6-K

FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16

of the Securities Exchange Act of 1934

For the month of August 2007

SR Telecom Inc.

(Translation of registrant's name into English)

 

Corporate Head Office 8150 Trans-Canada Hwy, Montreal, QC H4S 1M5

(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

 Form 20-F  x  Form 40-F o

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

 Yes o  No  x

If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- ________

Signatures 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	SR Telecom Inc.
Date: August 24, 2007	By:	/s/ Serge Fortin
		Serge Fortin
		President and CEO

Exhibit Index

Exhibit #	Description of Exhibit
99.1	Management’s Discussion and Analysis
99.2	Consolidated Financial Statements
99.3	Form of Proxy
99.4	Notice of Annual Meeting Management Proxy Circular

EX-99.1

Exhibit 99.1

Management’s Discussion and Analysis

Annual Report 2006

Book 1 of 2

CONTENTS
Letter to Shareholders	1
The year at a glance	3
Management’s Discussion and Analysis	4
About forward-looking statements	4
Going concern assumption	4
Fresh start accounting	5
Selected consolidated financial information	7
Segmented analysis	9
•     Wireless telecommunications products segment	9
•     Telecommunications service provider segment	14
Consolidated basic and diluted loss per share	16
Consolidated balance sheet	16
Consolidated liquidity and capital resources	21
Outlook	23
Assumptions, risks and uncertainties	24
Disclosure controls and procedures and internal
control over financial reporting	27
Accounting policies	27

August 7, 2007

Dear shareholders,

Enclosed you will find SR Telecom’s management’s discussion and analysis (MD&A) and consolidated financial statements for the year ended December 31, 2006.

Clearly, 2006 was an extremely difficult year for SR Telecom. While my management team and I are certainly not satisfied with the financial results, we are nonetheless proud of the steady progress we have made thus far in our efforts to re-build SR Telecom’s ability to generate value for all of its stakeholders.

When I joined the Company in July 2006, it quickly became clear that in order to achieve our goals, we needed to first free ourselves from the remains of past restructuring efforts, which were disrupting our operations and limiting our growth potential.

We developed and adopted an action plan with four key objectives: resolve operational issues, improve customer service, strengthen our financial situation and focus our resources on our WiMAX business. We have made progress, albeit slower than anticipated, on all of these objectives.

During the second half of the year, we took steps to de-risk and diversify our supply chain with the addition of a new contract manufacturer, which we believe will shorten our delivery times and enable us to be more cost competitive with our products.

We examined and streamlined our internal processes to decrease our product development cycle, enhance customer service and improve quality. By March 2007, we achieved ISO 9001 recertification, a requirement for an international organization such as ours. In addition, we established more open communications with our global customers to strengthen our partnership with them.

On the financial side, late in 2006 we obtained $20 million in financing and an additional $45 million in July 2007, which provides us with the additional stability to execute our plan. In early 2007, we announced the redemption of our remaining convertible debentures, a move that simplifies our structure, provides financial flexibility going forward and frees up restricted cash from our balance sheet. In February 2007, we completed the sale of our telecommunications service provider subsidiary in Chile, Comunicacion y Telefonia Rural (CTR), which released us from liabilities totaling approximately US$28 million. We also sold and leased-back our property and facilities in Montréal to generate additional cash to complete product development.

Finally, we took steps to place the full weight of our financial, technical and human resources on developing, delivering and deploying our WiMAX products. Decisions were taken to invest only in profitable product lines and write down outdated inventory, and in April 2007, we started the process to sell legacy product lines and restructured the organization to position us for growth in the global WiMAX market.

All of us at SR Telecom, from the employees to senior management, acknowledge that there are still significant challenges ahead of us to fully restore the Company’s reputation, customer service, market presence, financial footing and operational efficiency so that we can once again deliver value to all our stakeholders. However, we believe that SR Telecom has the plan, the passion and the people to achieve its goals.

On behalf of the Board of Directors, the management team and our employees, I thank you for your ongoing support for SR Telecom.

Sincerely,

Serge Fortin

President and CEO

 Management's Discussion and Analysis  SR Telecom - Annual Report 2006 1

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 Management's Discussion and Analysis  SR Telecom - Annual Report 2006 2

THE YEAR AT A GLANCE

2006 was an extremely difficult year for SR Telecom as it struggled to rid itself of the remains of legacy restructuring initiatives, cope with the resulting disruptions to operations, finances and customer service while still carving a niche in the WiMAX market.

Financial results for 2006 may be disappointing, yet the Company remains optimistic about its growth potential for 2007 and beyond, as the WiMAX industry matures and commercial deployments increase. The Company made steady progress, while slower than anticipated, on several fronts:

Strengthened financial footing

•   The Company significantly de-leveraged its balance sheet in Q1 2006 through a private placement and the concurrent conversion of the vast majority of its 10% convertible debentures into common shares. In March 2007, the Company completed the redemption of the remaining $2.7 million balance of convertible debentures, including accrued but unpaid interest, a move that streamlined SR Telecom’s financial structure through the elimination of second ranking creditors and freed up approximately $4.7 million in restricted cash from its balance sheet.

•   In December 2006, the Company sought and obtained $20.0 million in new financing from a syndicate of lenders comprised of shareholders of the Company.

•   In February 2007, the Company announced the sale of its telecommunications service provider subsidiary in Chile, Comunicacion y Telefonia Rural (CTR ). This transaction fully released the Company from all of its obligations with respect to CTR, including liabilities regarding loans amounting to approximately US$28.0 million; it also simplified the Company’s financial structure.

•   On July 3, 2007, the Company entered into an agreement with a syndicate of lenders comprised of shareholders of the Company providing for a term loan of up to $45.0 million, of which $35.0 million will be drawn at closing and an additional $10.0 million will be available for drawdown for a period of up to one year from closing.

Defined and implemented a new business plan

•   The Company appointed a new permanent chief executive officer (CEO) and chief financial officer (CFO) in Q2 2006. The new leadership team fully evaluated all aspects of the organization and took decisive action to realign the business to focus on two key ingredients for future success: delivering WiMAX products and creating a contract manufacturing process that is seamless, transparent and efficient.

•   Following the comprehensive evaluation initiated by the new CEO and the new CFO, in April 2007 the Company announced an internal reorganization that centralized activities in its Montréal (Canada) offices and reduced costs. Part of this reorganization included the discontinuation and sale of certain unprofitable legacy product lines; an initiative intended to better align cost structure with revenue potential. The sales process began in earnest in April and is ongoing.

Focused on core activities

•   In Q1 2006, the Company outsourced manufacturing activities to increase its cost competitiveness; this transition was completed for the most part in the second quarter. The supply chain was re-established allowing for higher deliveries in the year ended December 31, 2006 compared to the same period in 2005.

•   Nonetheless, contract-manufacturing issues had a strong negative impact on overall results throughout the year. In addition to mitigating transitional issues with existing contract manufacturers, management took action to de-risk manufacturing by broadening its supply source, thereby improving process efficiency with its manufacturing partners:

1   In December 2006, it reached an agreement with a new contract manufacturer to manufacture CPEs

2   In March 2007, it entered into discussions with a tier-1 contract manufacturer for its WiMAX product suite

3   In May 2007, it signed a three-year WiMAX manufacture and supply agreement with Taiwan-based Microelectronics Technology (MTI)

•   The Company received WiMAX Forum certification of its symmetryMX solution, marking a pivotal step towards executing the plan to deploy WiMAX technology.

Renewed customer relationships

•   While product development and delivery delays have put strain on customer relationships, the Company has made efforts to establish open lines of communication to address customer concerns. In addition, the Company’s suite of WiMAX solutions continues to attract new customer enquiries and field trials are currently underway with a number of telecommunications service providers around the world.

 Management's Discussion and Analysis  SR Telecom - Annual Report 2006 3

MANAGEMENT’S DISCUSSION AND ANALYSIS

This management’s discussion and analysis (MD&A) of financial position and results of operations comments on SR Telecom’s operations, performance and financial condition for the periods ended December 31, 2006, 2005 and 2004 and should be read in conjunction with the Company’s consolidated financial statements for the periods then ended. The consolidated financial statements were prepared in accordance with Canadian generally accepted accounting principles (GAAP) and are presented in Canadian dollars. The principles of Canadian GAAP used in the preparation of our financial statements for the years ended December 31, 2006, 2005 and 2004 defer in certain material respects with U.S. GAAP, as disclosed in note 31 to the consolidated financial statements for the years ended December 31, 2006, 2005, and 2004.

All tabular amounts in this MD&A are in thousands of Canadian dollars, except where otherwise noted. This MD&A was prepared in accordance with Canadian GAAP and should be read in conjunction with SR Telecom’s annual audited consolidated financial statements. You will find more information about SR Telecom, including SR Telecom Inc.’s annual information form, dated July 3, 2007 on SR Telecom Inc.’s website at www.srtelecom.com and on SEDAR at www.sedar.com.

ABOUT FORWARD-LOOKING STATEMENTS

The MD&A may contain forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those projected. The forward-looking statements in this MD&A describe the Company’s expectations on July 3, 2007.

A statement is considered forward-looking when it makes a statement about the future based on what is known and expected today. Forward-looking statements may include words such as anticipate, assumption, believe, could, expect, goal, guidance, intend, may, objective, outlook, plan, seek, should, strive, target and will.

These statements are based on certain assumptions and analyses management makes in light of its experience and perception of historical trends, current conditions and expected future developments as well as other factors it believes appropriate in the circumstances. However, whether actual results and developments will confirm management’s expectations and predictions is subject to a number of risks and uncertainties, including among other things, the risk factors discussed in this MD&A.

Consequently, all of the forward-looking statements made in this document are qualified by these cautionary statements, and there can be no assurance that the actual results or developments anticipated by management will be realized or, even if substantially realized, that they will have the expected consequences to or effects on the Company and its subsidiaries or their businesses or operations. The reader is cautioned not to rely on these forward-looking statements. The Company disclaims any obligation to update these forward-looking statements even if new information becomes available.

In the forward-looking statements contained in this MD&A, the Company made a number of assumptions about the market, operations, finances and transactions. Certain factors that could cause results or events to differ materially from our current expectations include, among others, our ability to implement our strategies and plans, the intensity of competitive activity and the ability to deliver our products on time while significantly reducing costs, the proper execution of our contract manufacturing arrangements, timely development of our WiMAX product offerings, the attainment of cost reduction targets, a sustained demand for symmetryONE in 2007, the impact of competition on pricing and market share, and the ability to fund the required investment in working capital to sustain revenue growth.

For a more complete discussion of the assumptions and risks underlying our forward-looking statements, please refer to the section entitled

“Assumptions, risks and uncertainties” elsewhere in this MD&A and in the Company’s management’s discussion and analysis for the year ended December 31, 2006 and the section entitled “Risk factors” in the Company’s annual report on Form 20-F for the year ended December 31, 2006, which can be found under the Company’s name at www.sedar.com and on the Company’s website at www.srtelecom.com.

GOING CONCERN ASSUMPTION

The consolidated financial statements have been prepared on a going concern basis. The going concern basis of presentation assumes that the Company will continue operations for the foreseeable future and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business.

There is substantial doubt about the appropriateness of the use of the going concern assumption because of the Company’s losses for the current and prior years, negative cash flows, reduced availability of supplier credit and lack of operating credit facilities. As such, the realization of assets and the discharge of liabilities and commitments in the ordinary course of business are subject to significant uncertainty.

 Management's Discussion and Analysis  SR Telecom - Annual Report 2006 4

For the year ended December 31, 2006, the Company incurred a net loss of $115.6 million ($9.4 million for the month ended December 31, 2005 and $81.8 million for the eleven months ended November 30, 2005) and used cash of $45.2 million ($7.1 million for the month ended December 31, 2005 and $48.0 million for the eleven months ended November 30, 2005) in its continuing operating activities. Going forward, the Company will continue to require substantial funds as it continues the development of its WiMAX product offering.

The Company has taken the following steps to address the going concern uncertainty:

On February 1, 2007, the Company completed the sale of the shares of its Chilean subsidiary, CTR, for proceeds of nil (see note 12). As part of this transaction, the Company has been fully released from all of its obligations with respect to CTR, including liabilities in respect of loans to CTR amounting to approximately US$28.0 million for which SR Telecom was guaranteeing up to US$12.0 million. The divestiture of this non-core asset marked another important step in the Company’s plan to strengthen its financial position by streamlining its balance sheet and focus on its WiMAX strategy.

On March 6, 2007, the Company concluded the conversion/redemption of the remaining Convertible Debentures, allowing for the release of $4.7 million of restricted cash.

On April 12, 2007, the Company closed the sale and leaseback of its property located in Montréal (Québec), Canada for gross proceeds of $8.6 million.

On April 16, 2007, the Company announced a plan to reorganize its internal operations, including the wind-up of legacy product operations and centralization of activities. In conjunction with the implementation of this plan, the Company will be eliminating approximately 75 positions worldwide.

On July 3, 2007, the Company entered into an agreement with a syndicate of lenders comprised of shareholders of the Company providing for a term loan of up to $45.0 million, of which $35.0 million will be drawn at closing and an additional $10.0 million will be available for drawdown for a period of up to one year from closing.

The Company’s successful execution of its business plan is dependent upon a number of factors that involve risks and uncertainties. In particular, the development and commercialization of both fixed and mobile WiMAX are key elements of the Company’s strategic plan and of its future success and profitability. If either or both of fixed and/or mobile WiMAX prove not to be commercially viable or less commercially viable than is currently anticipated or compared to alternative solutions, or if the Company’s WiMAX products are less commercially viable or competitive than those developed by other companies, the Company will experience significant adverse effects on its liquidity, financial condition and ability to continue as a going concern.

The consolidated financial statements do not reflect any adjustments that would be necessary if the going concern basis was not appropriate. If the going concern basis was not appropriate for these consolidated financial statements, significant adjustments would be necessary in the carrying values of assets and liabilities, the reported revenues and expenses, and the balance sheet classifications used.

FRESH START ACCOUNTING

On November 30, 2005, the Company completed a conversion of $10.0 million in principal amount of the Company’s 10% convertible redeemable secured debentures due October 15, 2011 (convertible debentures) and accrued interest payable in kind into common shares pursuant to the terms of the convertible debentures. The conversion was completed on a pro rata basis among all holders of convertible debentures into approximately 47.3 million common shares at the conversion price of approximately $0.217 per common share. Immediately after the conversion, those holders of convertible debentures held approximately 72.9% of the then outstanding common shares. Because of this conversion, there was a substantial realignment of the interests in the Company between creditors and shareholders that, under Canadian generally accepted accounting principles (GAAP), required the adoption of fresh start accounting. Fresh start accounting required the Company to classify the deficit that arose prior to the conversion to a separate account within shareholders’ equity and re-valued its assets and liabilities to their estimated fair values. The enterprise value was determined based on several traditional valuation methodologies, utilizing projections developed by management including discounted cash flow analysis and comparable company trading analysis. The comprehensive revaluation of assets and liabilities was done based on this enterprise value. The revaluation adjustments were accounted for as a capital transaction and are recorded within the pre-fresh start accounting deficit.

Comparative financial statements for periods prior to December 1, 2005 have been presented pursuant to regulatory requirements. In reviewing these comparative financial statements, readers are reminded that they do not reflect the effects of the application of fresh start accounting. The December 31, 2005 financial results we analyze comprise one month of post-fresh start accounting and eleven months of pre-fresh start accounting. The financial results for Q4 2005 comprise one month of post-fresh start accounting and two months of pre-fresh start accounting. The aggregated twelve-month financials and three-month financials represent non-GAAP measures that are used to facilitate the evaluation of the Company’s performance between periods. These non-GAAP measures have no standardized meaning prescribed by GAAP and are not necessarily comparable to similar measures presented by other companies, and therefore should not be considered in isolation.

 Management's Discussion and Analysis  SR Telecom - Annual Report 2006 5

The following table summarizes the adjustments recorded to implement the fresh start basis of accounting:

	Prior to the
	adoption of fresh							After
	start accounting							adjustments
	November 30,			Fresh start				December 1,
($ thousands)	2005			adjustments			Notes	2005
Assets
Current assets		86,727			585		(i)		87,312
Property, plant and equipment		77,581			(18,623	)	(ii)		58,958
Intangible assets		3,668			38,946		(iii)		42,614
Investment tax credits		4,616			–				4,616
Other assets		2,467			–				2,467
		175,059			20,908				195,967
Liabilities
Current liabilities		75,553			–				75,553
Long-term credit facility		47,551			–				47,551
Long-term liability		1,752			–				1,752
Long-term debt		488			–				488
Convertible redeemable secured debentures		40,261			(274	)	(v)		39,987
		165,605			(274	)			165,331
Shareholders’ equity
Capital stock		219,653			10,274		(v)		229,927
Warrants		13,029			(13,029	)	(iv)		–
Equity component of convertible redeemable secured debentures		37,851			(10,000	)	(v)		27,851
Contributed surplus		1,247			(1,247	)	(iv)		–
Deficit pre-fresh start accounting		(262,326	)		35,184		(vi)		(227,142	)
		9,454			21,182				30,636
		175,059			20,908				195,967

(i)   The revaluation resulted in an increase in current assets, mainly reflecting work in process and finished goods inventory. The work in process fair value was determined using management’s best estimate of selling price less cost to sell and cost to complete. The finished goods inventory fair value was determined using management’s best estimate of selling price less cost to sell.

(ii)   The revaluation resulted in a net decrease in property, plant and equipment. This decrease related primarily to the property, plant and equipment of the Company’s then subsidiary CTR. $26.0 million of the decrease was the result of management’s best estimate of CTR’s fair value as a whole and the allocation of this fair value to its assets and liabilities. The property, plant and equipment in the wireless business segment were valued based on fair market value in continued use of the assets. This valuation resulted in a $7.4 million increase in the value of the assets.

