,829,916   47,961,594
    Average shares outstanding - basic               45,195,734   46,152,802
    Average shares outstanding - diluted(4)          48,284,775   47,961,594
    -------------------------------------------------------------------------
    (1) Excludes 2,381,104 unvested shares that are outstanding relating to
        share purchase loans for recruitment and retention programs and
        937,102 unvested shares purchased by employee benefit trust for the
        LTIP.
    (2) Includes 2,381,104 unvested shares that are outstanding relating to
        share purchase loans for recruitment and retention programs and
        937,102 unvested shares purchased by employee benefit trust for the
        LTIP.
    (3) Includes dilutive earned shares under our stock-based compensation
        plans
    (4) This is the diluted share number used to calculate diluted EPS.
    

    At September 30, 2007 Canaccord had 47,866,229 common shares issued and
outstanding, up 38,879 common shares from September 30, 2006 due to the net
effect of shares issued and shares cancelled.
    The Company renewed its normal course issuer bid (NCIB) and was entitled
to acquire, from December 29, 2006 to December 28, 2007, up to 2,391,880 of
its shares, which represented 5% of its shares outstanding as of December 20,
2006. There were no share transactions under the NCIB between March 31, 2007
and September 30, 2007. However, the employee benefit trust has purchased
937,102 shares for the long-term incentive plan (Note 10) and the Company
acquired 6,121 shares as an adjustment of the consideration for the
acquisition of the Adams Harkness Financial Group Inc., which reduced the
number of shares allowable under the NCIB to 1,448,657.
    On January 3, 2006 Canaccord completed the acquisition of Adams Harkness
Financial Group, Inc., which was a privately held Boston based institutional
investment bank. The consideration consisted of US$8.0 million in cash and the
issuance of 1,342,696 common shares from treasury valued at US$12.0 million.
On closing, these shares were delivered into escrow, subject to annual
releases of one-third per year beginning on June 30, 2006 and ending on
June 30, 2008.
    In connection with the acquisition of Adams Harkness Financial Group,
Inc. a retention plan was established, which provides for the issuance of up
to 1,118,952 common shares after a three-year vesting period. The total number
of shares to be vested is also based on revenue earned by Canaccord Adams Inc.
subsequent to the date of acquisition. The aggregate number of common shares
that will vest and will therefore be issued at the end of the vesting period
will be the number, which is equal to the revenue earned by Canaccord Adams
Inc. during the vesting period, divided by US$250.0 million multiplied by the
number of common shares subject to the retention plan (818,889 common shares
after forfeitures as of September 30, 2007). As such revenue levels are
achieved during the vesting period, the associated proportion of the retention
payment will be recorded as a development cost and the applicable number of
retention shares will be included in weighted average diluted common shares
outstanding.

    International Financial Centre

    Canaccord is a member of the International Financial Centre Vancouver and
International Financial Centre Montreal, which provide certain tax and
financial benefits pursuant to the International Financial Business (Tax
Refund) Act of British Columbia and the Act Respecting International Financial
Centres of Quebec. Accordingly, Canaccord's overall income tax rate is less
than the rate that would otherwise be applicable.

    Foreign exchange

    Canaccord manages its foreign exchange risk by periodically hedging
pending settlements in foreign currencies. Realized and unrealized gains and
losses related to these transactions are recognized in income during the year.
On September 30, 2007 forward contracts outstanding to sell US dollars had a
notional amount of US$26.5 million, up from US$22.0 million a year ago.
Forward contracts outstanding to buy US dollars had a notional amount of    
US$9.5 million, up from US$8.5 million compared to a year ago. The fair value
of these contracts was nominal. Some of Canaccord's operations in London,
England are conducted in UK pounds sterling, however, any foreign exchange
risk in respect of these transactions is generally limited as pending
settlements on both sides of the transaction are typically in UK pounds
sterling.

    Critical accounting estimates

    The following is a summary of Canaccord's critical accounting estimates.
Canaccord's accounting policies are in accordance with Canadian GAAP and are
described in Note 1 to the audited consolidated financial statements for the
year ended March 31, 2007. The accounting policies described below require
estimates and assumptions that affect the amounts of assets, liabilities,
revenues and expenses recorded in the financial statements. Because of their
nature estimates require judgment based on available information. Actual
results or amounts could differ from estimates and the difference could have a
material impact on the financial statements.

    Revenue recognition and valuation of securities

    Securities held, including share purchase warrants and options, are
categorized as held for trading as per Canadian Institute of Chartered
Accountants (CICA) Handbook Section 3855, "Financial Instruments - Recognition
and Measurement", and are recorded at market value with unrealized gains and
losses recognized in net income. In the case of publicly traded securities,
market value is determined on the basis of market prices from independent
sources, such as listed exchange prices or dealer price quotations.
Adjustments to market prices are made for liquidity, relative to the size of
the position, holding periods and other resale restrictions, if applicable.
Investments in illiquid or non-publicly traded securities categorized as held
for trading will be measured at fair value determined by a valuation model.
There is inherent uncertainty and imprecision in estimating the factors that
can affect value and in estimating values generally. The extent to which
valuation estimates differ from actual results will affect the amount of
revenue or loss recorded for a particular security position in any given
period. With Canaccord's security holdings consisting primarily of publicly
traded securities, our procedures for obtaining market prices from independent
sources, the validation of estimates through actual settlement of transactions
and the consistent application of our approach from period to period, we
believe that the estimates of market value recorded are reasonable.

    ABCP adjustment
    ---------------
    The ABCP last traded in the active market on August 13, 2007 and there
are currently no market quotations available for this ABCP. The Montreal
Proposal was unveiled in August by a group of major financial institutions,
spearheaded by the Caisse de depot et placement du Quebec. Under their plan,
the ABCP would be converted into longer term debt with maturities linked to
the underlying assets. On August 16, 2007 Canaccord confirmed its support for
the Montreal Proposal, and indicated that we held $32 million of ABCP in our
total treasury cash position of $345 million.
    Subsequently, on September 6, 2007 we announced our support for the
Pan-Canadian Investors Committee for ABCP, with Canaccord participating on the
committee. This committee has convened to seek options for the equitable
restructuring of ABCP conduits. The committee includes investors who were
signatories to the Montreal Proposal plus other significant holders.
    At September 30, 2007 there is ABCP with a par value of $43.2 million
included in the securities owned balance. At the dates the Company acquired
the ABCP it was rated R1 (High) by Dominion Bond Rating Services (DBRS), the
highest credit rating issued for commercial paper. The ABCP did not settle as
it matured as a result of liquidity issues in the ABCP market. There has been
no active trading of the ABCP since mid-August 2007 and no market quotations
are currently available. The ABCP in which the Company has invested continues
to be rated R1 (High, Under Review with Developing Implications) by DBRS.
    There is a significant amount of uncertainty in estimating the amount and
timing of cash flows associated with the ABCP. The Company estimates the fair
value of the ABCP by discounting expected future cash flows considering the
best available data. Since the fair value of the ABCP is based on the
Company's assessment of current conditions, amounts reported may change
materially in subsequent periods. The Company expects resolution, a liquidity
event and clarity with respect to the ABCP within the next six months.
    The ABCP was classified as held for trading on initial adoption of
Section 3855. An adjustment of $4.4 million has been recorded at September 30,
2007 to reflect the lack of liquidity in the ABCP market.

    Provisions

    Canaccord records provisions related to pending or outstanding legal
matters and doubtful accounts associated with client receivables, loans,
advances and other receivables. Provisions in connection with legal matters
are determined on the basis of management's judgment in consultation with
legal counsel, considering such factors as the amount of the claim, the
possibility of wrongdoing by an employee of Canaccord and precedents. Client
receivables are generally collateralized by securities and, therefore, any
impairment is generally measured after considering the market value of the
collateral.
    Provisions in connection with other doubtful accounts are generally based
on management's assessment of the likelihood of collection and the recoverable
amount. Provisions are also recorded utilizing discount factors in connection
with syndicate participation.

    Tax

    Accruals for income tax liabilities require management to make estimates
and judgments with respect to the ultimate outcome of tax filings and
assessments. Actual results could vary from these estimates. Canaccord
operates within different tax jurisdictions and is subject to their individual
assessments. Tax filings can involve complex issues, which may require an
extended period of time to resolve in the event of a dispute or re-assessment
by tax authorities. Canaccord believes that adequate provisions for income
taxes have been made for all years.