(iii)   The revaluation resulted in the Company assigning a value to its technology, using the relief-from-royalties method, calculated using projections management developed. As well, as part of the revaluation, a value was attributed to customer relationships based on the related revenue and cash flows the Company expects these customers to generate; this value was also determined using projections management developed.

(iv)   The value of contributed surplus and warrants was determined to be nil at the revaluation date. This value was determined using the Black-Scholes option-pricing model.

(v)   Pursuant to the terms of the convertible debentures, $10.0 million principal amount, plus accrued interest, classified in equity at the issuance date, was reclassified to capital stock upon conversion to common shares.

(vi)   The adjustment reflects the increase in net assets of the Company as a result of the revaluation.

 Management's Discussion and Analysis  SR Telecom - Annual Report 2006 6

SELECTED CONSOLIDATED FINANCIAL INFORMATION
Consolidated balance sheets
					December 31,		December 31,		December 1,
					2006		2005		2005
Total assets					150,553		187,551		195,967
Long-term financial liabilities (including current portion)					100,554		129,498		128,647
Total liabilities					139,620		166,203		165,331
Capital stock					352,174		230,086		229,927
Shareholders’ equity					10,933		21,348		30,636
Consolidated statements of operations
			One month		Eleven months
	Year ended		ended		ended		Year ended		Year ended
	December 31,		December 31,		November 30,		December 31,		December 31,
	2006		2005		2005		2005		2004
Revenue	87,455		7,372		69,012		76,384		99,074
Restructuring, asset impairment and other charges	31,515		–		17,200		17,200		7,701
Operating loss from continuing operations	(101,362	)	(2,532	)	(64,308	)	(66,840	)	(58,036	)
Loss from continuing operations	(116,415	)	(5,160	)	(77,007	)	(82,167	)	(76,942	)
Earnings (loss) from discontinued operations	788		(4,221	)	(4,758	)	(8,979	)	(9,192	)
Net loss	(115,627	)	(9,381	)	(81,765	)	(91,146	)	(86,134	)
Basic and diluted
Loss per share from continuing operations
(in dollars)	(0.17	)	(0.08	)	(4.34	)	(3.77	)	(4.62	)
Loss per share from discontinued operations
(in dollars)	–		(0.06	)	(0.27	)	(0.41	)	(0.55	)
Net loss per share (in dollars)	(0.17	)	(0.14	)	(4.61	)	(4.18	)	(5.17	)
Weighted average number of common shares
outstanding (in thousands)	671,478		65,386		17,752		21,797		16,661
Dividends per common share (in dollars)	–		–		–		–		–

Discontinued operations

In 2005, SR Telecom sold substantially all of the assets and operations of its subsidiary in France and its Australian subsidiary to a subsidiary of Duons Systèmes (Duons) in Paris, France. With this transaction, which took effect on December 1, 2005, the Company effectively disposed of its Swing product line and related operations.

The sale price was established on November 30, 2006, determined based on the performance of the sold businesses for the year then ended. Pursuant to the agreement, the sale price was to range between €1 and €4 million. SR Telecom and its French subsidiary agreed to indemnify Duons, up to a maximum of €0.8 million, should the sold businesses realize a loss in the year ended November 30, 2006. As of the third quarter of 2006, management estimated that the sold businesses would generate a loss in excess of €0.8 million and as a result, recorded a provision of $1.1 million (€ 0.8 million) in Q3 2006. However, following negotiations with Duons, an agreement was reached resulting in no amount being payable. The provision recorded in Q3 2006 was reversed in Q4 2006.

As part of the sale transaction, the Company recorded the following charges in the one month ended December 31, 2005 as part of discontinued operations: a write-down of $0.4 million of the remaining fixed assets of its France subsidiary that were deemed to have no future use as well as a write-off of $0.6 million for the remaining Swing-related inventory not taken by Duons, which the Company estimated to be unrecoverable.

Following the disposal of substantially all of the assets and operations of its French subsidiary, the Company redirected the remaining operations of the subsidiary to act as a sales office for other products. The Company entered into negotiations with the landlord of the subsidiary’s premises to terminate the lease and to find premises more suited to its needs; an agreement was reached in March 2006. The Company accrued as part of discontinued operations the settlement of the lease termination as at December 31, 2005 for $1.5 million (€1.1 million) in the one month ended December 31, 2005. The Company vacated the premises in April 2006.

The results of operations and the cash flows of the Swing product line are presented in the consolidated financial statements as discontinued operations. Prior to the sale, Swing product line operations were presented as part of the wireless business segment. Wireless segment results expressed in this MD&A do not include these discontinued operations and are presented on a continuing operations basis.

 Management's Discussion and Analysis  SR Telecom - Annual Report 2006 7

Results of discontinued operations
		One month		Eleven months
	Year ended	ended		ended		Year ended		Year ended
	December 31,	December 31,		November 30,		December 31,		December 31,
	2006	2005		2005		2005		2004
Revenue	–	254		13,918		14,172		24,862
Loss on disposal of discontinued operations	–	(1,761	)	–		(1,761	)	–
Pre-tax earnings (loss) from discontinued operations	788	(4,221	)	(4,583	)	(8,804	)	(7,741	)
Earnings (loss) from discontinued operations	788	(4,221	)	(4,758	)	(8,979	)	(9,192	)

In conjunction with the sale of its Swing-related operations in December 2005, the Company signed an agreement with Duons that provides for royalty payments based on revenues earned on specific contracts transferred to Duons. During the year ended December 31, 2006, the Company earned royalties of $0.8 million.

Cash flows from discontinued operations
		One month		Eleven months
	Year ended	ended		ended		Year ended		Year ended
	December 31,	December 31,		November 30,	December 31,		December 31,
	2006	2005		2005		2005		2004
Cash flows (used in) provided by operating activities	–	(2,115	)	7,791		5,676		841
Cash flows provided by (used in) investing activities	–	762		(8	)	754		(125	)
(Decrease) increase in cash and cash equivalents from
discontinued operations	–	(1,353	)	7,783		6,430		716
Net assets of discontinued operations
				As at		As at		As at
				December 31,	December 31,		December 1,
				2006		2005		2006
Accounts receivable, net				–		5,809		5,235
Inventory				–		–		1,019
Other				–		250		880
Current assets				–		6,059		7,134
Property, plant and equipment, net				–		53		1,385
Accounts payable and accrued liabilities				–		(8,365	)	(7,621	)
Customer advances				–		(75	)	(362	)
Current liabilities				–		(8,440	)	(7,983	)
Net (liabilities) assets of discontinued operations				–		(2,328	)	536

 Management's Discussion and Analysis  SR Telecom - Annual Report 2006 8

SEGMENTED ANALYSIS

As at December 31, 2006, SR Telecom operated in two business segments; as a supplier of wireless telecommunications products and as a telecommunications service provider.

WIRELESS TELECOMMUNICATIONS PRODUCTS SEGMENT
Results analysis for the years ended December 31, 2006, 2005 and 2004
From continuing operations
			One month		Eleven months
	Year ended		ended		ended		Year ended		Year ended
	December 31,		December 31,		November 30,		December 31,		December 31,
	2006		2005		2005		2005		2004
Revenue	68,267		5,638		51,342		56,980		80,490
Cost of revenue	69,351		4,773		42,639		47,412		55,894
Gross profit (loss)	(1,084	)	865		8,703		9,568		24,596
Gross profit (loss) percentage	(2%)		15%		17%		17%		31%
Agent commissions	903		61		1,660		1,721		4,724
Selling, general and administrative expenses	50,796		2,634		31,791		34,425		39,802
Research and development expenses, net	20,954		990		20,610		21,600		30,319
Restructuring, asset impairment and other charges	24,313		–		16,878		16,878		7,701
Operating loss from continuing operations	(98,050	)	(2,820	)	(62,236	)	(65,056	)	(57,950	)
Finance charges, net	11,184		2,014		14,230		16,244		5,341
Income tax expense (recovery)	736		23		(109	)	(86	)	12,610
Loss from continuing operations	(109,285	)	(5,146	)	(73,190	)	(78,336	)	(67,933	)

Revenue

SR Telecom’s revenue reflects revenue generated from the sale of equipment and services. Equipment revenue rose by 22.8% to reach $62.4 million in 2006 compared to $50.8 million in 2005. This increase resulted from the production ramp-up following financing the Company obtained from a private placement in February 2006. However, long lead times in procurement continued to have a negative impact on results throughout the year. 2006 revenue results also reflect the impact of late delivery penalties totalling $5.7 million, recorded as a reduction of revenue, which were the combined result of three key factors: an implementation ramp-up with one contract manufacturer, capacity constraints at a second contract manufacturer and transitional difficulties with supply chain management. These issues approached resolution late in the year, and the Company progressed with plans for a number of equipment field trials around the world.

Service revenue is generated from the sale of a variety of services, including site surveys, repairs, installation and project management. Service revenue in 2006 declined slightly to $5.9 million from $6.2 million recorded in 2005, reflecting the Company’s overall focus on equipment sales.

Comparing 2005 and 2004 results, equipment revenue in 2005 decreased to $50.8 million from $67.6 million in 2004, primarily as a result of longer-than-anticipated delays in finalizing the credit facility; reduced supplier credit and production slow-downs, including timing issues related to the delivery of equipment; and an overall decrease in sales volumes.

The 2005 service revenue decline to $6.2 million from $12.9 million in 2004 can be attributed to service revenue realized on projects in their final stages in 2004, particularly, long-term projects in Asia and Africa which were not replicated in 2005. Also, during the first half of 2005, there were delays in securing purchase orders under large-frame contracts that the Company had in place with long-standing customers.

Revenue by geographic region

Revenue from continuing operations by geographic region, based on the location of the Company’s customers, is as follows for the periods indicated.

					Revenue									Percent of wireless revenue
			One		Eleven									One			Eleven
	Year		month		months		Year		Year		Year			month			months			Year			Year
	ended		ended		ended		ended		ended		ended			ended			ended			ended			ended
	Dec. 31,		Dec. 31,		Nov. 30,		Dec. 31,		Dec. 31,		Dec. 31,			Dec. 31,			Nov. 30,			Dec. 31,			Dec. 31,
	2006		2005		2005		2005		2004		2006			2005			2005			2005			2004
Europe, Middle East
and Africa		21,583		240		20,662		20,902		25,094		32	%		4	%		40	%		37	%		31	%
Asia		9,906		1,144		5,523		6,667		31,521		14	%		20	%		11	%		12	%		39	%
Latin America		32,923		4,113		18,865		22,978		9,608		48	%		73	%		37	%		40	%		12	%
Other		3,855		141		6,292		6,433		14,267		6	%		3	%		12	%		11	%		18	%
		68,267		5,638		51,342		56,980		80,490		100	%		100	%		100	%		100	%		100	%

 Management's Discussion and Analysis  SR Telecom - Annual Report 2006 9

Wireless revenue in 2006 saw an overall increase across all of SR Telecom’s main sales regions: Latin America, Asia, Europe, Middle East and Africa. The largest gain, both in dollar terms and as a percentage of wireless revenue, was in Latin America. The continued realization of large projects in Mexico and Argentina resulted in a significant increase in revenue to $32.9 million from $23.0 million in 2005.

Revenue in Asia grew to $9.9 million in 2006 compared with 2005, when it realized $6.7 million, primarily due to higher equipment sales in the region and a new service contract in Bangladesh.

Revenue in Europe, Middle East and Africa also increased in dollar terms, increasing from $20.9 million in 2005 to $21.6 million in 2006, but declined as a percentage of wireless revenue from 37% in 2005 to 32% in 2006. The increase in dollar terms is primarily attributable to the continued realization of a large project in Spain.

In 2005, revenue in Latin America in dollar terms increased substantially to $23.0 million from $9.6 million in 2004, primarily due to the realization of the first phase of a project in Mexico and equipment supply contract in Argentina. Revenue in Asia decreased in dollar terms and as a percentage of wireless revenue to $6.7 million in 2005 from $31.5 million in 2004. The decrease in revenue in Asia was largely attributable to higher sales in Thailand in 2004 that were not replicated in 2005. Revenue in Europe, Middle East and Africa decreased to $20.9 million in 2005 from $25.1 million in 2004, largely attributable to lower equipment sales, and was offset by a major project in Spain.

Gross profit
			One month		Eleven months
	Year ended		ended		ended		Year ended		Year ended
	December 31,		December 31,		November 30,		December 31,		December 31,
(expressed as a percentage of revenue)	2006		2005		2005		2005		2004
Revenue		100%		100%		100%		100%		100%
Cost of revenue		102%		85%		83%		83%		69%
Gross profit		(2%)		15%		17%		17%		31%

Gross profit is calculated by subtracting the cost of revenue from total revenue. With respect to equipment, cost of revenue consists of manufacturing, material, labour, manufacturing overhead, warranty reserves, inventory impairment charges and other direct product costs. With respect to service, cost of revenue consists of labour, materials, travel, telephone, vehicles and other items that are directly related to the revenue recognized.

The principal drivers of fluctuations in gross margins are revenue levels as well as the product and customer sales mix. Gross profit as a percentage of revenue decreased to negative 2% in 2006 from 17% in 2005 and 31% in 2004. Late delivery penalties of $5.7 million and variations in the sales mix, including the increase in sales of lower margin Customer Premises Equipment (CPE), had a significant impact on gross profits recorded in 2006. Late deliveries also resulted in significant inventory impairment charges arising from customers cancelling current orders for which inventory had already been purchased.

In dollar terms, equipment gross profit decreased to negative $2.2 million in 2006 from $6.4 million in 2005. Results in 2006 reflect the impact of $5.7 million in late delivery penalties, which were the combined result of an implementation ramp-up with one contract manufacturer, capacity constraints at a second contract manufacturer, transition efficiency difficulties with supply chain management, previously discussed $10.1 million write down of inventory due to customer cancellations, and a detailed review of inventory requirements based on the expected sale of legacy product lines. These were partially offset by higher sales volumes.

Service gross profits decreased to $1.1 million in 2006 from $3.2 million in 2005, primarily due to the shift to project services from repair services; repair services typically generate higher margins.

Gross profit decreased to 17% in 2005 from 31% in 2004. Equipment gross profit in dollar and percentage terms decreased to $6.4 million or 13% in 2005 from $20.4 million or 30% in 2004. The decrease in gross profit in dollar and percentage terms is due in part to a $3.5 million write down of raw material inventory, the revaluation of work-in-process and finished goods inventory upon adoption of fresh-start accounting, low production levels and delays associated with restarting the Company’s supply chain as well as variations in the sales mix with increased lower margin product sales.

Service gross profit as a percentage increased to 52% in 2005 from 33% in 2004, which was largely attributable to higher margins realized on service contracts in general. Higher margins realized on the sale of supply inventory were partially offset by reduced volumes.

Agent commissions

SR Telecom uses a network of third party representatives, or agents, who act on behalf of the Company’s international sales organization in countries where maintaining a permanent presence is not justified or where local customs and practices require the use of local parties. Agent commissions are payments SR Telecom makes to these representatives. The Company complies with the Foreign Corrupt Practices Act of the United States when entering into third party or agent agreements.

 Management's Discussion and Analysis  SR Telecom - Annual Report 2006 10

Agent commissions as a percentage of revenue decreased to 1%, or $0.9 million, in 2006 from 3%, or $1.7 million, in 2005, and 6%, or $4.7 million in 2004. The decrease in 2006 is due to a change in sales mix and less dependence on local representatives; in 2005, it is commensurate with the decrease in revenue recognized from large turnkey contracts, which traditionally had higher commissions.

Sales, general and administrative expenses

Sales, general and administrative (SG&A) expenses consist primarily of compensation costs, travel and related expenses for marketing, communications, sales, human resources, finance, depreciation and amortization, executive and management and professional service fees and expenses.

SG&A expenses rose by $16.4 million to $50.8 million in 2006 from $34.4 million in 2005. In 2006, SG&A expenses included higher depreciation and amortization expense of $7.2 million, resulting from an increase in the value of technology and customer relationship assets following the adoption of fresh start accounting. In addition, the issuance of 2,769,576 common shares to the Company’s interim president and chief executive officer at the time resulted in an additional $1.8 million in compensation expense, including all applicable taxes in 2006. The remainder of the increase is mostly attributable to an increase in stock-based compensation expense, increases in the Company’s provision for litigation matters as a result of management’s revised estimates of litigation outcomes, increased performance and retention bonuses and increased amounts for professional services relating to business realignment activities.

SG&A expenses decreased to $34.4 million in 2005 from $40.0 million in 2004, primarily due to the savings associated with the restructuring implemented in 2004 and 2005; and partially offset by a $3.7 million increase in the Company’s provision for doubtful accounts relating to Teleco de Haiti/MCI.

Research and development expenses, net of investment tax credits

Research and development expenses comprise compensation, software development tools, depreciation, consultant fees and prototype expenses related to the design, development and testing of SR Telecom’s products net of refundable provincial government investment tax credits. The Company has focused its research and development activities on a WiMAX-enabled suite of products.

Research and development expenses decreased to $21.0 million in 2006, down $0.6 million from $21.6 million in 2005. In December 2006, the Company determined that there was insufficient evidence of reasonable assurance that investment tax credits in the amounts of $4.6 million for 2006 and $8.5 million for 2005 would be realized within their remaining life. The Company therefore recorded a reduction of these amounts, which resulted in a corresponding charge to the statement of operations. Were we to eliminate the effect of these adjustments, research and development expenses would have been $16.4 million in 2006 and $13.1 million in 2005. As such, the $3.3 million increase in research and development expenses in 2006 over 2005 is mainly attributable to the ramp-up of the Company’s WiMAX research and development plan.

Research and development expenses in 2004 amounted to $30.2 million. The $17.1 million decrease in research and development expenses from 2004 to 2005, when excluding the effect of the 2005 adjustment noted above, was primarily due to the realization of cost reductions from the closure of the research facility in France and the closure of the Redmond, Washington facility in the second and third quarters of 2004.