    Goodwill and other intangible assets

    As a result of the acquisitions of Adams Harkness Financial Group, Inc.
and Enermarket Solutions Ltd. Canaccord acquired goodwill and other intangible
assets. Goodwill is the cost of the acquired companies in excess of the fair
value of their net assets, including other intangible assets, at the
acquisition date. The identification and valuation of other intangible assets
required management to use estimates and make assumptions. Goodwill is
assessed for impairment at least annually or whenever a potential impairment
may arise as a result of an event or change in circumstances, to ensure that
the fair value of the reporting unit to which goodwill has been allocated is
greater than or at least equal to its carrying value. Fair value will be
determined using valuation models that take into account such factors as
projected earnings, earnings multiples, discount rates, other available
external information and market comparables. The determination of fair value
requires management to apply judgment in selecting the valuation models and
assumptions and estimates to be used in such models and value determinations.
These judgments affect the determination of fair value and any resulting
impairment charges. Other intangible assets are amortized over their estimated
useful lives and tested for impairment periodically or whenever a potential
impairment may arise as a result of an event or change in circumstances.
Management must exercise judgment and make use of estimates and assumptions in
determining the estimated useful lives of other intangible assets and in
periodic determinations of value.

    Consolidation of variable interest entities

    The Company consolidates variable interest entities (VIEs) in accordance
with the guidance provided by CICA Accounting Guideline 15, "Consolidation of
variable interest entities" (AcG-15). AcG-15 defines a VIE as an entity which
either does not have sufficient equity at risk to finance its activities
without additional subordinated financial support or where the holders of
equity at risk lack the characteristics of a controlling financial interest.
The enterprise that consolidates a VIE is called the primary beneficiary of
the VIE. An enterprise should consolidate a VIE when that enterprise has a
variable interest that will absorb a majority of the entity's expected losses,
or receive a majority of the entity's expected residual returns.
    The Company has established an employee benefit trust to fulfill
obligations to employees arising from the Company's stock-based compensation
plan. The employee benefit trust has been consolidated in accordance with
AcG-15 as it meets the definition of a VIE and the Company is the primary
beneficiary of the employee benefit trust.

    Recent accounting pronouncements

    The CICA has issued a new accounting standard, Section 1535, "Capital
Disclosures", which establishes standards for disclosing qualitative and
quantitative information about an entity's capital and how it is managed. This
new standard applies to interim and annual financial statements relating to
fiscal years beginning on or after October 1, 2007. The Company will adopt
Section 1535 effective April 1, 2008.
    In addition, the CICA issued two accounting standards related to the
disclosure and presentation of financial instruments. CICA Handbook Section
3862, "Financial Instruments - Disclosure" and CICA Handbook Section 3863,
"Financial Instruments - Presentation" apply to interim and annual financial
statements relating to fiscal years beginning on or after October 1, 2007. The
Company will adopt these new standards effective April 1, 2008.

    Retention plans

    Stock-based compensation

    In connection with the acquisition of Enermarket Solutions Ltd. Canaccord
agreed to issue common shares to key employees of Enermarket and its senior
management over two years. Similarly, in connection with the acquisition of
Adams Harkness Financial Group, Inc., Canaccord agreed to issue common shares
to certain key employees of Adams Harkness upon the expiry of a three-year
vesting period with the numbers of common shares to be adjusted in the event
that certain revenue targets are not achieved.

    Long term incentive plan

    The long term incentive plan (LTIP) is a new plan implemented in the
first quarter of fiscal 2008. Under the LTIP eligible participants are awarded
restricted share units which vest over three years.

    Related party transactions

    Security trades executed for employees, officers and directors of
Canaccord are transacted in accordance with terms and conditions applicable to
all clients. Commission income on such transactions in the aggregate is not
material in relation to the overall operations of Canaccord.

    Changes in accounting policies

    On April 1, 2007 the Company adopted the provisions of CICA Handbook
Section 3855, "Financial Instruments - Recognition and Measurement", CICA
Handbook Section 3865, "Hedges" and CICA Handbook Section 1530, "Comprehensive
Income".

    Financial Instruments - Recognition and Measurement

    This standard prescribes the recognition and measurement of financial
instruments. Section 3855 requires all financial assets and liabilities
(including derivatives) be measured at fair value on initial recognition
except for certain related-party transactions. Measurement in subsequent
periods depends on the classification of the instruments. All financial
instruments must be classified as one of the following: held for trading, held
to maturity, loans and receivables, and available for sale assets.
    The financial assets categorized as held for trading are measured at fair
value with unrealized gains and losses recognized in net income. Section 3855
permits an entity to designate any financial instruments as held for trading
on initial recognition or adoption of this standard even if that instrument
would not otherwise meet the definition of held for trading as specified in
Section 3855. The Company's financial instruments classified as held for
trading include commercial paper and bankers' acceptances, marketable
securities owned and sold short, forward contracts and broker warrants. The
Company has historically measured these instruments at fair value and any
unrealized gains and losses have been included in income. The Company's
accounting treatment of these instruments remains unchanged as a result of
adoption of the new accounting standards.
    Available for sale financial assets are measured at fair value with
unrealized gains and losses recognized in other comprehensive income. The
Company's investment has been classified as available for sale. The investment
has been carried at cost as there is no available quoted market price in an
active market.
    The financial assets classified as loans and receivables and held to
maturity are measured at amortized cost. There is no change in accounting
treatment for these financial instruments as a result of adoption of Section
3855.

    Hedges

    This standard sets out the criteria of when hedge accounting is applied
and how it is applied. It provides the option of designating qualifying
transactions as hedges for accounting purposes. The qualifying hedging
relationships include fair value hedges, cash flow hedges and hedges of
foreign currency exposures of net investments in self-sustaining foreign
operations. The changes in the fair value of the hedging derivatives will be
recognized in net earnings or other comprehensive income depending on the
nature of the hedging relationships. Any gains and losses resulting from any
ineffectiveness in hedging relationships are recognized in net income
immediately. The Company does not currently apply hedge accounting and as a
result Section 3865 does not apply to the Company at this time.

    Comprehensive Income

    This section establishes standards for the reporting and disclosure of
other comprehensive income (OCI) in a new category, Accumulated Other
Comprehensive Income (Losses), which will be added to shareholders' equity on
the consolidated balance sheet. Comprehensive income includes all changes in
equity of the Company during a period except those resulting from investments
by shareholders and distributions to shareholders. The major components
included in Accumulated Other Comprehensive Income (Losses) are unrealized
gains and losses on financial assets classified as available for sale, and
unrealized foreign exchange gains and losses arising on translation of the
financial statements of self-sustaining foreign operations.
    As a result of adopting Section 1530, the Company has disclosed the OCI
in a new category, Accumulated Other Comprehensive Income (Losses), which has
been added to shareholders' equity on the consolidated balance sheet. The OCI
comprises the cumulative translation adjustment arising on the translation of
the financial statements of self-sustaining foreign operations. The Company
has reclassified $6.3 million of cumulative translation adjustments to the
opening balance of Accumulated Other Comprehensive Income (Losses).

    Controls and procedures

    Disclosure controls and procedures

    Canaccord's management, including the CEO and the Executive Vice
President & CFO, has designed disclosure controls and procedures to provide
reasonable assurance that all relevant information is identified to the
Disclosure Committee to ensure appropriate and timely decisions are made
regarding public disclosure.

    Changes in internal control over financial reporting

    There were no changes in internal control over financial reporting that
occurred during the quarter ended September 30, 2007 that have materially
affected, or are reasonably likely to materially affect, Canaccord's internal
control over financial reporting.

    Dividend policy

    Although dividends are expected to be declared and paid quarterly, the
Board of Directors in its sole discretion will determine the amount and timing
of any dividends. All dividend payments will depend on general business
conditions, Canaccord's financial condition, results of operations, capital
requirements and such other factors as the Board determines to be relevant.

    Dividend declaration

    For the second quarter of fiscal 2008, the Board of Directors approved a
quarterly dividend of $0.125 per share. Dividends are payable on December 10,
2007 to shareholders of record on November 30, 2007. The common share dividend
payment to common shareholders will total approximately $6.0 million or about
48.2% of second quarter net income. Canaccord intends to pay a $0.125 regular
quarterly common share dividend for each quarter in fiscal 2008.

    Historical quarterly information

    Canaccord's revenue from an underwriting transaction is recorded only
when the transaction has closed. Consequently, the timing of revenue
recognition can materially affect Canaccord's quarterly results. The expense
structure of Canaccord's operations is geared towards providing service and
coverage in the current market environment. If general capital markets
activity were to drop significantly Canaccord could experience losses.
    The following table provides selected quarterly financial information for
the nine most recently completed financial quarters ended September 30, 2007.
This information is unaudited but reflects all adjustments of a recurring
nature, which are, in the opinion of management, necessary to present a fair
statement of the results of operations for the periods presented.
Quarter-to-quarter comparisons of financial results are not necessarily
meaningful and should not be relied upon as an indication of future
performance.

    
    -------------------------------------------------------------------------
    (C$ thousands,
     except per       Fiscal 2008                   Fiscal 2007
     share amounts)   -----------                   -----------
    -------------------------------------------------------------------------
                        Q2        Q1        Q4        Q3        Q2        Q1
    -------------------------------------------------------------------------
    Revenue
      Canaccord
       Adams        87,925   155,023   130,151   101,427    93,033   125,106
      Private
       Client
       Services     57,415    76,083  $ 75,876    68,831    55,626    72,286
      Corporate
       and Other     9,130    14,764    10,416     8,055     7,372     8,735
    -------------------------------------------------------------------------
    Total revenue  154,470   245,870   216,443   178,313   156,031   206,127
    Net income      12,411    39,029    26,016    23,692    17,806    25,942
    EPS - basic       0.28      0.86      0.57      0.51      0.39      0.57
    EPS - diluted     0.26      0.80      0.54      0.49      0.37      0.54
    -------------------------------------------------------------------------


    -------------------------------------------
    (C$ thousands,
     except per            Fiscal 2006
     share amounts)        -----------
    -------------------------------------------
                        Q4        Q3        Q2
    -------------------------------------------
    Revenue
      Canaccord
       Adams       120,243    98,918    60,048
      Private
       Client
       Services     78,422    54,731    52,411
      Corporate
       and Other     8,409     5,021     6,195
    -------------------------------------------
    Total revenue  207,074   158,670   118,654
    Net income      30,070    24,248    15,754
    EPS - basic       0.66      0.55      0.35
    EPS - diluted     0.63      0.52      0.34
    -------------------------------------------
    

    Risks

    The securities industry and Canaccord's activities are by their very
nature subject to a number of inherent risks. Economic conditions, competition
and market factors such as volatility in the Canadian and international
markets, interest rates, commodity prices, market prices, trading volumes and
liquidity will have a significant impact on Canaccord's profitability. An
investment in the common shares of Canaccord involves a number of risks,
including market, liquidity, credit, operational, legal and regulatory risks,
which could be substantial and are inherent in Canaccord's business. Canaccord
is also directly exposed to market price risks, liquidity risk and volatility
risk as a result of its principal trading activities in equity securities and
to specific interest rate risk as a result of its principal trading in fixed
income securities. Private Client Services' revenue is dependent on trading
volumes and, as such, is dependent on the level of market activity and
investor confidence. Canaccord Adams' revenue is dependent on financing
activity by corporate issuers and the willingness of institutional clients to
actively trade and participate in capital markets transactions. There may also
be a lag between market fluctuations and changes in business conditions and
the level of Canaccord's market activity and the impact that these factors
have on Canaccord's operating results and financial position. Furthermore,
Canaccord may not achieve its growth plans associated with the acquisition and
integration of Adams Harkness Financial Group, Inc.

    Additional information

    A comprehensive discussion of our business, strategies, objectives and
risks is available in our Annual Information Form and Management's Discussion
and Analysis, including our audited annual financial statements in Canaccord's
2007 Annual Report, which are available on our Web site at
canaccord.com/investor and on SEDAR at sedar.com.



    Interim Consolidated Financial Statements

    Canaccord Capital Inc.
    Unaudited
    For the three and six months ended September 30, 2007
    (Expressed in Canadian dollars)


    
                    SHAREHOLDER IN Canaccord Capital Inc.

               INTERIM CONSOLIDATED BALANCE SHEETS (Unaudited)

                                            (in thousands of dollars)
    As at                            September 30,   March 31,  September 30,
                                         2007          2007         2006
                                           $             $            $
    -------------------------------------------------------------------------

    ASSETS
    Current
    Cash and cash equivalents            379,680       506,640       315,883
    Securities owned, at market
     (note 3)                            227,368       348,764       119,809
    Accounts receivable
     (notes 6 and 11)                  1,829,712     1,672,035     1,163,218
    Income taxes recoverable                 661             -             -
    -------------------------------------------------------------------------
    Total current assets               2,437,421     2,527,439     1,598,910
    -------------------------------------------------------------------------
    Investment (note 5)                    5,000             -             -
    Equipment and leasehold
     improvements                         40,137        37,549        26,527
    Future income taxes                    9,940        11,021        12,754
    Goodwill and other intangible
     assets (note 7)                      33,227        33,933        27,222
    -------------------------------------------------------------------------
                                       2,525,725     2,609,942     1,665,413
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES AND SHAREHOLDERS' EQUITY
    Current
    Call loans                            48,130             -             -
    Securities sold short, at market
     (note 3)                             48,784        41,176        25,926
    Accounts payable and accrued
     liabilities (notes 6 and 11)      2,021,498     2,156,540     1,311,248
    Income taxes payable                       -        15,035         1,150
    Subordinated debt (note 8)            25,000        25,000             -
    -------------------------------------------------------------------------
    Total current liabilities          2,143,412     2,237,751     1,338,324
    -------------------------------------------------------------------------
    Commitments and contingencies
     (note 13)

    Shareholders' equity
    Share capital (note 9)               139,498       156,296       159,489
    Retained earnings                    254,379       213,659       172,559
    Accumulated other comprehensive
     income (losses) (note 2)            (11,564)        2,236        (4,959)
    -------------------------------------------------------------------------
    Total shareholders' equity           382,313       372,191       327,089
    -------------------------------------------------------------------------
                                       2,525,725     2,609,942     1,665,413
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes



                           Canaccord Capital Inc.

    INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

                       (in thousands of dollars, except per share amounts)

                     For the three months ended    For the six months ended
                    ---------------------------- ----------------------------
                     September 30, September 30, September 30,  September 30,
                           2007          2006          2007          2006
                            $             $             $             $
    -------------------------------------------- ----------------------------

    REVENUE
    Commission              65,728        63,556       151,503       141,610
    Investment banking      73,731        70,118       202,356       172,958
    Principal trading
     (note 3)               (8,324)        5,390        (1,511)       13,174
    Interest                16,273        14,259        32,583        27,897
    Other                    7,062         2,708        15,409         6,519
    -------------------------------------------- ----------------------------
                           154,470       156,031       400,340       362,158
    -------------------------------------------- ----------------------------

    EXPENSES
    Incentive
     compensation           71,416        74,974       192,822       179,929
    Salaries and benefits   12,649        10,643        26,918        23,136
    Trading costs            7,249         6,119        14,207        14,678
    Premises and equipment   5,735         5,814        10,994        11,751
    Communication and
     technology              5,813         5,387        11,552        10,450
    Interest                 6,413         5,402        12,581        10,384
    General and
     administrative         15,755        14,287        34,026        33,394
    Amortization             2,146         2,366         4,123         4,355
    Development costs        8,166         5,789        15,339         9,656
    -------------------------------------------- ----------------------------
                           135,342       130,781       322,562       297,733
    -------------------------------------------- ----------------------------
    Income before income
     taxes                  19,128        25,250        77,778        64,425
    Income tax expense
     (recovery)
    Current                 10,305         8,325        27,380        22,661
    Future                  (3,588)         (881)       (1,042)       (1,984)
    -------------------------------------------- ----------------------------
                             6,717         7,444        26,338        20,677
    -------------------------------------------- ----------------------------
    -------------------------------------------- ----------------------------
    Net income for
     the period             12,411        17,806        51,440        43,748
    -------------------------------------------- ----------------------------
    -------------------------------------------- ----------------------------

    Basic earnings per
     share (note 9 (v))       0.28          0.39          1.14          0.95
    Diluted earnings per
     share (note 9 (v))       0.26          0.37          1.07          0.91
    -------------------------------------------- ----------------------------
    -------------------------------------------- ----------------------------
    See accompanying notes



                           Canaccord Capital Inc.