Restructuring, asset impairment and other charges

In 2006, the Company incurred restructuring charges of $24.3 million compared to $16.9 million in 2005 and $7.7 million in 2004.

The 2006 wireless results include a charge of $13.9 million to adjust inventory to its realizable value, an impairment charge of $5.4 million for intangible assets and an impairment charge of $2.3 million for property, plant and equipment. These charges result from management’s continued restructuring activities, including the realignment of the business on performing products. As a result, inventory, property, plant and equipment and intangible assets directly related to products that the Company is either discontinuing or phasing out over time were written down. Inventory was written down to management’s best estimate of net realizable value. Intangible assets, comprised of customer relationships, were written down to their estimated fair value determined based on the present value of related estimated future cash flows. Property, plant and equipment were written down to their estimated fair value based on the estimated sale price for such assets.

Restructuring charges in 2006 also include $1.3 million of severance and termination benefits related to the Company’s ongoing efforts to reduce its cost structure. In total, 74 employees were terminated of which 61 were affected by the Company’s decision to outsource manufacturing operations of its non-WiMAX products. Pursuant to this decision, the Company agreed to sell certain manufacturing assets with a carrying value of $1.7 million to its contract manufacturer for $0.4 million. The sale, which was concluded on May 5, 2006, resulted in an impairment charge of $1.3 million that was recorded in Q1 2006.

In addition, in 2006, $0.1 million was accrued for a reduction in expected sublease revenue related to a Montréal (Québec) facility that was vacated in late 2005.

 Management's Discussion and Analysis  SR Telecom - Annual Report 2006 11

In 2005, restructuring charges of $3.0 million were accrued for severance and termination benefits relating to the termination of 95 employees. In addition, the Company decided that it would discontinue certain products, no longer support prior versions of certain products and changed its approach to repairs. As a result, the Company wrote down inventory by $16.6 million to its estimated net realizable value, comprised mostly of raw materials and repair stock. The inventory affected was located primarily in Canada and France. The inventory write down related to France in the amount of $2.8 million is included in discontinued operations. Furthermore, in 2005, $0.1 million was accrued for lease charges related to a Montréal manufacturing facility that was vacated in November 2005.

In 2004, restructuring charges of $7.7 million were incurred for severance and termination benefits, write-off of specific inventory and deferred charges, accrued lease charges and operating costs related to the US facilities in Washington as well as losses on the sale of redundant assets. These activities were undertaken by the Company to reduce its cost structure. In total, 45 employees were terminated and management decided that it would no longer pursue the development and sale of its Stride 2400 product line.

Finance charges

Finance charges amounted to $11.2 million in 2006, a decrease of $5.0 million when compared to finance charges of $16.2 million in 2005. This decline is attributable to lower interest expense on outstanding 8.15% senior unsecured debentures and 10% convertible redeemable secured debentures as, with the exchange of the majority of 8.15% debentures to 10% debentures in mid-2005 and with the substantial conversions of 10% convertible debentures in late 2005 and early 2006, debenture debt levels were significantly reduced. In addition, $4.4 million of costs incurred in connection with the exchange in 2005 of the 8.15% debentures into 10% convertible debentures consisting mainly of legal, accounting, broker, dealer and agent fees did not repeat themselves in 2006. These decreases were partially offset by higher interest expense relating to the long-term credit facility, which was fully drawn in the fourth quarter of 2005 thereby generating interest expense for a full year in 2006 as opposed to only a full quarter in 2005.

Finance charges in 2004 amounted to $5.3 million and were primarily related to interest expense on the 8.15% senior unsecured debentures.

Foreign exchange

The Company incurred a foreign exchange gain of $0.7 million in 2006 compared to a gain of $0.2 million in 2005 and a loss of $0.1 million in 2004. The Company’s trade receivables and payables are primarily denominated in US dollars and Euros. The Company also has other liabilities denominated in US dollars and Euros as well as US-dollar denominated debt. Gains or losses on foreign exchange relate primarily to fluctuations between the US dollar and the Euro compared with the Canadian dollar.

Income taxes

Income tax expense amounted to $0.7 million in 2006 compared to an income tax recovery of $0.1 million in 2005. In the normal course of business, the Company’s tax returns are subject to examination by various domestic and foreign tax authorities. Such examinations may result in future tax and interest assessments. The Company has received notice of assessments from foreign governments for sales taxes and income taxes, has reviewed these assessments and determined the likely amounts to be paid. As such, an income tax accrual of $0.7 million was recorded in 2006. Tax adjustments explain the tax recovery in 2005.

Income tax expense in 2004 amounted to $12.6 million and resulted from management’s determination that an increase in the valuation allowance for future income tax assets was appropriate as a result of the continued losses and the significant uncertainties surrounding the future prospects of the Company.

Backlog

Backlog at the end of 2006 stood at $45.4 million, the majority of which is expected to be delivered in the next two quarters. This figure is up from $28.2 million at the end of 2005 and $9.5 million at the end of 2004. The Company’s current backlog is comprised of multiple short-term orders that turn over quickly and includes purchase orders received for committed deliveries.

As of May 31, 2007, backlog stood at $25.8 million, the majority of which is expected to be delivered by the end of the third quarter of 2007.

 Management's Discussion and Analysis  SR Telecom - Annual Report 2006 12

WIRELESS TELECOMMUNICATIONS PRODUCTS SEGMENT
Results analysis for the quarters ended December 31, 2006, and 2005
From continuing operations
				2006																		2005
													1 month			2 months
													ended			ended
	Q4			Q3			Q2			Q1			Dec. 31			Nov. 30			Q4			Q3			Q2			Q1
Revenue		17,853			16,431			14,818			19,165			5,638			4,677			10,315			27,872			9,580			9,213
Cost of revenue		25,433			13,521			15,345			15,052			4,773			7,736			12,509			18,811			7,829			8,263
Gross profit (loss)		(7,580	)		2,910			(527	)		4,113			865			(3,059	)		(2,194	)		9,061			1,751			950
Gross profit (loss)
percentage		(42%)			18%			(4%)			21%			15%			(65%)			(21%)			33%			18%			10%
Operating loss from
continuing operations		(27,310	)		(41,543	)		(17,661	)		(11,536	)		(2,820	)		(21,696	)		(24,516	)		(6,953	)		(22,930	)		(10,657	)
Loss from continuing
operations		(31,293	)		(45,179	)		(18,562	)		(14,251	)		(5,146	)		(21,614	)		(26,760	)		(14,151	)		(24,879	)		(12,546	)

Revenue

The fourth quarter of 2006 saw equipment revenue almost double to $16.5 million from $8.7 million in the fourth quarter of 2005. While the Company faced many issues with contract manufacturing and its supply chain management throughout 2006, outsourcing issues have been coming to a resolution. As such, sales volumes increased, despite late delivery penalties of $2.0 million incurred in the fourth quarter of 2006. Service revenue remained relatively flat at $1.4 million in the fourth quarter of 2006 compared to $1.6 million in the fourth quarter of 2005.

Revenue by geographic region
	Revenue				Percent of wireless revenue
Three months ended December 31,	2006		2005		2006			2005
Europe, Middle East and Africa		7,053		1,784		40	%		17	%
Asia		2,182		1,900		12	%		18	%
Latin America		7,475		6,169		42	%		60	%
Other		1,143		462		6	%		5	%
		17,853		10,315		100	%		100	%

Wireless revenue increased across all of SR Telecom’s main sales regions in the fourth quarter of 2006 compared to the fourth quarter of 2005. The largest increase was in Europe, the Middle East and Africa, which benefited from the ongoing realization of a major project in Spain. Latin America remained one of the most active regions both in dollar terms and as a percentage of revenue, due mainly to ongoing projects in Mexico and Argentina.

Gross profit
	Three months ended
(Expressed as a percentage of revenue)	December 31,
	2006			2005
Revenue		100	%		100	%
Cost of revenue		142	%		121	%
Gross profit		(42	%)		(21	%)

Gross profit as a percentage of revenue decreased to negative 42% in the fourth quarter of 2006 from negative 21% in the fourth quarter of 2005. In dollar terms, gross profit in the fourth quarter of 2006 was negative $7.6 million compared to negative $2.2 million in the same quarter last year.

Equipment gross margin decreased to negative $8.3 million in the fourth quarter of 2006 from negative $2.7 million in the fourth quarter of 2005 due to the impact of $2.0 million in late delivery penalties, a $10.1 million write down of inventory, and offset by higher sales volumes. The negative gross margin in the fourth quarter of 2005 was a function of a $3.5 million write down of raw materials, the revaluation of work-in-process and finished goods inventory upon adoption of fresh-start accounting as well as lower sales volume.

Service gross margin increased from $0.5 million in the fourth quarter of 2005 to $0.7 million in the fourth quarter of 2006, also due to higher sales volumes.

 Management's Discussion and Analysis  SR Telecom - Annual Report 2006 13

Sales, general and administrative expenses

SG&A expenses decreased to $9.4 million in the fourth quarter of 2006 from $9.7 million in the fourth quarter of 2005. The SG&A decrease is primarily the result of a $2.3 million reversal of the bad debt provision in the fourth quarter of 2006, as the Company had reached a settlement with Telecom de Haiti/MCI in March 2007. This was offset by a higher depreciation expense related to an increase in the value of technology and customer relationship assets following the adoption of fresh start accounting as well as an increase in stock-based compensation expense.

Research and development expenses, net of investment tax credits

Research and development expenses increased by $0.2 million to $9.9 million in the fourth quarter of 2006, from $9.7 million in the fourth quarter of 2005. In December 2006, the Company recorded adjustments in the amount of $4.6 million for 2006 and $8.5 million for 2005 for income tax credits receivable that would not be realized within their remaining life. Were we to eliminate the effect of these adjustments, research and development expenses would have been $5.3 million in Q4 2006 and $1.2 million in Q4 2005. As such, this $4.1 million increase is due to the ramp-up of the Company’s WiMAX research and development plan in 2006.

Finance charges

Finance charges were $3.2 million in the fourth quarter of 2006, a decrease of $1.6 million when compared to $4.8 million in the fourth quarter of 2005. With the substantial conversions of 10% convertible redeemable secured debentures throughout 2006 the interest on these debentures was significantly lower in the fourth quarter of 2006 than in the fourth quarter of 2005.

TELECOMMUNICATIONS SERVICE PROVIDER SEGMENT

Results analysis for the years ended December 31, 2006, 2005 and 2004

Comunicacion y Telefonia Rural (CTR) is a telephone service provider in Chile. CTR provides local telephone services to residential, commercial and institutional customers and operates a network of pay phones throughout Chile.

On February 1, 2007, the Company announced the closing of the sale of its Chilean subsidiary, CTR, to Chile.com, an integrated telecommunications service provider. As part of this transaction, the Company has been released from all of its obligations with respect to CTR, including liabilities regarding loans to CTR amounting to approximately US$28.0 million for which SR Telecom was guaranteeing up to US$12.0 million. While this transaction did not produce net cash proceeds, it reduced the Company’s debt levels and is another important step in the Company’s plan to strengthen its financial position and focus on its WiMAX strategy.

The results of operations and cash flows of CTR did not qualify for presentation as discontinued operations in 2006 as CTR only became available for sale in its present condition in 2007. Beginning February 1, 2007, the comparative results of operations and the cash flows of CTR will be presented in the financial statements as discontinued operations.

				One month			Eleven months
	Year ended			ended			ended			Year ended			Year ended
	December 31,			December 31,			November 30,			December 31,			December 31,
	2006			2005			2005			2005			2004
Net revenue		19,188			1,734			17,670			19,404			18,584
Operating expenses		15,298			1,446			19,462			20,908			18,670
Operating (loss) income		(3,312	)		288			(2,114	)		(1,826	)		(86	)
Loss from continuing operations		(7,130	)		(14	)		(3,817	)		(3,831	)		(9,009	)

Net revenue

CTR’s net revenue decreased slightly to $19.2 million in 2006 from $19.4 million in 2005. Net revenue in Chilean peso terms remained stable at 9.0 billion pesos in both 2006 and 2005. Net revenue depends in part on the mix of access charges on tariffs paid to other service providers by CTR. Lower traffic in rural areas due to the growth of cellular services and competition was partially offset by lower traffic costs.

Comparing 2005 and 2004 revenue, CTR’s net revenue increased from $18.6 million in 2004 to $19.4 million in 2005. Net revenue in Chilean peso terms amounted to 9.0 billion pesos in 2005 compared to 8.7 billion pesos in 2004. The increase was attributable to new access tariffs approved by the Chilean regulator, Subtel, which took effect March 1, 2004 as well as the expansion of urban telecommunications service to several cities in Chile (urban initiative) in 2005.

Operating expenses

Operating expenses consist of employee compensation costs, travel and related expenses, as well as wire support and maintenance, professional fees and expenses.

 Management's Discussion and Analysis  SR Telecom - Annual Report 2006 14

Operating expenses decreased to $15.3 million in 2006 from $20.9 million in 2005. In Chilean peso terms, operating expenses stood at 7.3 billion pesos in 2006 compared to 9.2 billion pesos in 2005. This reflects the positive impact of cost containment initiatives as well as a decrease in depreciation expense resulting from the adoption of fresh start accounting on November 30, 2005, which resulted in a decrease in the book value of telecommunications network equipment, and offset by the expansion of the urban initiative.

Operating expenses increased to $20.9 million or 9.2 billion pesos in 2005 from $18.7 million or 8.1 billion pesos in 2004, due to the expansion of the urban wireless telecommunications service in several cities.

Restructuring, asset impairment and other charges

In 2006, CTR incurred restructuring charges of $7.2 million arising from an impairment charge relating to property, plant and equipment. In the third quarter of 2006, in light of performance below par and non-binding purchase offers received, the Company tested for recoverability of CTR’s net assets. The total estimated future cash flows, on an un-discounted basis, were less than the carrying value of the net assets. An impairment loss of $7.2 million was measured as the difference between the fair value based on discounted estimated future cash flows and the carrying value of net assets.

In 2005, CTR incurred restructuring charges of $0.3 million arising from the write down of certain satellite-related assets. CTR did not incur any restructuring charges in 2004.

Finance charges

Finance charges rose slightly in 2006 to $3.7 million from $3.1 million in 2005. This increase is mainly attributed to higher interest rates, partially offset by reduced debt levels as well as the effect of a decline in the US dollar compared with the Canadian dollar on the US-dollar-denominated interest payments.

In 2005, finance charges increased to $3.1 million from $2.7 million in 2004. The increase was due to professional and legal fees incurred relating to the renegotiation of the CTR loans.

Foreign exchange

The foreign exchange loss of $0.1 million in 2006, compared to the foreign exchange gain of $1.1 million in 2005 and the $2.3 million gain in 2004, reflect the impact of fluctuations in the Canadian dollar, US dollar and Chilean peso on the assets and liabilities of CTR, in particular, the US-dollar-denominated debt.

TELECOMMUNICATIONS SERVICE PROVIDER SEGMENT
Results analysis for the quarters ended December 31, 2006 and 2005
				2006													2005
											1 month		2 month
											ended			ended
	Q4			Q3			Q2		Q1		Dec. 31			Nov. 30			Q4			Q3			Q2			Q1
Net revenue		4,849			4,646			4,570		5,123		1,734			3,041			4,775			4,776			4,719			5,134
Operating expenses		3,757			3,844			3,772		3,925		1,446			3,326			4,772			5,503			5,908			4,725
Operating income (loss)		1,092			(6,400	)		798		1,198		288			(385	)		(97	)		(819	)		(1,260	)		350
Net (loss) income		(1,115	)		(7,347	)		1,165		167		(14	)		(687	)		(701	)		(8	)		(2,243	)		(879	)

Net revenue

CTR’s net revenue remained stable at $4.8 million in the fourth quarter of 2006 compared to the fourth quarter of 2005. Net revenue in Chilean peso terms increased slightly to 2.3 billion pesos in the fourth quarter of 2006 from 2.2 billion pesos in the fourth quarter of 2005, a function of changes in the mix of access charges on tariffs paid to other service providers by CTR.

Operating expenses

Operating expenses decreased to $3.8 million in the fourth quarter of 2006 from $4.8 million in the fourth quarter of 2005. In Chilean peso terms, operating expenses amounted to 1.8 billion pesos in the fourth quarter of 2006 compared to 2.1 billion pesos in the fourth quarter of 2005. Cost containment initiatives further contributed to the decrease in operating expenses. Expansion of the urban wireless telecommunications service in several cities in Chile slightly increased operating expenses, however, these were more than offset by a decrease in depreciation expense as a result of the adoption of fresh start accounting on November 30, 2005, which resulted in a decrease in the book value of the telecommunications network equipment.

 Management's Discussion and Analysis  SR Telecom - Annual Report 2006 15

CONSOLIDATED BASIC AND DILUTED LOSS PER SHARE

			2006										2005										2004
Basic and diluted net loss per share	Q4		Q3		Q2		Q1		1 month ended Dec. 31	2 months ended Nov. 30			Q4		Q3		Q2		Q1		Q4		Q3		Q2		Q1
From continuing
operations	(0.04	)	(0.07	)	(0.02	)	(0.03	)	(0.08	)	(1.21	)	(0.90	)	(0.80	)	(1.54	)	(0.76	)	(2.28	)	(0.26	)	(0.86	)	(1.19	)
From discontinued
operations	–		–		–		(0.06	)			(0.05	)	(0.05	)	–		(0.20	)	(0.02	)	(0.10	)	0.03		(0.47	)	(0.04	)
	(0.04	)	(0.07	)	(0.02	)	(0.03	)	(0.14	)	(1.26	)	(0.95	)	(0.80	)	(1.74	)	(0.78	)	(2.38	)	(0.23	)	(1.33	)	(1.23	)

CONSOLIDATED BALANCE SHEET

Accounts receivable

The short-term accounts receivable balance decreased to $26.9 million as at December 31, 2006 from $33.0 million as at December 31, 2005. This decrease is mostly attributable to the Company’s collection efforts.

Included in accounts receivable as at December 31, 2006 is a balance of US$4.7 million (US$4.7 million as at December 31, 2005) less an allowance for doubtful accounts of US$2.7 million (US$3.2 million as at December 31, 2005) related to an account receivable from Teleco de Haiti. In December 2001, the Company filed a statement of claim in New York for US$4.9 million against MCI International and Telecommunications d’Haiti, S.A.M., or Teleco de Haiti. The claim was filed pursuant to a clause mandating three-party arbitration before the International Court of Arbitration in respect of funds that ceased flowing to the Company under a Tripartite Agreement between Teleco de Haiti, MCI International and the Company. The agreement provided for the financing of a contract between the Company and Teleco de Haiti pursuant to which the Company was to supply and install certain telecommunications equipment to Teleco de Haiti for US$12.9 million. In the eleven-month period ended November 30, 2005, following various proceedings and actions throughout 2002 to 2005, the Company determined that the most likely outcome would not result in the full recovery of the receivable and accordingly, recorded a provision for doubtful accounts in the amount of $3.7 million (US$3.2 million). In the fourth quarter of 2005, the Company came to a settlement with MCI and Teleco de Haiti. The settlement was signed by the Company and MCI, but was not signed by Teleco de Haiti. Teleco de Haiti did not agree to execute the settlement agreement, despite the fact that it agreed to the terms of the settlement in December 2005. As a result, the case was returned to litigation and its outcome remained uncertain. Management believed that the most likely outcome would not result in the full recovery of the receivable and accordingly, in the third quarter of 2006, increased its provision for doubtful account for the entire balance outstanding of $5.5 million (US$4.7 million). In March 2007, SR Telecom reached a settlement with MCI and Teleco de Haiti and received payment in the amount of $2.3 million (US$2.0 million). Accordingly, the provision for doubtful accounts as at December 31, 2006 was adjusted to reflect the settled amount.

Inventory

The inventory balance decreased significantly to $12.0 million as at December 31, 2006 from $30.9 million as at December 31, 2005. The main driver behind this decrease was a $13.9 million inventory write down that was recorded in the third quarter of 2006 to adjust inventory to its net realizable value. This charge resulted from management’s continued restructuring activities, which include the realignment of its business to focus only on performing products. As a result, inventory directly related to products that the Company is either discontinuing or phasing out over time were written down to management’s best estimate of net realizable value. In addition, a $10.1 million write down of excess inventory was recorded in the fourth quarter of 2006 due to customer cancellations of current orders for which inventory was already purchased and a detailed review of inventory requirements based on the expected sale of legacy product lines.

Investment tax credits

Investment tax credits are earned based on eligible research and development expenditures. In December 2006, the Company determined that there was insufficient evidence of reasonable assurance that investment tax credits of $4.6 million would be realized within their remaining life. Accordingly, the Company recorded a reduction of this amount, resulting in a corresponding charge to the statement of operations.

Property, plant and equipment

Property, plant and equipment decreased significantly to $47.9 million as at December 31, 2006 from $58.4 million as at December 31, 2005. The Company recorded an impairment charge of $9.5 million in the third quarter of 2006, consisting of $2.3 million in wireless products segment and $7.2 million in the telecommunications service provider (CTR) segment. The $2.3 million impairment charge in wireless products results from management’s continued restructuring activities, which include the realignment of its business to focus only on performing products. The $7.2 million impairment charge at CTR was recorded in light of performance below par and non-binding purchase offers received.

 Management's Discussion and Analysis  SR Telecom - Annual Report 2006 16

Intangible assets

Intangible assets decreased significantly to $27.8 million as at December 31, 2006 from $41.9 million as at December 31, 2005. An impairment of $5.4 million was recorded in 2006 to adjust intangible assets to their estimated fair value. This impairment results from management’s continued restructuring activities, which include the realignment of its business to focus only on performing products. As a result, intangible assets comprised of customer relationships directly related to products that the Company is either discontinuing or phasing out over time were written down to their estimated fair value based on the present value of the related estimated future cash flows.

Other assets

Other assets on the balance sheet amounted to $2.8 million as at December 31, 2006 compared to $2.3 million, as at December 31, 2005. These are comprised of costs related to professional fees incurred for the establishment of the credit facility in 2005 and the convertible term loan in 2006.

Accounts payable and accrued liabilities

Trade accounts payable and accrued liabilities increased slightly to $36.0 million as at December 31, 2006 from $35.5 million as at December 31, 2005. The increase is mostly attributable to increased procurement activity in the fourth quarter of 2006, partially offset by the slowing of payments in the fourth quarter of 2005.

Long-term debt and shareholders’ equity
	December 31,		December 31,
	2006		2005
Lease liability		–		4,197
Credit facility		52,941		47,862
Convertible term loan		10,487		–
Long-term debt (including current and long-term portions)		33,592		35,060
Convertible debentures		1,785		40,630
Other long-term liability		1,749		1,749
Shareholders’ equity		10,933		21,348

Lease liability

The lease liability as at December 31, 2005 primarily related to SR Telecom USA Inc.’s San José, California operating lease, expiring in September 2006, assumed with the acquisition of Netro Corporation on September 4, 2003. As of the second quarter of 2005, the Company stopped making its lease payments and the landlord filed a lawsuit against SR Telecom USA Inc. seeking payment for rent and damages. On January 13, 2006, the Company reached a US$3.6 million settlement including transaction costs for the lease liability claims by the landlord. As at December 31, 2005, the Company recorded a lease liability of $4.2 million (US$3.6 million) reflecting the settlement payable. The Company paid this settlement in the first quarter of 2006.

Credit facility

On May 19, 2005, SR Telecom entered into a US-dollar-denominated credit agreement providing for a credit facility of up to US$39.6 million with a syndicate of lenders, comprised of certain previous holders of 8.15% debentures and subsequent shareholders of the Company, and BNY Trust Company of Canada as administrative and collateral agent. The credit facility was revolving until October 1, 2006, followed by a non-revolving term that extends to October 2, 2011. The credit facility is secured by a first priority lien on all of the existing and after-acquired assets of the Company. The credit facility of US$39.6 million was fully drawn as at December 31, 2006 and December 31, 2005 in the amount of $46.2 million and $46.3 million respectively. The interest on the credit facility is comprised of a cash portion, which is the greater of 6.5% or the three-month US-dollar LIBOR rate plus 3.85%, and additional interest payable in kind, which is the greater of 7.5% or the three-month US-dollar LIBOR rate plus 4.85% . The additional interest is accrued and included in the credit facility as at December 31, 2006 and December 31, 2005 in the amount of $6.8 million and $1.7 million respectively. As of February 2007, the Company entered into an agreement with the syndicate of lenders whereby the cash portion of the interest would be payable in kind until December 2007. In addition, the financial terms of the credit facility include the following: a 2% commitment fee based on the facility as it becomes available; and a payout fee at the option of the lenders of either 5% of the US$39.6 million maximum loan or 2% of distributable value, as defined in the credit agreement (which approximates the market capitalization of the Company), at maturity, payable by issuing debt or equity. All 2% commitment fees were paid upon initial drawdown of the credit facility amounts. The 5% payout fee is included in accrued liabilities as at December 31, 2006 in the amount of $0.6 million (US$0.5 million) and as at December 31, 2005 in the amount of $0.2 million (US$0.2 million).

 Management's Discussion and Analysis  SR Telecom - Annual Report 2006 17

Convertible term loan

On December 16, 2006, the Company obtained a $20.0 million convertible term loan from a syndicate of lenders, comprised of certain of the Company’s shareholders, following an amendment to its previous credit agreement. The convertible term loan bears cash interest at a rate equal to the greater of 6.5% or the three-month US-dollar LIBOR rate plus 3.85% and additional interest that may be paid in cash or in kind, at the Company’s option, at a rate equal to the greater of 7.5% or the three-month US-dollar LIBOR rate plus 4.85% . As of February 2007, the Company entered into an agreement with the syndicate of lenders whereby the cash portion of the interest would be payable in kind until December 2007. The convertible term loan has a five-year term and is secured by the assets of the Company, subordinated only to the existing credit facility. The holders of the convertible term loan have the right to convert, at any time, the convertible term loan, all “in kind” interest and other accrued but unpaid interest thereon into common shares of the Company at the conversion rate of $0.17 per common share. The financial terms of the convertible term loan include the following: an up-front, 2% commitment fee based on the convertible term loan and a payout fee of 5% of the convertible term loan due at maturity. As at December 31, 2006, the commitment fee of $0.4 million has been paid and $0.02 million has been accrued for the payout fee.

In accordance with Canadian GAAP, the convertible term loan is accounted for on the basis of its substance and is presented in its component parts of debt and equity. The debt component was measured, prior to adjustment, at the issue date as the present value of the cash payments of interest and principal due under the terms of the convertible term loan using a discount rate of 22%, which approximates the estimated interest rate of a similar non-convertible financial instrument with comparable terms and risk. The equity component was measured, prior to adjustment, at the issue date using the Black-Scholes option-pricing model using the following assumptions: dividend yield of 0.0%; volatility of 100.0%; risk-free interest rate of 3.9%; and expected life of 5 years. Both components, individually valued as described above, were then adjusted, on a prorated basis, to arrive at each component of the convertible term loan. The debt component is accreted to its face value through a charge to earnings over its term.

As at December 31, 2006, the debt component is $10.5 million, including $0.04 million of accreted interest and interest payable in kind in the amount of $0.1 million, and the equity component is $9.6 million.

Issue costs amounting to $1.4 million have been allocated between the debt and equity components of the convertible term loan: $0.7 million was allocated to the debt component and has been included in deferred costs; and $0.7 million was allocated to the equity component and has been included in deficit.

Long-term debt

Long-term debt includes $0.3 million face value of senior unsecured debentures which weren’t exchanged for convertible debentures in August 2005, $0.2 million of obligations under capital leases and $33.1 million of notes payable issued by CTR.

The majority of long-term debt relates to outstanding notes payable by CTR to Export Development Canada (EDC) and the Inter-American Development Bank (IADB). As at December 31, 2006, principal amount of US$28.0 million (US$29.5 million as at December 31, 2005) was outstanding.

During the second quarter of 2005, SR Telecom and CTR lenders re-negotiated and agreed on payment terms and on extending the maturity of the loan to May 17, 2008. The interest rate was at LIBOR plus 4.5%, plus 1% per year, payable in kind at maturity, which is included in long-term debt in the amount of $0.5 million as at December 31, 2006 ($0.1 million as at December 31, 2005).

The EDC note and IADB notes ranked pari passu and were secured by a pledge of all of the assets of CTR and a pledge of the shares of the intermediate holding companies. The Company guaranteed the performance of CTR’s obligations to lenders up to an amount of US$12.0 million. This guarantee was secured against all assets of SR Telecom and ranked pari passu with convertible debentures and subordinate to the security for the credit facility.

The notes were subject to a number of financial performance and financial position covenants, which were in default as at December 31, 2006. However, the lenders did not take any action on these defaults. In accordance with GAAP, the notes were classified as current liabilities. Covenants under the notes fell into two main categories: financial covenants that required the achievement of specific objectives for current ratio, debt service coverage ratio, debt to equity ratio, minimum earnings before income taxes, depreciation and amortization, minimum recurring revenues and receivables turnover; and performance covenants that focused on timely completion of the network and timely achievement of financial independence for the project. While the foregoing is not an exhaustive list of covenants, it includes the majority of non-reporting covenant requirements.

 Management's Discussion and Analysis  SR Telecom - Annual Report 2006 18

Convertible debentures

In 2005, SR Telecom and its debenture holders entered into an agreement to exchange the then outstanding 8.15% debentures and accrued interest thereon into 10% convertible debentures. At the August 24, 2005 debenture exchange closing, all but face value of $0.3 million of the 8.15% debentures were exchanged for $75.5 million face value of 10% convertible debentures.

10% convertible debentures were convertible into common shares at a rate of 4,606 common shares per $1,000 in principal amount of new convertible debentures, representing a conversion price of approximately $0.217 per common share. Interest on the convertible debentures was payable in cash or in kind by the issuance of additional convertible debentures. Convertible debentures were secured by a second lien on all of the assets of SR Telecom, ranking pari passu with the lenders of CTR, and were subordinate to the security of the credit facility.

In conjunction with private placements completed on February 2, 2006 and February 27, 2006, the Company converted approximately $61.8 million and $4.5 million, respectively, of convertible debentures, including accrued interest payable in kind, into 280,881,314 common shares and 20,391,019 common shares, respectively. Other conversions of convertible debentures and accrued interest payable in kind took place throughout the first and second quarters of 2006.

In accordance with Canadian GAAP, the convertible debentures were accounted for in accordance with their substance and were presented in their component parts of debt and equity, measured at their respective fair values. As at December 31, 2006, the debt component is $1.8 million ($40.6 million as at December 31, 2005), including $0.1 million of accreted interest ($0.7 million as at December 31, 2005) and interest payable in kind in the amount of $0.3 million ($2.3 million as at December 31, 2005), and the equity component is $1.0 million ($27.8 million as at December 31, 2005).

In February 2007, the Company announced that it would redeem its outstanding 10% convertible debentures on March 6, 2007 for an amount equal to $1,038.63 per $1,000 of principal amount, representing the principal amount plus $38.63 of accrued but unpaid interest thereon to the redemption date. Up to the redemption date, debenture holders had the option to convert all or a portion of their convertible debentures and accrued but unpaid interest thereon into common shares at an effective amended rate of $0.15 per common share.

Prior to March 6, 2007, $2.0 million convertible debentures, including accrued but unpaid interest thereon were converted into 13,181,651 common shares. The Company accounted for these conversions as induced early conversions, with the number of shares issued from the conversion being measured at $0.217 per common share, as per the original terms of the convertible debentures, and additional shares issued to induce the conversion being measured at fair value. The resulting debt settlement gain of $0.1 million is included in financing expenses and incremental conversion costs of $0.9 million will be included in deficit in the first quarter of 2007.

On March 6, 2007, the Company redeemed $0.7 million of convertible debentures and accrued but unpaid interest thereon for $0.8 million. The Company accounted for this redemption as an early redemption of debt, with the consideration paid on extinguishment being allocated to the debt and equity components of the convertible debentures. The resulting gain of $0.05 million relating to the debt component will be included in financing expenses and the resulting cost of $0.04 million relating to the equity component will be included in deficit in the first quarter of 2007.

As at March 6, 2007, there were no outstanding 10% convertible redeemable secured debentures.

Other long-term liability

As at December 31, 2006 and December 31, 2005, the Company’s long-term liability was $1.7 million (US$1.5 million), which reflects the fair value of the indemnification provided to the former directors and officers of Netro Corporation, for a period of six years to 2009, as part of the purchase agreement.

 Management's Discussion and Analysis  SR Telecom - Annual Report 2006 19

The following table outlines the cash payments with respect to SR Telecom’s contractual cash obligations, prior to the sale of CTR and conversion of convertible debentures:

	2007		2008		2009		2010		2011		Thereafter		Total
Contractual obligations
Senior term loan*		–		–		–		–		–		35,000		35,000
Long-term credit facility*		–		–		–		–		–		52,941		52,941
Convertible term loan*		–		–		–		–		–		20,132		20,132
Long-term debt**		2,426		30,896		–		–		270		–		33,592
Convertible redeemable secured debentures***		–		–		–		–		1,785		–		1,785
Operating lease obligations
– Wireless telecommunications products		428		168		65		33		1		1		696
Operating lease obligations
– Telecommunications service provider**		3,772		3,473		1,557		132		71		80		9,085
		6,626		34,537		1,622		165		75,200		81		118,231

*   Interest is payable in cash or in kind at the Company’s option. The interest component cannot be determined at this time given that the payable in kind component is at the Company’s option.

**   With the sale of CTR in February 2007, the Company was fully released from all of its obligations, including liabilities for loans to CTR and lease obligations of CTR.

***   With the conversion and redemption of 10% convertible debentures in March 2007, the Company has no further obligations with regard to these debentures.

Capital stock

Authorized

An unlimited number of common shares

An unlimited number of preferred shares issuable in series

	Issued and
	outstanding		Capital stock
	common shares		($ thousands)
Opening balance as at December 31, 2004		17,610,132		219,653
November 30, 2005 mandatory conversion of convertible debentures (a)		47,322,829		10,274
Closing balance as at December 1, 2005		64,932,961		229,927
Conversions of debentures during the fourth quarter of 2005 (a)		734,000		159
Closing balance as at December 31, 2005		65,666,961		230,086
February 2, 2006
Private placement (b)		333,333,333		50,000
Conversion of debentures (b)		280,881,314		61,806
February 27, 2006
Private placement (b)		28,498,302		4,275
Conversion of debentures (b)		20,391,019		4,485
Conversion of debentures during the remainder of the year		1,852,555		414
July 24, 2006 issuance of shares (c)		2,769,576		1,108
Closing balance as at December 31, 2006		733,393,060		351,279

(a)   On November 30, 2005, pursuant to the terms of the convertible debentures, $10.0 million in principal amount of the convertible debentures, and $0.3 million of accrued interest payable in kind thereon were converted into common shares. Other conversions of convertible debentures took place in 2005.

(b)   On February 2, 2006, the Company completed a private placement and converted convertible debentures, including accrued interest payable in kind thereon, into common shares. On February 27, 2006, the Company completed a similar private placement and converted convertible debentures, including interest payable in kind thereon, into common shares. Share issue costs amounted to $1.0 million.

(c)   On July 24, 2006, the Company issued common shares to its former interim president and chief executive officer as per the terms of an agreement. Compensation expense of $1.1 million, as well as $0.7 million for all applicable taxes, was included in selling, general and administrative expenses in 2006.