                 INTERIM CONSOLIDATED STATEMENTS OF CHANGES
                     IN SHAREHOLDERS' EQUITY (Unaudited)

    As at and for the six months
    ended September 30, 2007                (in thousands of dollars)
    and 2006 and for the year        September 30,   March 31,  September 30,
     ended March 31, 2007                2007          2007          2006
                                          $             $             $
    -------------------------------------------------------------------------
    Common shares, opening               147,900       152,705       152,705
    Shares issued                            447           194             -
    Shares cancelled                           -           (45)            -
    Acquisition of common shares
     for long term incentive plan
     (note 10)                           (18,295)            -             -
    Unvested share purchase loans         (9,106)       (4,954)        2,754
    -------------------------------------------------------------------------
    Common shares, closing               120,946       147,900       155,459
    -------------------------------------------------------------------------

    Contributed surplus, opening           8,396         4,939         4,939
    Excess on redemption of common
     shares                                    -           (38)            -
    Excess on distribution of acquired
     common shares (note 9 (iv))               -         1,623             -
    Stock-based compensation
     (note 10)                             8,666             -             -
    Unvested share purchase loans          1,490         1,872          (909)
    -------------------------------------------------------------------------
    Contributed surplus, closing          18,552         8,396         4,030
    -------------------------------------------------------------------------
    Share capital                        139,498       156,296       159,489
    -------------------------------------------------------------------------

    Retained earnings, opening           213,659       136,463       136,463
    Net income for the period             51,440        93,456        43,748
    Cash dividends                       (10,720)      (16,260)       (7,652)
    -------------------------------------------------------------------------
    Retained earnings, closing           254,379       213,659       172,559
    -------------------------------------------------------------------------

    Accumulated other comprehensive
     income (losses), opening              2,236        (6,277)       (6,277)
    Other comprehensive income (loss)    (13,800)        8,513         1,318
    -------------------------------------------------------------------------
    Accumulated other comprehensive
     income (losses), closing            (11,564)        2,236        (4,959)
    -------------------------------------------------------------------------

    Shareholders' equity                 382,313       372,191       327,089
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


           INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                 (Unaudited)

                                         (in thousands of dollars)
                          For the three months ended For the six months ended
                          ---------------------------------------------------
                          September      September    September     September
                             30,            30,           30,           30,
                            2007           2006          2007          2006
                              $              $             $             $
                          ---------------------------------------------------
    Net income for
     the period             12,411        17,806        51,440        43,748
    Other comprehensive
     income (loss), net
     of taxes
      Net change in
       unrealized gains
       (losses) on
       translation of
       self-sustaining
       foreign operations   (6,834)        1,140       (13,800)        1,318
    -------------------------------------------------------------------------
    Comprehensive income
     for the period          5,577        18,946        37,640        45,066
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes



                           Canaccord Capital Inc.

          INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

                                        (in thousands of dollars)

                          For the three months ended For the six months ended
                          -------------------------- ------------------------
                          September      September    September     September
                             30,            30,           30,           30,
                            2007           2006          2007          2006
                              $              $             $             $
    ------------------------------------------------ ------------------------

    OPERATING ACTIVITIES
    Net income for
     the period             12,411        17,806        51,440        43,748
    Items not affecting cash
      Amortization           2,146         2,978         4,123         4,355
      Future income tax
       recovery             (3,588)         (881)       (1,042)       (1,984)
      Stock option expense      41             -            82             -
    Changes in non-cash
     working capital
      Decrease (increase)
      in securities owned   (2,200)       74,392       120,074        83,427
      Decrease (increase)
       in accounts
       receivable          257,601        (5,194)     (154,949)      382,944
      Increase (decrease)
       in securities
       sold short          (36,435)      (83,997)        7,614       (11,231)
      Decrease in accounts
       payable and accrued
       liabilities        (195,629)      (53,613)     (127,060)     (528,011)
      Decrease in income
       taxes payable        (1,754)       (7,500)      (12,388)      (14,368)
    ------------------------------------------------ ------------------------
    Cash provided by
     (used in) operating
     activities             32,593       (56,009)     (112,106)      (41,120)
    ------------------------------------------------ ------------------------

    FINANCING ACTIVITIES
    Issuance of shares          21             -           447             -
    Decrease (increase)
     in unvested common
     share purchase
     loans                  (2,367)          316        (7,616)        1,390
    Acquisition of common
     shares for long
     term incentive plan    (9,751)            -       (18,295)            -
    Dividends paid          (5,934)       (3,826)      (10,720)       (7,652)
    ------------------------------------------------ ------------------------
    Cash used in financing
     activities            (18,031)       (3,510)      (36,184)       (6,262)
    ------------------------------------------------ ------------------------

    INVESTING ACTIVITIES
    Purchase of equipment
     and leasehold
     improvements           (3,203)       (3,992)       (7,390)       (4,438)
    Acquisition of
     investment                  -             -        (5,000)            -
    ------------------------------------------------ ------------------------
    Cash used in investing
     activities             (3,203)       (3,992)      (12,390)       (4,438)
    ------------------------------------------------ ------------------------

    Effect of foreign
     exchange on cash
     balances               (7,128)        2,964       (14,410)        1,880
    ------------------------------------------------ ------------------------

    Increase (decrease)
     in cash position        4,231       (60,547)     (175,090)      (49,940)
    Cash position,
     beginning
     of period             327,319       376,430       506,640       365,823
    ------------------------------------------------ ------------------------
    Cash position, end
     of period             331,550       315,883       331,550       315,883
    ------------------------------------------------ ------------------------
    ------------------------------------------------ ------------------------

    Cash position is
     comprised of:
    Cash and cash
     equivalents           379,680       315,883       379,680       315,883
    Call loans             (48,130)            -       (48,130)            -
    ------------------------------------------------ ------------------------
    ------------------------------------------------ ------------------------
                           331,550       315,883       331,550       315,883
    ------------------------------------------------ ------------------------
    ------------------------------------------------ ------------------------

    Supplemental cash flow information
    Interest paid            6,391         5,345        12,551        10,284
    Income taxes paid       12,602        13,067        40,876        34,681
    ------------------------------------------------ ------------------------
    ------------------------------------------------ ------------------------
    See accompanying notes

    Through its principal subsidiaries, Canaccord Capital Inc. (the
    "Company") is a leading independent, full-service investment dealer in
    Canada with capital markets operations in the United Kingdom and the
    United States of America. The Company has operations in each of the two
    principal segments of the securities industry: private client services
    and capital markets. Together, these operations offer a wide range of
    complementary investment products, brokerage services and investment
    banking services to the Company's private, institutional and corporate
    clients.

    The Company's business is cyclical and experiences considerable
    variations in revenue and income from quarter to quarter and year to year
    due to factors beyond the Company's control. Our business is affected by
    the overall condition of the North American and European equity markets,
    including the seasonal variance in these markets.

    1. SIGNIFICANT ACCOUNTING POLICIES

    Basis of presentation and principles of consolidation

    These interim unaudited consolidated financial statements have been
    prepared by the Company in accordance with Canadian generally accepted
    accounting principles ("GAAP") with respect to interim financial
    statements, applied on a consistent basis. These interim unaudited
    consolidated financial statements follow the same accounting principles
    and methods of application as those disclosed in Note 1 to the Company's
    audited consolidated financial statements as at and for the year ended
    March 31, 2007 ("Audited Annual Consolidated Financial Statements").
    Accordingly, they do not include all the information and footnotes
    required for compliance with Canadian GAAP for annual financial
    statements. These interim unaudited consolidated financial statements and
    notes thereon should be read in conjunction with the Audited Annual
    Consolidated Financial Statements.

    The preparation of these interim unaudited consolidated financial
    statements and the accompanying notes requires management to make
    estimates and assumptions that affect the amounts reported. In the
    opinion of management, these interim unaudited consolidated financial
    statements reflect all adjustments (which include only normal, recurring
    adjustments) necessary to state fairly the results for the periods
    presented. Actual results could vary from these estimates and the
    operating results for the interim periods presented are not necessarily
    indicative of results that may be expected for the full year.

    Consolidation of variable interest entities

    The Company consolidates variable interest entities ("VIEs") in
    accordance with the guidance provided by the Canadian Institute of
    Chartered Accountants ("CICA") Accounting Guideline 15, "Consolidation of
    variable interest entities" (AcG-15). AcG-15 defines a VIE as an entity
    which either does not have sufficient equity at risk to finance its
    activities without additional subordinated financial support or where the
    holders of equity at risk lack the characteristics of a controlling
    financial interest. The enterprise that consolidates a VIE is called the
    primary beneficiary of the VIE. An enterprise should consolidate a VIE
    when that enterprise has a variable interest that will absorb a majority
    of the entity's expected losses, or receive a majority of the entity's
    expected residual returns.

    The Company has established an employee benefit trust (Note 10) to
    fulfill obligations to employees arising from the Company's stock-based
    compensation plan. The employee benefit trust has been consolidated in
    accordance with AcG-15 as it meets the definition of a VIE and the
    Company is the primary beneficiary of the employee benefit trust.

    Recent accounting pronouncements

    The CICA has issued a new accounting standard, Section 1535 "Capital
    Disclosures", which establishes standards for disclosing qualitative and
    quantitative information about an entity's capital and how it is managed.
    This new standard applies to interim and annual financial statements
    relating to fiscal years beginning on or after October 1, 2007. The
    Company will adopt Section 1535 effective April 1, 2008.

    In addition, the CICA issued two accounting standards related to the
    disclosure and presentation of financial instruments. CICA Handbook
    Section 3862 "Financial Instruments - Disclosure" and CICA Handbook
    Section 3863 "Financial Instruments - Presentation" apply to interim and
    annual financial statements relating to fiscal year beginning on or after
    October 1, 2007. The Company will adopt these new standards effective
    April 1, 2008.

    2. CHANGE IN ACCOUNTING POLICIES

    On April 1, 2007 the Company adopted the provisions of CICA Handbook
    Section 3855 "Financial Instruments - Recognition and Measurement", CICA
    Handbook Section 3865 "Hedges" and CICA Handbook Section 1530
    "Comprehensive Income".

    Financial Instruments - Recognition and Measurement

    This standard prescribes the recognition and measurement of financial
    instruments. Section 3855 requires all financial assets and liabilities
    (including derivatives) be measured at fair value on initial recognition
    except for certain related party transactions. Measurement in subsequent
    periods depends on the classification of the instruments. All financial
    instruments must be classified as one of the following categories: held
    for trading, held to maturity, loans and receivables, available for sale
    assets and other liabilities.

    The financial assets categorized as held for trading are measured at fair
    value with unrealized gains and losses recognized in net income. Section
    3855 permits an entity to designate any financial instruments as held for
    trading on initial recognition or adoption of this standard even if that
    instrument would not otherwise meet the definition of held for trading as
    specified in Section 3855. The Company's financial instruments classified
    as held for trading include commercial paper and bankers' acceptances,
    marketable securities owned and sold short, forward contracts and broker
    warrants. The Company has historically measured these instruments at fair
    value and any unrealized gains and losses had been included in income.
    Consequently, the Company's accounting treatment of these instruments
    remains unchanged as a result of adoption of the new accounting
    standards.

    Available for sale financial assets are measured at fair value with
    unrealized gains and losses recognized in other comprehensive income. The
    Company's investment (Note 5) has been classified as available for sale.
    The investment has been carried at cost as there is no available quoted
    market price in an active market.

    The financial assets and liabilities classified as loans and receivables,
    held to maturity and other liabilities are measured at amortized cost.
    There is no change in accounting treatment for these financial
    instruments as a result of adoption of Section 3855.

    Hedges

    This standard sets out the criteria of when hedge accounting is applied
    and how it is applied. It provides the option of designating qualifying
    transactions as hedges for accounting purposes. The qualifying hedging
    relationships include fair value hedges, cash flow hedges and hedges of
    foreign currency exposures of net investments in self-sustaining foreign
    operations. The changes in the fair value of the hedging derivatives will
    be recognized in net earnings or other comprehensive income depending on
    the nature of the hedging relationships. Any gains and losses resulting
    from any ineffectiveness in hedging relationships are recognized in net
    income immediately. The Company does not currently apply hedge accounting
    and as a result Section 3865 does not apply to the Company at this time.

    Comprehensive Income

    This section establishes standards for the reporting and disclosure of
    other comprehensive income ("OCI") in a new category, Accumulated Other
    Comprehensive Income (Losses), which will be included in shareholders'
    equity on the consolidated balance sheet. Comprehensive income includes
    all changes in equity of the Company during a period except those
    resulting from investments by shareholders and distributions to
    shareholders. The major components included in Accumulated Other
    Comprehensive Income (Losses) are unrealized gains and losses on
    financial assets classified as available for sale, and unrealized foreign
    exchange gains and losses arising on translation of the financial
    statements of self-sustaining foreign operations.

    As a result of adopting Section 1530, the Company has disclosed the OCI
    in a new category, Accumulated Other Comprehensive Income (Losses), which
    has been included in shareholders' equity on the consolidated balance
    sheet. The OCI is comprised of the cumulative translation adjustment
    arising on the translation of the financial statements of self-sustaining
    foreign operations. The Company has reclassified $6.3 million of
    cumulative translation adjustments to the opening balance of Accumulated
    Other Comprehensive Income (Losses).

    3. SECURITIES OWNED AND SECURITIES SOLD SHORT

                 September 30, 2007    March 31, 2007    September 30, 2006
                 --------- ----------  ----------------  -------------------
                   Secur-    Secur-    Secur-    Secur-   Secur-    Secur-
                   ities     ities     ities     ities     ities     ities
                   owned     sold      owned     sold      owned     sold
                             short               short               short
                     $         $         $         $         $         $
    -------------------------------------------------------------------------

    Corporate and
     government
     debt           84,679    20,909    23,786     5,313    11,420     5,539
    Equities and
     convertible
     debentures    142,689    27,875   324,978    35,863   108,389    20,387
    -------------------------------------------------------------------------
                   227,368    48,784   348,764    41,176   119,809    25,926
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    As at September 30, 2007, corporate and government debt maturities range
    from 2007 to 2054 (March 31, 2007 - 2007 to 2054 and September 30, 2006 -
    2006 to 2053) and bear interest ranging from 3.13% to 11.50% (March 31,
    2007 - 2.75% to 11.50% and September 30, 2006 - 2.65% to 11.50%).

    The security positions are classified as held for trading under CICA
    Handbook Section 3855 "Financial Instruments - Recognition and
    Measurement". Unrealized gains and losses are included in net income in
    the period incurred.

    At September 30, 2007 there is third party asset-backed commercial paper
    ("ABCP") with a par value of $43.2 million included in the securities
    owned balance. At the dates the Company acquired the ABCP it was rated R1
    (High) by Dominion Bond Rating Services ("DBRS"), the highest credit
    rating issued for commercial paper. The ABCP did not settle as it matured
    as a result of liquidity issues in the ABCP market. There has been no
    active trading of the ABCP since mid-August 2007 and no market quotations
    are currently available. The ABCP in which the Company has invested
    continues to be rated R1 (High, Under Review with Developing
    Implications) by DBRS.

    There is a significant amount of uncertainty in estimating the amount and
    timing of cash flows associated with the ABCP. The Company estimates the
    fair value of the ABCP by discounting expected future cash flows
    considering the best available data. Since the fair value of the ABCP is
    based on the Company's assessment of current conditions amounts reported
    may change materially in subsequent periods. The Company expects
    resolution, a liquidity event and clarity with respect to the ABCP within
    the next six months.

    The ABCP was classified as held for trading on initial adoption of
    Section 3855. An adjustment of $4.4 million has been recorded at
    September 30, 2007 to reflect the lack of liquidity in the ABCP market.