 Management's Discussion and Analysis  SR Telecom - Annual Report 2006 20

In March 2006, the Board of Directors approved a new employee and director stock option plan. The plan was approved by the shareholders of the Company at the Annual General Meeting of the shareholders held on June 8, 2006. Options are granted to directors and employees at the discretion of the Board of Directors. All stock options granted to employees under this plan vest over 4 years and expire 7 years from the grant date. All stock options granted to directors under this plan vest over 1 year and expire 7 years from the grant date. The exercise price of stock options granted under this plan shall be determined by the Board of Directors, but shall not be lower than the greater of the following: (a) the volume weighted average trading price of the common shares on the TSX for the five trading days immediately preceding the date of grant of the option; and (b) the average closing price of the common shares on the TSX for the fifteen trading days immediately preceding the option grant date. During the year, 27,435,835 stock options were granted to employees and directors at a weighted average exercise price of $0.32.

In 2006, $1.9 million of compensation expense for awards granted since January 1, 2002 ($0.7 million for the year ended December 31, 2005) was included under SG&A expenses in the consolidated statement of operations.

CONSOLIDATED LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents

Consolidated cash, including restricted cash, increased to $27.1 million as at December 31, 2006 from $10.2 million as at December 31, 2005. The Company had cash collateral for bonding facilities and security for the convertible debentures totalling $7.8 million as at December 31, 2006 ($0.7 million as at December 31, 2005). Amounts outstanding under these facilities amounted to $2.9 million as at December 31, 2006 ($2.0 million as at December 31, 2005).

Consolidated cash, including restricted cash stood at $14.9 million as of May 31, 2007.

On April 12, 2007, the Company entered into a sale and leaseback agreement regarding its property located in Montréal, Canada for proceeds of approximately $8.6 million.

On July 3, 2007, the Company entered into an agreement with a syndicate of lenders comprised of shareholders of the Company providing for a term loan of up to $45.0 million, of which $35.0 million will be drawn at closing and an additional $10.0 million will be available for drawdown for a period of up to one year from closing.

Pursuant to the debenture conversions as well as the financing arrangements the Company has entered into, the Company will have sufficient cash and cash equivalents, short-term investments, and cash from operations going forward to satisfy its working capital requirements and continue operations as a going concern for the next twelve months.

Cash flows

Cash flows used in continuing operations amounted to $45.2 million in 2006 compared with $40.9 million in 2005, mainly attributable to an increased loss from continuing operations, offset by fluctuations in non-cash working capital components and in restructuring, asset impairment and other charges.

Cash flows provided by continuing financing activities amounted to $65.9 million in 2006, derived primarily from the private placements issued in February 2006 and the new convertible term loan obtained in December 2006. This compares to cash flows provided by continuing financing activities of $41.4 million in 2005, primarily arising from the issuance of the credit facility in May 2005.

Cash flows used in continuing investing activities amounted to $10.9 million in 2006 compared with $2.0 million in 2005. This increase is mainly attributable to higher levels of restricted cash in 2006.

Capital expenditures

The Company presently has no material commitments for capital expenditures. Wireless property, plant and equipment additions relate to ongoing capital requirements and were $1.6 million in 2006 compared with $1.4 million in 2005. CTR’s property, plant and equipment additions amounted to $2.8 million in 2006 and $2.7 million in 2005. These expenditures related principally to existing network upgrades and enhancements.

Off-balance sheet and banking arrangements

The Company has provided its customers with product warranties that generally extend for one year, as part of the normal sale of products. The Company also indemnifies its customers against any actions from third parties related to intellectual property claims arising from use of the Company’s products. In the Company’s experience, claims under such indemnifications are rare, and the associated fair value of the liability is not material.

Pursuant to the acquisition of Netro Corporation, the Company agreed to indemnify and hold harmless, the former directors and officers of Netro, for a period of six years to 2009, and to obtain directors and officers insurance in this regard for a period of three years. An amount of $1.7 million has been recorded in this regard and is presented as a long-term liability.

 Management's Discussion and Analysis  SR Telecom - Annual Report 2006 21

In connection with the issuance of the convertible redeemable secured debentures and convertible loan (collectively the “convertible debt”), the Company entered into a Registration Rights Agreement (the “Agreement”). Pursuant to the terms of the Agreement, the Company is required to cause the common shares issuable or issued pursuant to the terms of the convertible debt, to be registered under the United States Securities Act of 1933 upon request by the holders thereof. In the event that the Company does not comply with the request and other related conditions within the time limits provided in the Agreement, penalties will be payable by the Company at rates ranging from 0.5% to 2% of the common share amounts.

Litigation

The Company has included in its accounts payable and accrued liabilities or income taxes payable, as at December 31, 2006 and as at December 31, 2005, management’s best estimate of the outcome of several litigations, described as follows:

FUTURE COMMUNICATIONS COMPANY (FCC) LITIGATION

The dispute with FCC relates to the alleged improper drawdown by SR Telecom USA, Inc., a wholly owned subsidiary, of a letter of credit, opened by FCC, with the Bank of Kuwait and the Middle East, and the alleged refusal by SR Telecom USA, Inc. to accept return of inventory provided to FCC. The Kuwait Appeal Court rejected the appeal filed on March 2, 2005 and the Company appealed this decision to the highest of the Kuwait Courts on July 4, 2005. On January 7, 2007, the Kuwait Appeal Court handed down its decision in favour of FCC for an amount of US$1.0 million, plus court fees.

EMPLOYEE-RELATED LITIGATION

As a result of past restructuring efforts, certain employees were terminated and given notices and severances according to local labour laws. Some of these employees are claiming that they did not receive an appropriate amount of severance and/or notice period. The Company intends to vigorously defend itself against these claims with all available defences.

TAX MATTERS

In the normal course of business, the Company’s tax returns are subject to examination by various domestic and foreign taxing authorities. Such examinations may result in future tax and interest assessments on the Company. The Company has received notice of assessments by foreign governments for sales taxes and corporate taxes and by Canadian and provincial governments for research and development tax credits relating to prior years. The Company has reviewed these assessments and determined the likely amounts to be paid. The Company has accrued such amounts in their respective classification on the statement of operations including research and development expenses, income tax expense and selling, general and administration expenses.

GENERAL

From time to time, the Company is involved in various legal proceedings in the ordinary course of business. The Company is not currently involved in any additional litigation that, in management’s opinion, would have a material adverse effect on its business, cash flows, operating results or financial condition; however, there can be no assurance that any such proceeding will not escalate or otherwise become material to the Company’s business in the future.

Related-party transactions

Most of the credit facility, debentures, Convertible Debentures and convertible term loan interest expense relate to amounts due to current shareholders and the debenture conversions took place with current shareholders. Furthermore, the Company has entered into transactions involving, primarily, professional services with members of its Board of Directors and their affiliated companies. During 2006, the Company entered into a consulting agreement with a former member of its board. The Company continues to pay director fees to its board members. See note 26 to the consolidated financial statements.

 Management's Discussion and Analysis  SR Telecom - Annual Report 2006 22

OUTLOOK

Refer to the section entitled “About Forward-Looking Statements” above in this management’s discussion and analysis for a discussion concerning the material assumptions underlying and the material risk factors that could affect our outlook. In addition, for a more complete discussion of the assumptions and risks underlying our forward-looking statements, please refer to the section entitled “Assumptions, risks and uncertainties” elsewhere in this management’s discussion and analysis for the year ended December 31, 2006 and the section entitled “Risk factors” in the Company’s annual report on Form 20-F for the year ended December 31, 2006, which can be found under the Company’s name at www.sedar.com and on the Company’s website at www.srtelecom.com.

The Company believes that WiMAX promises to revolutionize the broadband industry by pulling together many of the technologies that have been developed during the last 15 years. WiMAX innovation will provide performance and cost efficiency similar to that seen with WiFi, but for ubiquitous carrier networks. By leveraging its leading OFDM broadband experience, previous investment in similar products and development platforms, and its existing OFDM customer base, we believe that SR Telecom is well positioned to gain market share in the WiMAX market.

Mobile WiMAX is the long-term goal for many industry segments, but the majority of carriers and enterprises interested in WiMAX today are looking for fixed or nomadic wireless-based solutions as an alternative to wireline deployments or upgrades. Many are now beginning to realize that stable mobile WiMAX solutions are a few years away and are looking to fixed WiMAX to enter the market quickly and capture market share.

By providing a single software-upgradeable platform for both fixed and mobile WiMAX solutions, SR Telecom offers a safe, evolutionary path to “e” that will allow us to gain customers’ interest while mobile WiMAX solutions are still maturing. Over the next eighteen months, the Company’s intention to increase market share is founded on four fundamental drivers of its marketing plan:

1   A diversified CPE product portfolio

2   Value-added pricing

3   Fixed WiMAX “e” solution

4   Evolutionary and safe WiMAX “e” deployment

We believe that this focus will help create the internal momentum required to realign SR Telecom, as will operational and corporate initiatives to reduce costs and contain expenses.

During the first half of 2007 while the Company sought to re-establish a firm financial footing, a cost-reduction plan was implemented to improve production costs and overall price competitiveness. Additional initiatives occurred on the corporate front, including the disposal of legacy product lines and headcount reductions, both of which will contribute to lowering SG&A expenses in 2007 and improve the Company’s profitability and liquidity position. The cost-reduction plan will continue throughout 2007. Management expects that such plan should yield increased gross margins and lower operating expenses in 2008.

However, cash consumption will continue to occur at a rapid pace for the second half of the year, due primarily to the ramp up of WiMAX solutions as well as the impact of the reversal of a cash conservation effort that occurred as the Company explored additional financing options during the first half of 2007. As SR Telecom completes the operational side of restructuring that began in April, and with new financing confirmed in the form of a $45.0 million term loan, of which $35.0 million was drawn on July 3, 2007, and an additional $10.0 million will be available for drawdown for a period of up to one year from closing, the Company will be investing significantly in working capital during the remainder of the year due to lengthy customer terms and significantly shorter terms with suppliers.

2007 will be a year of transition for SR Telecom, as it realigns the organization to support targeted marketing, development and operational strategies. SR Telecom anticipates a return to normal operating mode in 2008 as it further monetizes the balance sheet – the result of new contract manufacturer relationships – and benefits from streamlined operations.

In the recent financing round announced July 3, the Company was successful in raising more funds than are expected to be required to fully fund its business plan, while also attracting a new investor. The Company has used debt-to-equity conversions in the past to de-lever its balance sheet and could consider taking similar actions in the future, though any such actions would each be subject to applicable lender approval. Nevertheless, the Company’s existing business plan is subject to significant risks and uncertainties, such as: contract manufacturing, timely development of our WiMAX product offerings, the attainment of cost reduction targets, a sustained demand for symmetryONE in 2007, the impact of competition on pricing and market share, and the ability to fund the required investment in working capital to sustain revenue growth. Accordingly, during the next eighteen-month period, the Company will continue to evaluate all strategic options, including the sale of assets or legal entities.

 Management's Discussion and Analysis  SR Telecom - Annual Report 2006 23

ASSUMPTIONS, RISKS AND UNCERTAINTIES

SR Telecom is subject to several risks and uncertainties that could affect its business, financial condition or results of operations. The risks and uncertainties are not the only ones that we may face. Additional risks and uncertainties of which we are unaware, or that we currently deem to be immaterial, may also become important factors that affect us. For additional disclosure regarding risk factors, please also refer to the section entitled “Risk factors” in the Company’s annual report on Form 20-F for the year ended December 31, 2006, which can be found under the Company’s name at www.sedar.com and on the Company’s website at www.srtelecom.com.

Financial factors

SR Telecom’s operations are by their nature capital-intensive. The Company may therefore require continuing access to financing to fund working capital needs, research and development activities, capital expenditures and other cash requirements, as well as additional development and acquisition opportunities. There is no guarantee that such continuing access to financing from either existing investors or third parties to fund such working capital needs will be available in the future.

At July 3, 2007, the Company has in excess of $108 million of consolidated debt outstanding comprised principally of the credit facility and the convertible term loan. There is no assurance that the Company will be able to pay interest and principal or to refinance its indebtedness, which will depend upon future performance. Future performance is subject to the success of the business plan, including the Company’s ability to successfully integrate its operations, general economic conditions and financial, competitive, regulatory, labour and other factors, many of which are beyond the Company’s control. A substantial portion of cash flow from operations would need to be dedicated to repayment of debt, thereby reducing the availability of cash flow to fund our working capital, capital expenditures, research and development efforts, potential acquisition opportunities and other general corporate purposes. This could reduce the Company’s flexibility in planning for, or reacting to, changes in our business, or leave us unable to make strategic acquisitions, introduce new products or exploit new business opportunities, and may cause the Company to seek protection from our creditors under applicable bankruptcy, insolvency or other creditor protection legislation or pursue other restructuring alternatives.

The trust indenture and the credit facility contain provisions that limit the Company’s ability and, in some cases, the ability of the Company’s restricted subsidiaries to: 1) pay dividends or make other restricted payments and investments; 2) incur additional indebtedness and issue preferred stock; 3) create liens on assets; 4) merge, consolidate, or sell all or substantially all of the Company’s assets. Events beyond the Company’s control may affect SR Telecom’s ability to comply with many of these restrictions.

Operating results

The Company has incurred losses from operations in its past fiscal years, and it has failed to execute on its prior business plans developed by prior management. Failure to return to profitability could have a material adverse effect on business and prospects. The ability to achieve and maintain profitability will depend on, among other things, the ability to secure new business, to develop new products and features on a timely basis, the market’s acceptance of the Company’s products and the ability to reduce product costs and other costs sufficiently.

External factors

The Company markets and sells telecommunications products and services to customers around the world, with a focus on developing countries. The risk of doing business with customers in such countries, include dealing with the following: 1) trade protection measures and import or export licensing requirements; 2) difficulties in enforcing contracts; 3) difficulties in protecting intellectual property rights; 4) unexpected changes in regulatory requirements; 5) legal uncertainty regarding liability, tax, tariffs and other trade barriers; 6) foreign exchange controls and other currency risks; 7) inflation; 8) government appropriations or subsidies of which the customers are beneficiaries or recipients may be decreased or delayed; 9) challenges to credit and collections; 10) expropriation; 11) government instability, war, riots, insurrections and other political events. The Company attempts to ensure the collection of its revenues through the use of letters of credit and the analysis of the credit worthiness of its customers. However, these measures would likely not cover all losses.

Competition

The inability to develop new products or product features on a timely basis, or if new products or product features fail to achieve market acceptance, the Company’s revenues and revenue growth may be adversely affected. In the past, the Company has experienced design and manufacturing difficulties that delayed the development, introduction or marketing of new products and enhancements, which caused it to incur unexpected expenses. Furthermore, in order to compete in additional markets, the Company will have to develop different versions of its existing products that operate at different frequencies and comply with diverse, new or varying governmental regulations in each market, which could also delay the introduction of new products.

 Management's Discussion and Analysis  SR Telecom - Annual Report 2006 24

The market for wireless access telecommunications equipment is rapidly evolving and highly competitive. Increased competition may result in price reductions, shorter product life cycles, longer sales cycles and loss of market share, any of which could adversely affect the Company’s business. If the Company cannot reduce the cost of its products enough to keep pace with the required price reductions, then product sales or gross margins, and consequently results of operations, will suffer.

The Company’s inability to implement cost reductions may also have an impact on its ability to compete in the marketplace. For example, cost for contract manufacturing may be largely impacted by the level and volume of orders, which is driven by customers demand. Also, the Company’s contract manufacturers must correctly implement cost reductions that the Company designs into the products; cost projections are based upon assumptions regarding the ability of contract manufacturers to achieve volume-related cost reductions. Some of the Company’s design cost reductions will depend on the emergence of low-cost components that are likely to be developed by third parties. The Company’s product costs will exceed its internal projections to the extent these third parties are unable or unwilling to cooperate in reducing product cost, or their efforts in this regard are not timely.

In addition, the price for wireless telecommunications equipment is driven by the prevailing price for other connection technologies, such as the cost of obtaining digital subscriber line (DSL) service or leasing a T1 connection from the traditional telecommunications service provider in a given locale. The price of these connections has declined significantly in many countries in the recent past, and could decline significantly in the future. If this trend continues, service providers might be more likely to use these kinds of connections than to introduce new technology such as our products, which would adversely affect the Company’s revenues and earnings.

Long sales cycles

The Company’s sales cycles are long and unpredictable. OEMs and service providers typically perform numerous tests and extensively evaluate products before incorporating them into networks. As a result, the Company’s revenues may fluctuate from quarter to quarter and it may be unable to adjust its expenses accordingly. This would cause operating results and stock price to fluctuate. In addition, the Company expects that the delays inherent in its sales cycle could raise additional risks of service providers deciding to cancel or change their product plans.

The Company’s sales cycles may cause results to fluctuate from quarter to quarter depending on the timing of purchase orders, the bidding and winning of sales contracts, as well as other factors beyond the Company’s control. The Company markets and sells telecommunications products and services to customers around the world, with a focus on developing countries. Doing business with customers in such countries involves many uncertainties. As such, one quarter’s results are not predictive of a future quarter’s performance and general trend analysis is not an adequate indicator of future performance.

Response to industry’s change of pace

The telecommunications industry is subject to rapid and substantial technological change. The Company may not be able to keep pace with technological developments or developments by other companies that could render its products or technologies non-competitive. Some of these technologies and products could be more effective and less costly than the Company’s, thereby potentially eroding market share.

Product viability

The development and commercialization of both fixed and mobile WiMAX are key elements of the Company’s business plan, future success and profitability. If fixed and/or mobile WiMAX prove to be less commercially viable than currently anticipated, or if the Company’s WiMAX products are less commercially viable or competitive than those developed by other companies, the Company may experience significant adverse effects on its liquidity, financial condition and ability to continue operating as a going concern.