    4. FOREIGN EXCHANGE RISK

    Foreign exchange risk arises from the possibility that changes in the
    price of foreign currencies will result in losses. The Company
    periodically trades certain foreign exchange contracts to manage and
    hedge foreign exchange risk on pending settlements in foreign currencies.
    As the Company does not currently apply hedge accounting, these contracts
    are classified as held for trading. Consequently, realized and unrealized
    gains and losses related to these contracts are recognized in income
    during the year.

    Forward contracts outstanding at September 30, 2007:

                    Notional amounts  Average price   Maturity    Fair value
                        (millions                                 (millions
                           of USD)     (CAD/USD)                     of USD)
    -------------------------------------------------------------------------
    To sell US dollars    $26.50        $0.995      October 1,       $ 0.1
                                                          2007
    To buy US dollars     $ 9.50        $0.995      October 1,       ($0.1)
                                                          2007
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Forward contracts outstanding at March 31, 2007:

                    Notional amounts  Average price    Maturity   Fair value
                        (millions                                 (millions
                           of USD)     (CAD/USD)                     of USD)
    -------------------------------------------------------------------------
    To sell US dollars    $12.90         $1.16       April 30,        $0.1
                                                          2007
    To buy US dollars     $ 2.50         $1.16        April 3,       ($0.1)
                                                          2007
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Forward contracts outstanding at September 30, 2006:

                    Notional amounts  Average price   Maturity    Fair value
                        (millions                                 (millions
                           of USD)     (CAD/USD)                     of USD)
    -------------------------------------------------------------------------
    To sell US dollars    $22.00         $1.11      October 4,        $0.1
                                                          2006
    To buy US dollars     $ 8.50         $1.11      October 4,       ($0.1)
                                                          2006
    -------------------------------------------------------------------------


    5. INVESTMENT

                                    September 30,   March 31,  September 31,
                                        2007          2007          2006
                                          $             $             $
    -------------------------------------------------------------------------
    Available for sale                     5,000             -             -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The Company has invested $5 million in a limited partnership as part of
    its initiative to develop a new Alternative Trading System. The
    investment is carried at cost as there is no available quoted market
    price in an active market.

    6. ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

    Accounts receivable
                                    September 30,   March 31,  September 30,
                                        2007          2007          2006
                                          $             $             $
    -------------------------------------------------------------------------
    Brokers and investment dealers       631,275       571,461       333,576
    Clients                              765,999       694,123       484,833
    RRSP cash balances held in trust     393,742       349,932       294,129
    Other                                 38,696        56,519        50,680
    -------------------------------------------------------------------------
                                       1,829,712     1,672,035     1,163,218
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Accounts payable and accrued liabilities

                                    September 30,   March 31,  September 30,
                                        2007          2007          2006
                                          $             $             $
    -------------------------------------------------------------------------
    Brokers and investment dealers       520,476       442,828       263,784
    Clients                            1,308,435     1,212,464       892,708
    Other                                192,587       501,248       154,756
    -------------------------------------------------------------------------
                                       2,021,498     2,156,540     1,311,248
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Accounts payable to clients include $393.7 million (March 31, 2007 -
    $349.9 million and September 30, 2006 - $294.1 million) payable to
    clients for RRSP cash balances held in trust.

    Client security purchases are entered into on either a cash or a margin
    basis. In the case of a margin account, the Company extends a loan to a
    client for the purchase of securities, using securities purchased and/or
    other securities in the client's account as collateral. Amounts loaned to
    any client are limited by margin regulations of the Investment Dealers
    Association of Canada and other regulatory authorities and are subject to
    the Company's credit review and daily monitoring procedures.

    Amounts due from and to clients are due by the settlement date of the
    trade transaction. Margin loans are due on demand and are collateralized
    by the assets in the client accounts. Interest on margin loans and
    amounts due to clients is based on a floating rate (September 30, 2007 -
    8.25%-9.75% and 1.83%-3.25%, respectively; March 31, 2007 - 8.00%-10.25%
    and 2.27%-3.00%, respectively; and September 30, 2006 - 8.00%-10.25% and
    2.24%-3.00%, respectively).

    7. GOODWILL AND OTHER INTANGIBLE ASSETS

                                     September 30,   March 31,  September 30,
                                         2007          2007          2006
                                           $             $             $
    -------------------------------------------------------------------------

    Goodwill                              30,070        30,070        22,653
    -------------------------------------------------------------------------

    Other intangible assets
      Balance at beginning of period       3,863         5,276         5,276
      Amortization                           706         1,413           707
    -------------------------------------------------------------------------
      Balance at end of period             3,157         3,863         4,569
    -------------------------------------------------------------------------
                                          33,227        33,933        27,222
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Other intangible assets reflect assigned values related to acquired brand
    names, customer relationships and technology and are amortized on a
    straight-line basis over their estimated useful life of four years.
    Goodwill and other intangible assets relate to the Canaccord Adams
    operating segment.

    In March 2007, the Company completed its assessment of the net assets
    acquired in connection with the purchase price allocation for the
    acquisition of Adams Harkness Financial Group, Inc. in January 2006,
    and goodwill was increased to $30,070 to reflect finalization of the fair
    value assessment of future income tax benefits.

    8. SUBORDINATED DEBT

                                   September 30,   March 31,  September 30,
                                        2007          2007          2006
                                          $             $             $
    -------------------------------------------------------------------------
    Loan payable, interest payable
     monthly at prime + 2% per annum,
     due on demand                        25,000        25,000             -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The loan payable is subject to a subordination agreement and may only be
    repaid with the prior approval of the Investment Dealers Association of
    Canada.

    9. SHARE CAPITAL

                                    September 30,   March 31,  September 30,
                                        2007          2007          2006
                                          $             $             $
    -------------------------------------------------------------------------
    Share capital
      Common shares                      173,878       173,431       173,282
      Unvested share purchase loans      (34,637)      (25,531)      (17,823)
      Acquisition of common shares
       for long term incentive plan
       (note 10)                         (18,295)            -             -
    Contributed surplus                   18,552         8,396         4,030
    -------------------------------------------------------------------------
                                         139,498       156,296       159,489
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Share capital of Canaccord Capital Inc. is comprised of the following:

    (i) Authorized

    Unlimited common shares without par value
    Unlimited preferred shares without par value

    (ii) Issued and fully paid

    Common shares

                                                   Number of        Amount
                                                    Shares            $
    -------------------------------------------------------------------------
    Balance, September 30, 2006                     47,827,350       173,282
    Shares issued in connection with stock
     compensation plans (note 10)                       17,133           194
    Shares cancelled                                   (12,522)          (45)
    -------------------------------------------------------------------------
    Balance, March 31, 2007                         47,831,961       173,431
    -------------------------------------------------------------------------
    Shares issued for cash                              25,000           350
    Shares issued in connection with stock
     compensation plan (note 10)                         9,268            97
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Balance, September 30, 2007                     47,866,229       173,878
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The Company renewed its normal course issuer bid ("NCIB") and was
    entitled to acquire from December 29, 2006 to December 28, 2007, up to
    2,391,880 of its shares, which represented 5% of its shares outstanding
    as of December 20, 2006. There were no share transactions under the NCIB
    between March 31, 2007 and September 30, 2007. However, the employee
    benefit trust has purchased 937,102 shares for the long-term incentive
    plan (Note 10) and the Company acquired 6,121 shares as an adjustment of
    the consideration for the acquisition of the Adams Harkness Financial
    Group Inc., which reduced the number of shares allowable under the NCIB
    to 1,448,657.

    (iii) Common share purchase loans

    The Company provides forgivable common share purchase loans to employees
    in order to purchase common shares. The unvested balance of forgivable
    common share purchase loans is presented as a deduction from share
    capital. The forgivable common share purchase loans are amortized over
    the vesting period. Contributed surplus includes the amortization of
    unvested forgivable common share purchase loans.

    (iv) Distribution of acquired common shares

    In December 2006, the Company repurchased 195,968 common shares for
    $1.9 million from departed employees as settlement of the unvested
    portion of forgivable loans. A total of 189,567 common shares were
    subsequently distributed to existing employees at market price of $18.20
    per share for cash proceeds of $3.5 million. The excess on distribution
    of $1.6 million has been credited to contributed surplus. The Company has
    cancelled the remaining 6,401 common shares.