Product performance

The Company may be subject to significant liability claims if its products do not work properly. The provisions in the agreements with customers that are intended to limit the Company’s exposure to liability claims may not preclude all potential claims. In addition, insurance policies may not adequately limit its exposure with respect to such claims. Liability claims could require the Company to spend significant time and money in litigation or to pay significant damages, and could seriously damage the Company’s reputation and business.

Outsourcing

On March 27, 2006, the Company announced the completion of a multi-year agreement to outsource its manufacturing operations in order to increase competitiveness. The Company also reached an agreement in December 2006 with a new contract manufacturer who began production in early 2007. In addition, the Company signed a three-year WiMAX manufacture and supply agreement with Taiwan-based Microelectronics Technology (MTI) in May 2007.

 Management's Discussion and Analysis  SR Telecom - Annual Report 2006 25

As a result, the Company depends on its contract manufacturers to manufacture its products. This reliance on contract manufacturers exposes the Company to significant risks, including risks resulting from: 1) potential lack of manufacturing capacity; 2) limited control over delivery schedules; 3) quality assurance and control; 4) manufacturing production costs; 5) voluntary or involuntary termination of the Company’s relationships with its contract manufacturers; 6) difficulty in, and timeliness of, substituting the Company’s contract manufacturers; and 7) the financial strength of the contract manufacturers. If the operations of the Company’s contract manufacturers are halted, even temporarily, or if they are unable to operate at full capacity for an extended period of time, the Company may experience business interruption, increased costs, loss of goodwill and loss of customers.

The Company’s contract manufacturers rely on the Company’s forecasts of future orders to make purchasing and manufacturing decisions. The Company provides contract manufacturers with forecasts on a regular basis. If a forecast turns out to be inaccurate, it may lead either to excess inventory that would increase the Company’s costs or to a shortage of components that would delay shipment of equipment. In either case, the Company’s business and results may be adversely affected.

Supply chain

Some of the key components to be used in the Company’s products are complex to manufacture and have long lead times. Sole source vendors for which alternative sources are not currently available supply these components. In the event of a reduction or interruption of supply, or degradation in quality, as many as six months could be required before the Company, or its contract manufacturers, could begin receiving adequate supplies from alternative suppliers, if any. As a result, product shipments could be delayed and the Company’s revenues and results of operations could suffer. If the Company, or its contract manufacturers, received a smaller allocation of component parts than is necessary to manufacture products in quantities sufficient to meet customer demand, customers could chose to purchase competing products and the Company could lose market share.

Outdated inventory

SR Telecom has acquired and may continue to acquire significant inventory in order to support contractual obligations in relation to discontinued product lines and discontinued components in existing products. If sales of such products or components do not materialize, the Company could end up with inventory levels that are significantly in excess of the Company’s needs, which could increase working capital requirements or cause significant losses.

Litigation

The Company is subject to a number of arbitration disputes and litigations that may adversely affect the operating results and liquidity if these disputes are not favourably resolved. Furthermore, SR Telecom has recorded liabilities including those in connection with its arbitration proceedings, and may involve other obligations not yet known. Estimates of these liabilities have been made, but there can be no assurance that the actual settlement of these liabilities will not differ materially from amounts accrued.

Foreign exchange fluctuations

The Company’s functional currency is the Canadian dollar, while the majority of sales contracts are in other currencies. All foreign operations are classified as integrated with those of SR Telecom for consolidation purposes so that any gains or losses on foreign exchange translation are charged to income in the current year. Fluctuations between currencies will affect the reported values of revenues and eventual collections. While the Company could engage in hedging activities from time to time to protect from fluctuations, there can be no assurance that these practices will be adequate to eliminate potential negative effects.

The Company has currency exposures arising from significant operations and contracts in multiple jurisdictions. The Company has limited currency exposure to freely tradable and liquid currencies of first world countries and communities. Foreign currency exposures are evaluated regularly and, where warranted, hedge mechanisms are used to minimize the impact of market fluctuations.

Internal controls

One or more material weakness in the Company’s internal controls over financial reporting could occur or be identified in the future. In addition, because of inherent limitations, the Company’s internal controls over financial reporting may not prevent or detect misstatements, and any projections of any evaluation of effectiveness of internal controls to future periods are subject to the risk that controls may become inadequate because of changes in condition or that the degree of compliance with the Company’s policies and procedures may deteriorate. If the Company fails to maintain the adequacy of its internal controls, including any failure or difficulty implementing required new or improved controls, the Company’s business and results of operations could be harmed, the Company may not be able to provide reasonable assurance as to its financial results or meet its reporting obligations and there could be a material adverse effect on the price of its shares.

 Management's Discussion and Analysis  SR Telecom - Annual Report 2006 26

DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROL OVER FINANCIAL REPORTING

The Company’s Chief Executive Officer (CEO) and Chief Financial Officer (CFO) are responsible for establishing and maintaining the Company’s disclosure controls and procedures and internal control over financial reporting for the issuer. They are assisted in this responsibility by the management team. The Company adopted a risk-based approach using the integrated framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) to determine its scope. The CEO and CFO, after evaluating the effectiveness of the Company’s disclosure controls and procedures and the design of internal controls at December 31, 2006, have concluded that the Company’s disclosure controls and procedures are adequate and effective to ensure that material information relating to the Company and its subsidiaries would have been known to them.

Through the evaluation of the design of its internal controls, the Company has identified certain internal control weaknesses in the financial reporting process. The principal area of internal control deficiency is a lack of sufficient analysis and review in the year end reconciliation of amounts reported in accordance with Canadian GAAP to US GAAP.

The above deficiency is not uncommon to many small companies. While this deficiency could lead to a material misstatement in the financial statements, no such misstatement has occurred. Management has undertaken a review of the internal controls over financial reporting and is currently developing an action plan to remedy the internal control deficiency in 2007.

ACCOUNTING POLICIES

Critical accounting policies and estimates

SR Telecom’s consolidated financial statements are based on the selection and application of accounting policies that require SR Telecom’s management to make significant estimates and assumptions. These estimates and assumptions are developed based on the best available information and are believed by management to be reasonable under existing circumstances. New events or additional information may result in the revision of these estimates over time.

Going concern assumption

The consolidated financial statements have been prepared on a going-concern basis. The going-concern basis of presentation assumes that the Company will continue operations for the foreseeable future and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business.

There is substantial doubt about the appropriateness of the use of the going concern assumption because of the Company’s losses for the current and prior years, negative cash flows, reduced availability of supplier credit and lack of operating credit facilities. As such, the realization of assets and the discharge of liabilities and commitments in the ordinary course of business are subject to significant uncertainty.

For the year ended December 31, 2006, the Company incurred a net loss of $115.6 million ($9.4 million for the month ended December 31, 2005 and $81.8 million for the eleven months ended November 30, 2005) and used cash of $45.2 million ($7.1 million for the month ended December 31, 2005 and $48.0 million for the eleven months ended November 30, 2005) in its continuing operating activities. Going forward, the Company will continue to require substantial funds as it continues the development of its WiMAX product offering.

The Company has taken the following steps to address the going concern uncertainty:

On February 1, 2007, the Company completed the sale of the shares of its Chilean subsidiary, CTR, for proceeds of nil (see note 12). As part of this transaction, the Company has been fully released from all of its obligations with respect to CTR, including liabilities in respect of loans to CTR amounting to approximately US$28.0 million for which SR Telecom was guaranteeing up to US$12.0 million. The divestiture of this non-core asset marked another important step in the Company’s plan to strengthen its financial position by streamlining its balance sheet and focus on its WiMAX strategy.

On March 6, 2007, the Company concluded the conversion/redemption of the remaining Convertible Debentures, allowing for the release of $4.7 million of restricted cash.

On April 12, 2007, the Company closed the sale and leaseback of its property located in Montréal (Québec), Canada for gross proceeds of $8.6 million.

On April 16, 2007, the Company announced a plan to reorganize its internal operations, including the wind-up of legacy product operations and centralization of activities. In conjunction with the implementation of this plan, the Company will be eliminating approximately 75 positions worldwide.

On July 3, 2007, the Company entered into an agreement with a syndicate of lenders comprised of shareholders of the Company providing for a term loan of up to $45.0 million, of which $35.0 million will be drawn at closing and an additional $10.0 million will be available for drawdown for a period of up to one year from closing.

 Management's Discussion and Analysis  SR Telecom - Annual Report 2006 27

The Company’s successful execution of its business plan is dependent upon a number of factors that involve risks and uncertainties. In particular, the development and commercialization of both fixed and mobile WiMAX are key elements of the Company’s strategic plan and of its future success and profitability. If either or both of fixed and/or mobile WiMAX prove not to be commercially viable or less commercially viable than is currently anticipated or compared to alternative solutions, or if the Company’s WiMAX products are less commercially viable or competitive than those developed by other companies, the Company will experience significant adverse effects on its liquidity, financial condition and ability to continue as a going concern.

The consolidated financial statements do not reflect any adjustments that would be necessary if the going concern basis was not appropriate. If the going concern basis was not appropriate for these consolidated financial statements, significant adjustments would be necessary in the carrying values of assets and liabilities, the reported revenues and expenses, and the balance sheet classifications used.

Revenue recognition

Revenue is recognized when persuasive evidence of an agreement exists, delivery has occurred or the service has been performed, the fee is fixed and determinable and collection of the receivable is reasonably assured.

The principal revenue recognition guidance used by SR Telecom are the US Securities and Exchange Commission’s Staff Accounting Bulletins No. 101 and No.104, Revenue Recognition in Financial Statements (SAB 101 and SAB 104) and the Emerging Issues Committee (EIC) abstracts on revenue recognition: EIC 141 Revenue Recognition and EIC 142 Revenue Arrangements with Multiple Deliverables.

More specifically, revenue for hardware sold on a stand-alone basis is recognized upon delivery, when all significant contractual obligations have been satisfied and collection is reasonably assured. For contracts involving multiple elements, the Company determines if the arrangement can be separated amongst its different elements, using guidance under Canadian and US GAAP. That is, (1) the product or service represents a separate earnings process; (2) objective, reliable and verifiable evidence of fair value exists; and (3) the undelivered elements are not essential to the functionality of the delivered elements. Under this guideline, the Company recognizes revenue for each element based on relative fair values. Telecommunication service revenue is recognized as the services are rendered.

The Company’s products and services are generally sold as part of contracts or purchase orders. Revenue is recognized in the same manner as when the products and services are sold separately. Hardware revenue is recognized upon delivery and service revenue is recognized as the services are performed. In order to determine if there is a loss on services in a contract, estimates of the costs to complete these services are updated on a monthly basis and are based on actual costs to date. These costs are analyzed against the expected remaining service revenue. If the remaining cost exceeds the remaining revenue, a loss is immediately recognized in the financial statements.

The Company is, pursuant to certain arrangements, subject to late delivery penalties on equipment sales. Penalties are accounted for as a reduction of revenue, when revenue is recognized.

The Company’s customary trade terms include, from time to time, holdbacks on contracts (retainers on contracts) that are due for periods extending beyond one year and are included in long-term accounts receivable. Performance of the Company’s obligations under contracts is independent of the repayment terms. Revenue associated with holdbacks is recorded in the same manner as described above.

The Company ensures collection of its revenue through the use of insurance companies, letters of credit and the analysis of the credit worthiness of its customers.

The Company’s products are not generally sold through resellers and distributors.

Accruals for warranty costs, sales returns and other allowances at the time of shipment are based on contract terms and experience from prior claims.

Warranty obligations

Accruals for warranty costs are established at the time of shipment and are based on contract terms and experience from prior claims. SR Telecom’s usual warranty terms are one year, with two-year warranty periods in certain limited circumstances. SR Telecom evaluates its obligations related to product warranty on an ongoing basis. If warranty costs change substantially, SR Telecom’s warranty accrual could change significantly. SR Telecom tracks historical warranty costs, including labour and replacement parts, and uses this information as the basis for the establishment of its warranty provision. With respect to the introduction of new products, warranty accruals are determined based on SR Telecom’s historical experience with similar products.

 Management's Discussion and Analysis  SR Telecom - Annual Report 2006 28

Allowance for doubtful accounts

SR Telecom performs ongoing credit evaluations of its customers’ financial condition and establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers and on-going project risks. Wherever practical, the Company requires the insurance of accounts receivable by an export credit agency or by confirmed irrevocable letters of credit. The Company believes that it has sufficient allowances for doubtful accounts to address the risk associated with its outstanding accounts receivable.

Provision for excess or obsolete inventory

Inventories are valued at the lower of cost and net realizable value or replacement cost, with cost computed at standard, which approximates actual cost computed on a first-in, first-out basis. SR Telecom maintains a reserve for estimated obsolescence based upon assumptions regarding future demand for its products and the conditions of the markets in which its products are sold. This provision to reduce inventory to net realizable value is reflected as a reduction to inventory in the consolidated balance sheets. Management judgments and estimates must be made and used in connection with establishing these reserves. If actual market conditions are less favourable than the Company’s assumptions, additional reserves may be required.

Assessment of impairment of long-lived assets

Long-lived assets, including property, plant and equipment and intangible assets subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Management measures recoverability of assets to be held and used on an ongoing basis by comparing the carrying amount of the asset to estimated undiscounted future cash flows expected to be generated by the asset and its eventual disposal. If the carrying amount of an assets exceeds its estimated future cash flows, an impairment charge is recognized at the amount by which the carrying amount of the asset exceeds the fair value of the asset in the period incurred. Assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and would no longer be depreciated. The assets and liabilities of a disposal group classified as held-for-sale would be presented separately in the appropriate asset and liability sections of the balance sheet.

Foreign currencies

Monetary assets and liabilities denominated in foreign currencies are translated at exchange rates in effect at the balance sheet dates. Non-monetary assets and liabilities are translated at historical rates. Translation gains and losses are reflected in the statement of operations. Revenues and expenses are translated at average exchange rates prevailing during the period.

All of SR Telecom’s subsidiaries are financially and/or operationally dependent on the Company and are accounted for using the temporal method. Under this method, monetary assets and liabilities are translated at exchange rates in effect at the balance sheet dates. Non-monetary assets and liabilities are translated at historical rates. Revenues and expenses are translated at average rates for the period. Translation gains and losses of such subsidiaries’ accounts are reflected in the statement of operations.

Income tax assets

Future income tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the substantially enacted and the enacted tax rates that will be in effect when the differences are expected to reverse. A valuation allowance is provided for the amount of future income tax assets that are not considered more likely than not to be realized.

Investment tax credits are created from eligible research and development expenditures that can be carried forward to future periods. The Company’s existing credits have a remaining average life of four to 20 years. As of July 1, 2003, the Company ceased the recognition of further federal investment tax credits. The ability to realize the value of investment tax credits is reassessed in light of current and expected results of tax planning strategies. Any reduction in the value of such investment tax credits is recorded in research and development expenses in the statement of operations.

 Management's Discussion and Analysis  SR Telecom - Annual Report 2006 29

Adoption of new accounting policies

CONSOLIDATION OF VARIABLE INTEREST ENTITIES

The Canadian Institute of Chartered Accountants (CICA) issued Accounting Guideline 15, Consolidation of Variable Interest Entities. This guideline presents the views of the Accounting Standards Board on the application of consolidation principles to certain entities that are subject to control on a basis other than ownership of voting interests. The guideline provides guidance for determining when an enterprise includes the assets, liabilities and results of activities of such an entity (a variable interest entity) in its consolidated financial statements. This guideline applied to the Company as of January 1, 2005. Adoption of this guideline did not have an impact on the Company’s results of operations or financial position.

FINANCIAL INSTRUMENTS – DISCLOSURE AND PRESENTATION

The CICA issued revisions to section 3860 of the CICA Handbook, Financial Instruments – Disclosure and Presentation. The revisions change the accounting for certain financial instruments that have liability and equity characteristics. It requires instruments that meet specific criteria to be classified as liabilities on the balance sheet. Some of these financial instruments were previously classified as equity. These revisions came into effect on January 1, 2005. These recommendations did not have an impact on the Company’s results of operation or financial position at the time of adoption.

STOCK-BASED COMPENSATION AND OTHER STOCK-BASED PAYMENTS

The CICA issued Section 3870, Stock-Based Compensation and Other Stock-Based Payments. The Company has adopted the transitional provisions of this section, effective January 1, 2004, where compensation expense is recognized on all issued and outstanding stock options issued to employees after January 1, 2002, in accordance with the fair value method of accounting. The Company applied this provision retroactively, without restatement of prior periods. As a result, opening deficit increased by $0.3 million and contributed surplus was recorded for the same amount at January 1, 2004.

NON-MONETARY TRANSACTIONS

In June 2005, the CICA issued Section 3831, Non-Monetary Transactions, which establishes the standards for the measurement and disclosure of non-monetary transactions. The requirement to measure an asset or liability exchanged or transferred in a non-monetary transaction at fair value has remained unchanged from the former Section 3830. However, an asset or liability exchanged or transferred in a non-monetary transaction is measured at its carrying value when “the transaction lacks commercial substance”, which replaces the “culmination of the earnings process” criterion in former Section 3830. The new requirements are effective for non-monetary transactions initiated in periods beginning on or after January 1, 2006. Earlier adoption was permitted for non-monetary transactions initiated in periods beginning on or after July 1, 2005. The Company has chosen early adoption of these standards. Adoption of this guideline did not have an impact on the Company’s results from operations or financial position.

New accounting recommendations

FINANCIAL INSTRUMENTS

The CICA issued section 3855 of the CICA Handbook, Financial Instruments – Recognition and Measurement, which describes the standards for recognizing and measuring financial assets, financial liabilities and non-financial derivatives. This section requires that (1) all financial assets be measured at fair value, with some exceptions such as loans and investments that are classified as held to maturity, (2) all financial liabilities be measured at fair value when they are derivatives or classified as held for trading purposes (other financial liabilities are measured at their carrying value), and (3) all derivative financial instruments be measured at fair value, even when they are part of a hedging relationship. The CICA also reissued section 3860 (as section 3861) of the CICA Handbook, Financial Instruments – Disclosure and Presentation, which establishes standards for presentation of financial instruments and non-financial derivatives, and identifies the information that should be disclosed about them. These revisions come into effect for years beginning on or after October 1, 2006. The Company will adopt these new sections effective January 1, 2007.

As a result of adopting Section 3855, the Company’s deferred financing costs on the credit facility and convertible term loan, currently presented in other assets on the consolidated balance sheet, will be reclassified against long-term debt as of January 1, 2007. In addition, completion fees on the credit facility and convertible term loan, currently presented in accounts payable and accrued liabilities on the balance sheet, will also be reclassified to long-term debt as of January 1, 2007. As a result of the application of Section 3855, approximately $0.3 million will be recorded in opening deficit as at January 1, 2007 to reflect the difference between the straight-line and the effective interest methods of amortization and accretion.

Furthermore, as a result of adopting Section 3855, the Company’s long-term accounts receivable will be revalued to its discounted present value as at January 1, 2007. Approximately $0.6 million will be recorded in opening deficit as at January 1, 2007 to reflect the difference between the discounted fair value and the carrying value of the long-term accounts receivable.

In accordance with the transitional provisions, prior periods will not be restated as a result of adopting this new accounting standard.

 Management's Discussion and Analysis  SR Telecom - Annual Report 2006 30

HEDGES

The CICA issued section 3865 of the CICA Handbook, Hedges. The section is effective for years beginning on or after October 1, 2006. It describes when and how hedge accounting may be applied. A company uses hedging to change an exposure to one or more risks by creating an offset between changes in the fair value of a hedged item and a hedging item, changes in the cash flows attributable to a hedged item and a hedging item, or changes resulting from a risk exposure relating to a hedged item and a hedging item. Hedge accounting changes the normal basis for recording gains, losses, revenues and expenses associated with a hedged item or a hedging item in a company’s statement of operations. It ensures that all offsetting gains, losses, revenues and expenses are recorded in the same period. As of January 1, 2007, the adoption of section 3865 did not have a material impact on the Company’s consolidated financial statements.

COMPREHENSIVE INCOME

The CICA issued section 1530 of the CICA Handbook, Comprehensive Income. The section is effective for years beginning on or after October 1, 2006. It describes how to report and disclose comprehensive income and its components.

Comprehensive income is the change in a company’s net assets that results from transactions, events and circumstances from sources other than just the company’s shareholders. It includes items that would be excluded from net earnings, such as changes in the currency translation adjustment relating to self-sustaining foreign operations, the unrealized gains or losses on available-for-sale investments and the additional minimum liability for pension obligations.

The CICA also made changes to section 3250 of the CICA Handbook, Surplus, and reissued it as section 3251, Equity. The section is also effective for years beginning on or after October 1, 2006. The changes in how to report and disclose equity and changes in equity are consistent with new requirements of section 1530, Comprehensive Income.

Adopting these sections on January 1, 2007 will require the Company to start reporting, to the extent that they are relevant, the following items in the consolidated financial statements:

•   Comprehensive income and its components

•   Accumulated other comprehensive income and its components

The adoption of this section is not expected to have a material impact on the Company’s consolidated financial statements.

 Management's Discussion and Analysis  SR Telecom - Annual Report 2006 31

srtelecom.com

SR Telecom Inc.

Corporate Head Office

8150 Trans-Canada Highway

Montréal (Québec)

H4S 1M5

Canada

Tel.: +1 514 335 1210

Fax: +1 514 334 7783

Web site: www.srtelecom.com

Email: info@srtelecom.com

Printed in Canada

EX-99.2

Exhibit 99.2

Consolidated Financial Statements

Annual Report 2006

Book 2 of 2

CONTENTS
Consolidated financial statements 2006	3
Notes to the Consolidated financial statements	8

1

MANAGEMENT’S STATEMENT OF RESPONSIBILITY

The financial statements and other information contained in this Annual Report are the responsibility of management. They have been prepared in accordance with Canadian generally accepted accounting principles and are deemed to present fairly the consolidated financial position, results of operations and changes in financial position of the Company. Where necessary, management has made informed judgments and estimates of the outcome of events and transactions, with due consideration given to materiality.

As a means of fulfilling its responsibility for the integrity of financial information included in this Annual Report, management relies on the Company’s system of internal control. This system has been established to ensure, within reasonable limits, that assets are safeguarded, that transactions are properly recorded and executed in accordance with management’s authorization and that the accounting records provide a solid foundation from which to prepare the financial statements. It is recognized that no system of internal control can detect and prevent all errors and irregularities. Nonetheless, management believes that the established system provides an acceptable balance between benefits to be gained and the related cost.

The Company’s independent public accountants are responsible for auditing the financial statements and giving an opinion on them. As part of that responsibility, they review and assess the effectiveness of internal accounting controls to establish a basis for reliance thereon in determining the nature, timing and extent of audit tests to be applied. Management emphasizes the need for constructive recommendations as part of the auditing process and implements a high proportion of their suggestions.

The board of directors carries out its responsibility for the consolidated financial statements principally through its audit committee, consisting solely of outside directors, which reviews the financial statements and reports thereon to the Board. The committee meets periodically with the independent public accountants and management to review their respective activities and the discharge of each of their responsibilities. The independent public accountants have free access to the committee, with or without management, to discuss the scope of their audit, the adequacy of the system of internal control and the adequacy of financial reporting.

Management recognizes its responsibility for fostering a strong ethical climate so that the Company’s affairs are carried out according to the highest standards of personal and corporate conduct. This responsibility is characterized in the code of business conduct which is publicized throughout the Company. Employee awareness of this code is achieved through regular and continuing written policy statements. Management maintains a systematic program to ensure compliance with these policies.

Serge Fortin	Marc Girard
President and Chief Executive Officer	Senior Vice-President, Finance and Chief Financial Officer
July 3, 2007

2

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3

CONSOLIDATED FINANCIAL STATEMENTS 2006

Report of Independent Registered Chartered Accountants

To the Shareholders and Board of Directors of

SR Telecom Inc.

We have audited the consolidated balance sheets of SR Telecom Inc. as at December 31, 2006 and 2005 and December 1, 2005, and the consolidated statements of operations, deficit and cash flows for each of the periods in the three-year period ended December 31, 2006. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2006 and 2005 and December 1, 2005, and the results of its operations and its cash flows for each of the periods in the three-year period ended December 31, 2006 in accordance with Canadian generally accepted accounting principles.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Montréal, Canada

June 11, 2007, except as to Notes 2 and 32(a), which are as of July 3, 2007

Comments by Auditor on Canada-United States of America Reporting Differences

The standards of the Public Company Accounting Oversight Board (United States) require the addition of an explanatory paragraph when there are changes in accounting principles that have a material effect on the comparability of the Company’s consolidated financial statements, such as those discussed in Note 3a) and 31h), as well as when the consolidated financial statements are affected by conditions and events that cast substantial doubt on the Company’s ability to continue as a going concern, such as those described in Note 2 to the consolidated financial statements. Although we conducted our audits in accordance with both Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States), our report to the Shareholders and Board of Directors dated June 11, 2007, except as to Notes 2 and 32(a), which are as of July 3, 2007 is expressed in accordance with Canadian reporting standards, which do not require references to such change in accounting policies in the auditors’ report when the change is properly accounted for and adequately disclosed in the financial statements, nor permit a reference to such conditions and events in the auditors’ report when these are adequately disclosed in the financial statements.

Montréal, Canada

June 11, 2007, except as to Notes 2 and 32(a), which are as of July 3, 2007

4

CONSOLIDATED BALANCE SHEETS
As at (in thousands of Canadian dollars)			December 31, 2006			December 31, 2005			December 1, 2005 (note 1)
	Notes		$			$			$
Assets
Current assets
Cash and cash equivalents				19,250			9,479			4,796
Restricted cash and short-term investments		8		7,838			732			442
Accounts receivable, net		4		26,940			33,011			40,314
Taxes receivable				1,613			2,484			2,248
Inventory		6		12,026			30,863			33,932
Prepaid expenses and deposits				5,828			4,340			5,580
Total current assets				73,495			80,909			87,312
Investment tax credits		18		–			4,616			4,616
Long-term accounts receivable, net		5		2,365			–			–
Long-term prepaid expenses and deposits				399			–			–
Property, plant and equipment, net		7		43,738			57,842			58,958
Intangible assets, net		9		27,794			41,904			42,614
Other assets, net		10		2,762			2,280			2,467
Total assets				150,553			187,551			195,967
Liabilities
Current liabilities
Accounts payable and accrued liabilities		11		35,935			35,478			34,913
Customer advances				3,131			1,227			1,771
Current portion of lease liability		16		–			4,197			4,202
Current portion of long-term debt		12		33,211			34,581			34,667
Total current liabilities				72,277			75,483			75,553
Credit facility		13		52,941			47,862			47,551
Convertible term loan		15		10,487			–			–
Long-term debt		12		381			479			488
Convertible redeemable secured debentures		14		1,785			40,630			39,987
Other long-term liability	24(c-iii)			1,749			1,749			1,752
Total liabilities				139,620			166,203			165,331
Commitments and contingencies		24
Shareholders’ Equity
Capital stock		17		352,174			230,086			229,927
Equity component of convertible redeemable secured debentures		14		1,008			27,785			27,851
Equity component of convertible term loan		15		9,645			–			–
Contributed surplus				1,911			–			–
Deficit, pre-fresh start accounting		1		(227,142	)		(227,142	)		(227,142	)
Deficit				(126,663	)		(9,381	)		–
Total shareholders’ equity				10,933			21,348			30,636
Total liabilities and shareholders’ equity				150,553			187,551			195,967

The accompanying notes are an integral part of these consolidated financial statements.
Approved by the Board
Lionel Hurtubise	Serge Fortin
Director	President and Chief Executive Officer

5

CONSOLIDATED STATEMENTS OF OPERATIONS
									Pre-fresh start (note 1)
(in thousands of Canadian dollars, except per share and share information)			Year ended December 31, 2006			One month ended December 31, 2005			Eleven months ended November 30, 2005			Year ended December 31, 2004
	Notes		$			$			$			$
Revenue
Equipment				62,363			5,055			45,712			67,598
Services				5,904			583			5,630			12,892
Telecommunications				19,188			1,734			17,670			18,584
Total revenue				87,455			7,372			69,012			99,074
Cost of revenue
Equipment				64,520			4,306			40,103			47,209
Services				4,831			467			2,536			8,685
Total cost of revenue				69,351			4,773			42,639			55,894
Gross profit				18,104			2,599			26,373			43,180
Agent commissions				903			61			1,660			4,724
Selling, general and administrative expenses				50,796			2,634			31,749			39,962
Research and development expenses, net		18		20,954			990			20,610			30,159
Telecommunications operating expenses				15,298			1,446			19,462			18,670
Restructuring, asset impairment and other charges		22		31,515			–			17,200			7,701
Operating loss from continuing operations				(101,362	)		(2,532	)		(64,308	)		(58,036	)
Finance charges, net		20		(14,860	)		(2,316	)		(17,069	)		(8,083	)
Gain on sale of long-term investment		19		–			–			–			3,444
Gain on settlement of claim		16/24(d)		–			–			2,670			4,583
Gain (loss) on foreign exchange				543			(289	)		1,591			2,254
Loss from continuing operations before income taxes				(115,679	)		(5,137	)		(77,116	)		(55,838	)
Income tax (expense) recovery		21		(736	)		(23	)		109			(21,104	)
Loss from continuing operations				(116,415	)		(5,160	)		(77,007	)		(76,942	)
Earnings (loss) from discontinued operations,
net of income taxes		23		788			(4,221	)		(4,758	)		(9,192	)
Net loss				(115,627	)		(9,381	)		(81,765	)		(86,134	)
Basic and diluted		17
Loss per share from continuing operations				(0.17	)		(0.08	)		(4.34	)		(4.62	)
Loss per share from discontinued operations				–			(0.06	)		(0.27	)		(0.55	)
Net loss per share				(0.17	)		(0.14	)		(4.61	)		(5.17	)
Basic and diluted weighted average number of
common shares outstanding				671,477,773			65,385,505			17,751,817			16,661,454

The accompanying notes are an integral part of these consolidated financial statements.

6

CONSOLIDATED STATEMENTS OF DEFICIT
							Pre-fresh start (note 1)
(in thousands of Canadian dollars)			Year ended December 31, 2006		One month ended December 31, 2005		Eleven months ended November 30, 2005			Year ended December 31, 2004
	Notes		$		$			$		$
Balance, beginning of period			(9,381	)	–			(180,561	)	(90,941	)
Fresh start accounting adjustments		1	–		–			35,184		–
Cumulative effect of adoption of new accounting policies		3	–		–			–		(272	)
Deficit, beginning of period, as restated			(9,381	)	–			(145,377	)	(91,213	)
Net loss			(115,627	)	(9,381	)		(81,765	)	(86,134	)
Issue costs of equity component of convertible term loan			(690	)	–			–		–
Share issue costs			(965	)	–			–		(3,214	)
Balance, end of period			(126,663	)	(9,381	)		(227,142	)	(180,561	)
The accompanying notes are an integral part of these consolidated financial statements.

7

CONSOLIDATED STATEMENTS OF CASH FLOWS
									Pre-fresh start (note 1)
(in thousands of Canadian dollars)			Year ended December 31, 2006			One month ended December 31, 2005			Eleven months ended November 30, 2005			Year ended December 31, 2004
	Notes			$			$			$			$
Cash flows provided by (used in) continuing operating activities
Loss from continuing operations					(116,415	)		(5,160	)		(77,007	)		(76,942	)
Adjustments to reconcile net loss to net cash and cash
equivalents provided by (used in) operating activities:
Depreciation and amortization					15,431			1,464			10,550			12,193
Restructuring, asset impairment and other charges		22			30,106			–			14,001			1,681
Loss (gain) on disposal of property, plant and equipment					774			21			603			(166	)
Financing charges					6,659			823			11,211			–
Increase in lease liability					–			–			–			1,586
Gain on sale of long-term investment		19			–			–			–			(3,444	)
Gain on settlement of claim		16			–			–			(2,670	)		(4,583	)
Stock-based compensation					3,019			–			728			247
Future income taxes					–			–			–			20,275
Changes in operating assets and liabilities:
(Increase) decrease in long-term accounts receivable					(2,365	)		–			3,727			(4,073	)
Decrease (increase) in non-cash working capital items		25			17,740			9,802			(8,271	)		14,430
Unrealized foreign exchange (gain) loss					(169	)		126			(868	)		(3,236	)
					(45,220	)		7,076			(47,996	)		(42,032	)
Cash flows provided by continuing financing activities
Repayment of bank indebtedness					–			–			–			(3,000	)
Issuance of credit facility		13			–			–			48,127			–
Repayment of long-term debt and lease liability					(5,863	)		–			(1,314	)		(12,536	)
Issuance of convertible term loan		15			20,000			–			–			–
Proceeds from issue of shares and warrants,
net of share issue costs		17			53,310			–			–			46,787
Financing costs					(1,581	)		–			(5,392	)		–
					65,866			–			41,421			31,251
Cash flows (used in) provided by continuing investing activities
(Increase) decrease in restricted cash and short-term investments					(7,106	)		(290	)		952			5,191
Purchase of short-term investments					–			–			–			(45,439	)
Proceeds on sale of short-term investments					–			–			–			48,796
Purchase of property, plant and equipment					(4,331	)		(757	)		(3,331	)		(6,092	)
Proceeds on disposal of property, plant and equipment					562			7			1,418			859
Proceeds on sale of long-term investment					–			–			–			3,444
Other					–			–			–			(579	)
					(10,875	)		(1,040	)		(961	)		6,180
Increase (decrease) in cash and cash equivalents
Continuing operations					9,771			6,036			(7,536	)		(4,601	)
Discontinued operations		23			–			(1,353	)		7,783			716
Increase (decrease) in cash and cash equivalents					9,771			4,683			247			(3,885	)
Cash and cash equivalents, beginning of period					9,479			4,796			4,549			8,434
Cash and cash equivalents, end of period					19,250			9,479			4,796			4,549
The accompanying notes are an integral part of these consolidated financial statements.

8

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(all tabular amounts are in thousands of Canadian dollars except where otherwise stated)

1. DESCRIPTION OF BUSINESS, FRESH START ACCOUNTING AND BASIS OF PRESENTATION

Description of business

SR Telecom Inc. (SR Telecom or the Company) was incorporated on February 17, 1981, under the Canada Business Corporations Act. SR Telecom designs, delivers and deploys advanced, field-proven Broadband Fixed Wireless Access solutions. SR Telecom products are used by large telephone and Internet service providers to supply broadband data and carrier-class voice services to end-users in urban, suburban and remote areas around the globe. SR Telecom also provides full turnkey services to its customers. Most of SR Telecom’s sales are international, with its fixed wireless systems currently being used by telecommunications service providers worldwide. These customers include large incumbent local exchange carriers in the countries they serve, as well as competitive local exchange carriers and private operators of telecommunications systems. In addition, through its majority-owned subsidiary, Comunicacion y Telefonia Rural S.A. (CTR), SR Telecom provides local telephone services to residential, commercial and institutional customers as well as a network of payphones in a large, predominantly rural area of Chile. On February 1, 2007, the Company announced the closing of the sale of CTR (see note 32).

Fresh start accounting and basis of presentation

On November 30, 2005, pursuant to the terms of the Convertible Debentures (see note 14), a $10.0 million principal amount of the Convertible Debentures and accrued interest payable in kind thereon were converted on a pro rata basis among all holders of Convertible Debentures into approximately 47.3 million common shares at the conversion price of approximately $0.217 per common share. Immediately after the conversion, the holders of the Convertible Debentures held approximately 72.9% of the then outstanding common shares. This conversion resulted in a substantial realignment of the interests in the Company between the creditors and shareholders.