    (v) Earnings per share

                      For the three months ended    For the six months ended
                      --------------------------    -------------------------
                      September 30, September 30, September 30, September 30,
                           2007          2006          2007          2006
    -------------------------------------------------------------------------
    Basic earnings per share
    Net income for the
     period             $   12,411    $   17,806    $   51,440    $   43,748
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Weighted average
     number of common
     shares (number)    44,971,889    46,152,802    45,195,734    46,152,802
    Basic earnings per
     share              $     0.28    $     0.39    $     1.14    $     0.95
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Diluted earnings
     per share

    Net income for the
     period             $   12,411    $   17,806    $   51,440    $   43,748
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Weighted average
     number of common
     shares (number)    44,971,889    46,152,802    45,195,734    46,152,802
    Dilutive effect of
     unvested shares
     (number)            2,381,104     1,443,107     2,381,104     1,443,107
    Dilutive effect of
     share issuance
     commitment in
     connection with
     retention plan
     (number) (note 10)    363,378       365,685       363,378       365,685
    Dilutive effect of
     unvested shares
     purchased by
     employee benefit
     trust (number)
     (note 10)             511,906             -       281,470             -
    Dilutive effect of
     share issuance
     commitment in
     connection with
     long term incentive
     plan (number)
     (note 10)              41,309             -        63,089             -
    -------------------------------------------------------------------------
    Adjusted weighted
     average number
     of common shares
     (number)           48,269,586    47,961,594    48,284,775    47,961,594
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Diluted earnings
     per share          $     0.26    $     0.37    $     1.07    $     0.91
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    10. STOCK-BASED COMPENSATION PLANS

    Retention plans

    As described in the Audited Annual Consolidated Financial Statements, the
    Company established two retention plans in connection with the
    acquisitions of Enermarket and Adams Harkness.

    The plan for Enermarket consists of the issuance of up to 25,210 common
    shares of the Company over two years. In December 2006 the Company issued
    10,254 common shares under this plan (Note 9 (ii)).

    The plan for Adams Harkness provides for the issuance of up to 1,118,952
    common shares of the Company after a three-year vesting period. The total
    number of shares which will vest is also based on revenue earned by
    Canaccord Adams Inc. during the vesting period. The aggregate number of
    common shares which vest will be that number which is equal to the
    revenue earned by Canaccord Adams Inc. during the vesting period divided
    by US$250.0 million multiplied by the number of common shares subject to
    the retention plan (818,889 common shares as of September 30, 2007 and
    1,004,750 as of September 30, 2006). As such revenue levels are achieved
    during the vesting period, the associated proportion of the retention
    payment will be recorded as a development cost and the applicable number
    of retention shares will be included in diluted common shares outstanding
    (Note 9 (v)). The Company has expensed $810 and $1,939 for the three and
    six months ended September 30, 2007 ($474 and $1,153 for the three and
    six months ended September 30, 2006). The Company issued 9,268 common
    shares for the six months ended September 30, 2007 and 6,879 common
    shares in February 2007 to employees who have ceased their employment in
    circumstances where the retention plan provides for a partial vesting of
    the shares awarded under the plan (Note 9 (ii)).

    The following table details the activity under the Company's retention
    plans and employee treasury stock purchase plan:

                      For the three months ended    For the six months ended
                      --------------------------    -------------------------
                      September 30, September 30, September 30, September 30,
                           2007          2006          2007          2006
    -------------------------------------------------------------------------
    Number of common
     shares subject to
     the Enermarket
     retention plan:
      Beginning of
       period               10,254        25,210        10,254        25,210
      Grants                     -             -             -             -
      Issued                     -             -             -             -
    -------------------------------------------------------------------------
      End of period         10,254        25,210        10,254        25,210
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
      Shares vested during
       the period                -             -             -             -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Number of common
     shares subject to
     the Adams Harkness
     retention plan:
      Beginning of
       period              892,354     1,116,644       953,107     1,046,219
      Grants                     -             -             -             -
      Issued                (1,995)            -        (9,268)       72,733
      Forfeitures          (71,470)     (111,894)     (124,950)     (114,202)
    -------------------------------------------------------------------------
      End of period        818,889     1,004,750       818,889     1,004,750
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
      Shares vested
       during the
       period                    -             -             -             -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Number of common
     shares subject to
     the employee
     treasury stock
     purchase plan:
      Beginning of period        -       276,776             -       276,776
      Issued                     -             -             -             -
    -------------------------------------------------------------------------
      End of period              -       276,776             -       276,776
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Under the fair value method the aggregate costs of the grants made under
    the retention plans are estimated to be $12.0 million - $0.3 million
    relating to Enermarket and $11.7 million (US$10.0 million) for Adams
    Harkness. The costs of the retention plans have been recognized in the
    financial statements of the Company in accordance with the vesting terms
    of the respective plans.

    Stock options

    On May 16, 2007 the Company granted stock options to five independent
    directors. Each of the directors has been granted the option to purchase
    up to 25,000 common shares of the Company with an exercise price of
    $23.13 and a vesting period of four years. The term of the options is
    seven years. The fair value of the stock options has been estimated on
    grant date using the Black-Scholes option pricing model with the
    following assumptions:

                                                                    May 2007
                                                                       Grant
    -------------------------------------------------------------------------
    Dividend yield                                                     1.80%
    Expected volatility                                               30.00%
    Risk-free interest rate                                            4.25%
    Expected life                                                    5 years

    Compensation expense of $41 and $82 has been recognized for the three and
    six months ended September 30, 2007.

    A summary of stock options outstanding is as follows:

                      For the three months ended    For the six months ended
                      --------------------------    -------------------------
                      September 30, September 30, September 30, September 30,
                           2007          2006          2007          2006
                      --------------------------    -------------------------
    Beginning of period    125,000             -             -             -
    Grants                       -             -       125,000             -
    -------------------------------------------------------------------------
    End of period          125,000             -       125,000             -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Long term incentive plan

    The long term incentive plan ("LTIP") is a new plan implemented in the
    first quarter of fiscal 2008. Under the LTIP, eligible participants are
    awarded restricted share units which vest over three years. For employees
    in Canada, an employee benefit trust (the "Trust") has been established,
    and either (a) the Company will fund the Trust with cash which will be
    used by a trustee to purchase on the open market common shares of the
    Company that will be held in trust by the trustee until restricted share
    units vest or (b) the Company will issue common shares from treasury to
    participants following vesting of restricted share units. For employees
    in the United States and the United Kingdom, at the time of each
    restricted share unit award the Company will allot common shares and
    these shares will be issued from treasury at the time they vest for each
    participant. The shares issued as part of the LTIP will generally be
    offset by purchases under the Company's normal course issuer bid.

    On June 5, 2007 the Board approved the award of 475,168 restricted common
    share units in lieu of cash compensation to employees. On August 31, 2007
    an additional 732,160 restricted common share units were granted in lieu
    of cash compensation to employees.

    The cost of the restricted share units is amortized over the vesting
    period of three years. Compensation expense of $4,090 and $6,022 has been
    recognized for the three and six months ended September 30, 2007.

                      For the three months ended    For the six months ended
                      --------------------------    -------------------------
                      September 30, September 30, September 30, September 30,
                           2007          2006          2007          2006
                      --------------------------    -------------------------

    Awards outstanding,
     beginning of
     period                475,168             -             -             -
    Grants                 732,160             -     1,207,328             -
    Vested                       -             -             -             -
    -------------------------------------------------------------------------
    Awards outstanding,
     end of period       1,207,328             -     1,207,328             -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                      For the three months ended    For the six months ended
                      --------------------------    -------------------------
                      September 30, September 30, September 30, September 30,
                           2007          2006          2007          2006
                      --------------------------    -------------------------
    Common shares held
     by Trust,
     beginning of
     period                401,239             -             -             -
    Acquired               535,863             -       937,102             -
    Released on vesting          -             -             -             -
    -------------------------------------------------------------------------
    Common shares held
     by Trust, end
     of period             937,102             -       937,102             -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    11. RELATED PARTY TRANSACTIONS

    Security trades executed by the Company for employees, officers and
    directors are transacted in accordance with the terms and conditions
    applicable to all clients. Commission income on such transactions in the
    aggregate is not material in relation to the overall operations of the
    Company.

    Accounts receivable and accounts payable and accrued liabilities include
    the following balances with related parties:

                                    September 30,   March 31,  September 30,
                                        2007          2007          2006
                                          $             $             $
    -------------------------------------------------------------------------
    Accounts receivable                   51,570        49,694        42,334
    Accounts payable and accrued
     liabilities                          76,812        85,795        81,577
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    12. SEGMENTED INFORMATION

    The Company has two operating segments:

      Private Client Services - provides brokerage services and investment
      advice to retail or private clients.

      Canaccord Adams - includes investment banking, research and trading
      activities on behalf of corporate, institutional and government clients
      as well as principal trading activities in Canada, the United Kingdom
      and the United States of America.

    The Corporate and Other segment includes correspondent brokerage
    services, interest and foreign exchange revenue and expenses not
    specifically allocable to Private Client Services and Canaccord Adams.

    The Company's industry segments are managed separately because each
    business offers different services and requires different personnel and
    marketing strategies. The Company evaluates the performance of each
    business based on income (loss) before income taxes.

    The Company does not allocate total assets or equipment and leasehold
    improvements to the segments. Amortization is allocated to the segments
    based on square footage occupied. There are no significant inter-segment
    revenues.


    For the three months ended September 30,

                                                2007
    -------------------------------------------------------------------------
                                        Private     Corporate
                       Canaccord        Client         and
                          Adams        Services       Other          Total
                            $             $             $              $
    -------------------------------------------------------------------------
    Revenues                87,925        57,415         9,130       154,470
    Expenses                66,415        42,226        16,389       125,030
    Amortization               985           472           689         2,146
    Development costs        5,582         1,341         1,243         8,166
    -------------------------------------------------------------------------
    Income (loss) before
    income taxes            14,943        13,376        (9,191)       19,128
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                                2006
    -------------------------------------------------------------------------
                                        Private     Corporate
                       Canaccord        Client         and
                          Adams        Services       Other          Total
                            $             $             $              $
    -------------------------------------------------------------------------
    Revenues                93,033        55,626         7,372       156,031
    Expenses                66,102        39,409        17,115       122,626
    Amortization             1,291           420           655         2,366
    Development costs        3,310         1,517           962         5,789
    -------------------------------------------------------------------------
    Income (loss) before
    income taxes            22,330        14,280       (11,360)       25,250
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    For the six months ended September 30,


                                                2007
    -------------------------------------------------------------------------
                                        Private     Corporate
                       Canaccord        Client         and
                          Adams        Services       Other          Total
                            $             $             $              $
    -------------------------------------------------------------------------
    Revenues               242,948       133,498        23,894       400,340
    Expenses               167,561        97,572        37,967       303,100
    Amortization             1,896           902         1,325         4,123
    Development costs        9,874         2,713         2,752        15,339
    -------------------------------------------------------------------------
    Income (loss) before
     income taxes           63,617        32,311       (18,150)       77,778
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                                2006
    -------------------------------------------------------------------------
                                        Private     Corporate
                       Canaccord        Client         and
                          Adams        Services       Other          Total
                            $             $             $              $
    -------------------------------------------------------------------------
    Revenues               218,139       127,912        16,107      362,158
    Expenses               155,387        92,695        35,640      283,722
    Amortization             2,241           830         1,284        4,355
    Development costs        4,597         3,038         2,021        9,656
    -------------------------------------------------------------------------
    Income (loss) before
     income taxes           55,914        31,349       (22,838)       64,425
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The Company's business operations are grouped into four geographic
    segments as follows:

                      For the three months ended    For the six months ended
                      --------------------------    -------------------------
                      September 30, September 30, September 30, September 30,
                           2007          2006          2007          2006
                             $             $             $             $
    -------------------------------------------------------------------------
    Canada
      Revenue              112,876       108,408       274,969       241,658
      Equipment and
       leasehold
       improvements         24,012        20,646        24,012        20,646
      Goodwill and
       other intangible
       assets                4,208         4,459         4,208         4,459

    United Kingdom
      Revenue               20,807        21,643        68,308        70,535
      Equipment and
       leasehold
       improvements          8,604         3,608         8,604         3,608

    United States
      Revenue               20,737        18,745        47,159        42,730
      Equipment and
       leasehold
       improvements          7,521         2,273         7,521         2,273
      Goodwill and other
       intangible assets    29,019        22,763        29,019        22,763

    Other Foreign Location
      Revenue                   50         7,235         9,904         7,235
    -------------------------------------------------------------------------


    13. COMMITMENTS AND CONTINGENCIES

    During the period, there have been no material changes to the Company's
    commitments or contingencies from those described in Note 16 of the March
    31, 2007 Audited Annual Consolidated Financial Statements.

    14. SUBSEQUENT EVENT

    Dividend

    On November 1, 2007, the Board of Directors declared a common share
    dividend of $0.125 per share payable on December 10, 2007, with a record
    date of November 30, 2007.

    INFORMATION

    Corporate headquarters:               Institutional investors, brokers
    Street address:                       and security analysts:
    Canaccord Capital Inc.                For financial information
    2200 - 609 Granville Street           inquiries contact:
    Vancouver, BC, Canada                 Katherine Young
                                          Vice President, Investor Relations
    Mailing address:                      2200 - 609 Granville Street
    P.O. Box 10337                        Vancouver, BC, Canada
    Pacific Centre                        Phone: 604-643-7013
    2200 - 609 Granville Street           Fax: 604-601-5863
    Vancouver, BC, V7Y 1H2, Canada        Email:
                                          katherine _young@canaccord.com
    Stock exchange listing:
    TSX: CCI                              The CCI fiscal 2007 Annual Report
    AIM: CCI                              is available on our Web site at
                                          www.canaccord.com. For a printed
    General shareholder inquiries         copy please contact the Investor
     and information:                     Relations department.
    Investor Relations
    2200 - 609 Granville Street
    Vancouver, BC, Canada
    Phone: 604-643-0128
    Fax: 604-643-1878
    Email:
    investor_relations@canaccord.com

    Media relations:
    Scott Davidson
    Managing Director, Global Head of
    Marketing & Communications
    Phone: 416-869-3875
    Email:
    scott_davidson@canaccord.com



    Fiscal 2008 expected dividend(1) and earnings dates

                    Earnings release   Dividend record  Dividend payment
                          date                date             date
    -------------------------------------------------------------------------
           Q1/08      August 2, 2007     August 24, 2007  September 10, 2007
           Q2/08    November 2, 2007   November 30, 2007   December 10, 2007
           Q3/08    February 7, 2008   February 22, 2008      March 10, 2008
           Q4/08        May 21, 2008        May 30, 2008       June 10, 2008

    (1)Dividends are subject to Board of Directors approval. All dividend
    payments will depend on general business conditions and the Company's
    financial conditions, results of operations, capital requirements and
    such other factors as the Board determines to be relevant.

    Shareholder administration:        Fax: 1-866-249-7775
    For information about stock        (toll-free within North
    transfers, address changes,        America) or
    dividends, lost stock              416-263-9524 (international)
    certificates, tax forms and        Email:
    estate transfers, contact:         service@computershare.com
                                       Internet: computershare.com
    Computershare Investor             Offers enrolment for self-
    Services Inc.:                     service account management
    100 University Avenue, 9th Floor   for registered shareholders
    Toronto, ON, M5J 2Y1               through Investor Centre.
    Phone: 1-800-564-6253
    (toll-free within North America)
    514-982-7555 (international)

    Financial information:

    For present and archived
    financial information, please
    visit canaccord.com/
    Financialreports.

    Auditor:

    Ernst & Young LLP
    Chartered Accountants
    Vancouver, BC

    Corporate Web site:

    canaccord.com
    





For further information:

For further information: North American media: Scott Davidson, Managing
Director, Global Head of Marketing & Communications, Phone: (416) 869-3875,
email: scott_davidson@canaccord.com; Investor relations inquiries: Katherine
Young, Vice President, Investor Relations, Phone: (604) 643-7013, email:
katherine_young@canaccord.com; London media: Bobby Morse or Ben Willey,
Buchanan Communications (London), Phone: +44 (0) 207 466 5000, email:
bobbym@buchanan.uk.com; Nominated Adviser and Broker: Mark Dickenson,
Landsbanki Securities (UK) Limited, Phone: +44 (0) 207 426 9586, email:
Mark.Dickenson@landsbanki.com


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