Effective November 30, 2005, the date of the conversion, the Company adopted fresh start accounting. Accordingly, the Company reclassified the deficit that arose prior to the conversion to a separate account within shareholders’ equity and re-valued its assets and liabilities to their estimated fair values. The revaluation adjustments have been accounted for as a capital transaction and are recorded within the pre-fresh start accounting deficit.

The following table summarizes the adjustments recorded to implement the fresh start basis of accounting:

	Prior to the adoption of fresh start accounting November 30, 2005				Fresh start adjustments				After adjustments December 1, 2005
		$			$			$	$
Assets
Current assets			86,727			585		(i)		87,312
Property, plant and equipment			77,581			(18,623	)	(ii)		58,958
Intangible assets			3,668			38,946		(iii)		42,614
Investment tax credits			4,616			–				4,616
Other assets			2,467			–				2,467
			175,059			20,908				195,967
Liabilities
Current liabilities			75,553			–				75,553
Credit facility			47,551			–				47,551
Long-term debt			488			–				488
Convertible redeemable secured debentures			40,261			(274	)	(v)		39,987
Other long-term liability			1,752			–				1,752
			165,605			(274	)			165,331
Shareholders’ Equity
Capital stock			219,653			10,274		(v)		229,927
Warrants			13,029			(13,029	)	(iv)		–
Equity component of convertible redeemable secured debentures			37,851			(10,000	)	(v)		27,851
Contributed surplus			1,247			(1,247	)	(iv)		–
Deficit pre-fresh start accounting			(262,326	)		35,184		(vi)		(227,142	)
			9,454			21,182				30,636
			175,059			20,908				195,967

9

1. DESCRIPTION OF BUSINESS, FRESH START ACCOUNTING AND BASIS OF PRESENTATION (CONT’D)

Summary of adjustments

The Company revalued its assets and liabilities and adjusted their carrying values to reflect the enterprise value of the Company following the substantial realignment of the interests between the shareholders and the creditors of the Company.

(i)   The revaluation resulted in an increase in the current assets, mainly reflecting work-in-process and finished goods inventory. The work-in-process fair value was determined using management’s best estimate of selling price less cost to sell and complete. The finished goods inventory fair value was determined using management’s best estimate of selling price less cost to sell.

(ii)   The revaluation resulted in a net decrease in property, plant and equipment. This decrease related primarily to the property, plant and equipment of CTR. $26.0 million of the decrease was the result of management’s best estimate of the fair value of CTR as a whole and the allocation of its fair value to the assets and liabilities. The property, plant and equipment in the Wireless business segment was valued based on fair market value in continued use of the assets, resulting in a $7.4 million increase in the value of these assets.

(iii)   The revaluation resulted in the Company assigning a value to its technology, using the relief-from-royalties method, calculated using projections developed by management. As well, as part of the revaluation, a value was attributed to customer relationships based on the related revenue and cash flows expected to be generated from these customers determined using projections developed by management.

(iv)   The value of contributed surplus and warrants was determined to be nil at the revaluation date. This value was determined using the Black-Scholes option pricing model.

(v)   Pursuant to the terms of the Convertible Debentures, $10.0 million principal amount, plus accrued interest thereon, classified in equity at the issuance date, was reclassified to capital stock upon their conversion to common shares.

(vi)   The adjustment reflects the increase in net assets of the Company as a result of the revaluation.

Comparative figures

Comparative financial statements for periods prior to December 1, 2005 have been presented pursuant to regulatory requirements. In reviewing these comparative financial statements, readers are reminded that they do not reflect the effects of the application of fresh start accounting.

Certain comparative figures have been reclassified in order to conform to the presentation adopted in 2006. These reclassifications related to not presenting assets of discontinued operations separately from assets of continuing operations in the balance sheets as at December 31, 2005 and December 1, 2005.

2. GOING CONCERN UNCERTAINTY

The accompanying consolidated financial statements have been prepared on a going concern basis. The going concern basis of presentation assumes that the Company will continue its operations for the foreseeable future and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business.

There is substantial doubt about the appropriateness of the use of the going concern assumption because of the Company’s losses for the current and prior years, negative cash flows, reduced availability of supplier credit and lack of operating credit facilities. As such, the realization of assets and the discharge of liabilities and commitments in the ordinary course of business are subject to significant uncertainty.

For the year ended December 31, 2006, the Company incurred a net loss of $115.6 million ($9.4 million for the month ended December 31, 2005 and $81.8 million for the eleven months ended November 30, 2005) and used cash of $45.2 million ($7.1 million for the month ended December 31, 2005 and $48.0 million for the eleven months ended November 30, 2005) in its continuing operating activities. Going forward, the Company will continue to require substantial funds as it continues the development of its WiMAX product offering.

The Company has taken the following steps to address the going concern uncertainty:

On February 1, 2007, the Company completed the sale of the shares of its Chilean subsidiary, CTR, for proceeds of nil (see note 12). As part of this transaction, the Company has been fully released from all of its obligations with respect to CTR, including liabilities in respect of loans to CTR amounting to approximately US$28.0 million for which SR Telecom was guaranteeing up to US$12.0 million. The divestiture of this non-core asset marked another important step in the Company’s plan to strengthen its financial position by streamlining its balance sheet and focus on its WiMAX strategy.

On March 6, 2007, the Company concluded the conversion/redemption of the remaining Convertible Debentures, allowing for the release of $4.7 million of restricted cash.

On April 12, 2007, the Company closed the sale and leaseback of its property located in Montréal (Québec), Canada for gross proceeds of $8.6 million.

10

2. GOING CONCERN UNCERTAINTY (CONT’D)

On April 16, 2007, the Company announced a plan to reorganize its internal operations, including the wind-up of legacy product operations and centralization of activities. In conjunction with the implementation of this plan, the Company will be eliminating approximately 75 positions worldwide.

On July 3, 2007, the Company entered into an agreement with a syndicate of lenders comprised of shareholders of the Company providing for a term loan of up to $45.0 million, of which $35.0 million will be drawn at closing and an additional $10.0 million will be available for drawdown for a period of up to one year from closing (see note 32, subsequent events).

The Company’s successful execution of its business plan is dependent upon a number of factors that involve risks and uncertainties. In particular, the development and commercialization of both fixed and mobile WiMAX are key elements of the Company’s strategic plan and of its future success and profitability. If either or both of fixed and/or mobile WiMAX prove not to be commercially viable or less commercially viable than is currently anticipated or compared to alternative solutions, or if the Company’s WiMAX products are less commercially viable or competitive than those developed by other companies, the Company will experience significant adverse effects on its liquidity, financial condition and ability to continue as a going concern.

The consolidated financial statements do not reflect any adjustments that would be necessary if the going concern basis was not appropriate. If the going concern basis was not appropriate for these consolidated financial statements, significant adjustments would be necessary in the carrying values of assets and liabilities, the reported revenues and expenses, and the balance sheet classifications used.

3. SIGNIFICANT ACCOUNTING POLICIES

These consolidated financial statements are prepared in accordance with Canadian generally accepted accounting principles (GAAP) and include the accounts of SR Telecom Inc. and its subsidiaries. All intercompany transactions and balances have been eliminated on consolidation.

(a) Adoption of new accounting policies

CONSOLIDATION OF VARIABLE INTEREST ENTITIES

The Canadian Institute of Charted Accountants (“CICA”) issued Accounting Guideline 15, Consolidation of Variable Interest Entities. The guideline presents the views of the Accounting Standards Board on the application of consolidation principles to certain entities that are subject to control on a basis other than ownership of voting interest. This guideline provides certain guidance for determining when an enterprise includes assets, liabilities and results of activities of such an entity (a “variable interest entity”) in its consolidated financial statements. This guideline applied to the Company as of January 1, 2005. Adoption of this guideline did not have an impact on the results of operations or financial position of the Company.

FINANCIAL INSTRUMENTS – DISCLOSURE AND PRESENTATION

The CICA issued revisions to Section 3860 of the CICA Handbook, Financial Instruments – Disclosure and Presentation. The revisions change the accounting for certain financial instruments that have liability and equity characteristics. It requires instruments that meet specific criteria to be classified as liabilities on the balance sheet. Some of these financial instruments were previously classified as equity. These revisions came into effect on January 1, 2005. These recommendations did not have an impact on the results of operations or financial position of the Company at the time of adoption.

NON-MONETARY TRANSACTIONS

The CICA issued in June 2005 Section 3831, Non-Monetary Transactions, which establishes the standards for the measurement and disclosure of non-monetary transactions. The requirement to measure an asset or liability exchanged or transferred in a non-monetary transaction at fair value has remained unchanged from the former Section 3830. However, an asset or liability exchanged or transferred in a non-monetary transaction is measured at its carrying value when “the transaction lacks commercial substance”, which replaces the “culmination of the earnings process” criterion in the former Section 3830. The new requirements are effective for non-monetary transactions initiated in periods beginning on or after January 1, 2006. Earlier adoption was permitted for non-monetary transactions initiated in periods beginning on or after July 1, 2005. The Company chose early adoption of these standards. Adoption of this guideline did not have an impact on the results of operations or financial position of the Company.

11

3. SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

STOCK-BASED COMPENSATION AND OTHER STOCK-BASED PAYMENTS

The CICA issued Section 3870, Stock-Based Compensation and Other Stock-Based Payments. The Company has adopted the transitional provisions of this section, effective January 1, 2004, where compensation expense is recognized on all issued and outstanding stock options granted to employees after January 1, 2002, in accordance with the fair value method of accounting. This provision was applied retroactively, without restatement of prior periods. As a result, opening deficit increased by $0.3 million and contributed surplus was increased by the same amount at January 1, 2004.

(b) Cash and cash equivalents

Cash and cash equivalents include all cash on-hand and balances with banks as well as all highly liquid short-term investments, with original maturities of three months or less at the time of purchase.

(c) Inventory

Inventories are valued at the lower of cost and net realizable value or replacement cost, with cost computed at standard, which approximates actual cost computed on a first-in, first-out basis. Inventory is comprised of raw materials, work-in-process and finished goods.

(d) Income taxes

Future income tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities, and are measured using the enacted and substantially enacted tax rates which will be in effect when the differences are expected to reverse. A valuation allowance is provided for the amount of future income tax assets that are not considered more likely than not to be realized.

(e) Property, plant and equipment

Property, plant and equipment are recorded at cost (see note 1) and are depreciated or amortized over their estimated useful lives on the following bases:

Telecommunications network equipment	straight-line over 20 years
Building and improvements	straight-line over 20 and 10 years
Leasehold improvements	straight-line over term of lease
Machinery, equipment and fixtures	20% diminishing balance and straight-line over 3 years
Computer equipment and licences	30% diminishing balance and straight-line over 5 years

(f) Intangible assets

Intangible assets are recorded at cost (see note 1) and amortized on a straight-line basis over their estimated useful lives on the following bases:

Customer relationships	straight-line over 5 years
Technology	straight-line over 5 years

(g) Deferred charges

Costs incurred to issue debt are deferred and amortized over the term of the obligation.

(h) Impairment of long-lived assets

Long-lived assets, including property, plant and equipment and intangible assets, subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured comparing the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the use of the asset and its eventual disposal. If the carrying amount of the asset exceeds its estimated future cash flows, an impairment charge is recognized at the amount by which the carrying amount of the asset exceeds the fair value of the asset.

(i) Foreign currency translation

Monetary assets and liabilities denominated in foreign currencies are translated at exchange rates in effect at the balance sheet dates. Non-monetary assets and liabilities are translated at historical rates. Translation gains and losses are reflected in the statement of operations. Revenue and expenses are translated at average exchange rates prevailing during the period.

12

3. SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

Subsidiaries that are financially or operationally dependent on the parent Company are accounted for under the temporal method of foreign currency translation. Under this method, monetary assets and liabilities are translated at exchange rates in effect at the balance sheet dates. Non-monetary assets and liabilities are translated at historical rates. Revenues and expenses are translated at the average rates for the period. Translation gains and losses of such subsidiaries’ accounts are reflected in the statement of operations.

(j) Revenue

Revenue is recognized when persuasive evidence of an agreement exists, delivery has occurred or the service has been performed, the fee is fixed and determinable and collection of the receivable is reasonably assured.

The principal revenue recognition guidance used by SR Telecom is the US Securities and Exchange Commission’s Staff Accounting Bulletins No. 101 and 104, Revenue Recognition in Financial Statements (SAB 101 and SAB 104) and the Emerging Issues Committee (EIC) issued abstracts on revenue recognition: EIC 141, Revenue Recognition, and EIC 142, Revenue Arrangements with Multiple Deliverables.

More specifically, revenue for hardware sold on a stand-alone basis is recognized upon delivery, when all significant contractual obligations have been satisfied and collection is reasonably assured. For contracts involving multiple elements, the Company determines if the elements within the arrangement can be separated amongst its different elements, using guidance under Canadian and US generally accepted accounting principles. That is, (i) the product or service represents a separate earnings process; (ii) objective, reliable and verifiable evidence of fair value exists; and (iii) the undelivered elements are not essential to the functionality of the delivered elements. Under this guideline, the Company recognizes revenue for each element based on relative fair values. Telecommunications service revenue is recognized as the services are rendered.

The Company’s products and services are generally sold pursuant to contracts or purchase orders. Revenue is recognized in the same manner as when the products and services are sold separately. Hardware revenue is recognized upon delivery, and service revenue is recognized as the services are performed. In order to determine if there is a loss on services in a contract, estimates of the costs to complete these services are updated on a monthly basis and are based on actual costs to date. These costs are analyzed against the expected remaining service revenue. If the remaining costs exceed the remaining revenue, a loss is immediately recognized in the financial statements.

The Company is, pursuant to certain arrangements, subject to late delivery penalties on equipment sales. Penalties are recorded as a reduction of revenue, when the revenue is recognized.

The Company’s customary trade terms include, from time to time, holdbacks on contracts (retainages on contracts) that are due for periods extending beyond one year and are included in long-term accounts receivable (see note 5). Performance of the Company’s obligations under contracts is independent of the repayment terms. Revenue associated with holdbacks is recorded in the same manner as described above.

The Company ensures collection of its revenue through the use of insurance companies, letters of credit and the analysis of the credit worthiness of its customers.

The Company’s products are not generally sold through resellers and distributors.

Accruals for warranty costs, sales returns and other allowances at the time of shipment are based on contract terms and experience from prior claims.

(k) Research and development

The Company incurs costs relating to the research and development of new products. Research costs are expensed as incurred. Development costs are expensed as incurred unless specific criteria for deferral, in accordance with Canadian GAAP, are met. The development costs are not considered deferrable at this time. Government grants and recognized investment tax credits are netted against such costs.

(l) Derivative financial instruments

Derivative financial instruments are utilized by the Company in the management of its foreign currency risk. The Company does not enter into financial instruments for trading or speculative purposes. The Company enters into offsetting forward exchange contracts when it is deemed appropriate. The Company does not use hedge accounting for these transactions. The derivatives are recorded at fair value on the balance sheet with changes in fair value recorded in the statement of operations under gain (loss) on foreign exchange. Changes in the fair values of the forward contracts partially offset the corresponding translation gains and losses on the related foreign currency denominated monetary assets and liabilities. No such contracts exist as at December 31, 2006.

13

3. SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

(m) Earnings per share

The Company presents both basic and diluted earnings per share on the face of the statement of operations regardless of the materiality of the difference between them, and uses the treasury stock method to compute the dilutive effect of options, warrants and conversion features of other instruments.

(n) Employee benefit plan

SR Telecom maintains a defined contribution retirement program covering the majority of its employees. A compensation expense is recognized for the Company’s portion of the contributions made under the plan. This plan was suspended effective January 1, 2006.

(o) Advertising costs

Advertising costs are expensed as incurred. Amounts expensed were nominal for each of the periods presented.

(p) Use of estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent liabilities in these financial statements. Actual results could differ from those estimates. Balances and transactions that are subject to a high degree of estimation are: fair value determination of assets and liabilities; revenue recognition for long-term contracts; allowance for doubtful accounts receivable; inventory obsolescence; product warranty; amortization; asset valuations; impairment assessments; income taxes; restructuring costs; stock-based compensation; convertible debt; and other provisions and contingencies.

(q)   New accounting recommendations

FINANCIAL INSTRUMENTS

The CICA issued Section 3855 of the CICA Handbook, Financial Instruments – Recognition and Measurement, which describes the standards for recognizing and measuring financial assets, financial liabilities and non-financial derivatives. This section requires that (i) all financial assets be measured at fair value, with some exceptions such as loans, receivables and investments that are classified as held to maturity, (ii) other financial liabilities be measured at amortized cost or classified as held for trading purposes, and (iii) all derivative financial instruments be measured at fair value, even when they are part of a hedging relationship. The CICA also reissued Section 3860 (as Section 3861) of the CICA Handbook, Financial Instruments – Disclosure and Presentation, which establishes standards for presentation of financial instruments and non-financial derivatives, and identifies the information that should be disclosed about them. These revisions come into effect for years beginning on or after October 1, 2006. The Company will adopt these new sections effective January 1, 2007.

As a result of adopting Section 3855, the Company’s deferred financing costs on the credit facility and convertible term loan, currently presented in other assets on the consolidated balance sheet, will be reclassified against long-term debt as of January 1, 2007. In addition, completion fees on the credit facility and convertible term loan, currently presented in accounts payable and accrued liabilities on the balance sheet, will also be reclassified to long-term debt as of January 1, 2007. As a result of the application of Section 3855, approximately $0.3 million will be recorded in opening deficit as at January 1, 2007 to reflect the difference between the straight-line and the effective interest methods of amortization.

Furthermore, as a result of adopting Section 3855, the Company’s long-term accounts receivable will be discounted to their amortized cost January 1, 2007. Approximately $0.6 million will be recorded in opening deficit as at January 1, 2007 to reflect the difference between the amortized cost and the carrying value of the long-term accounts receivable.

In accordance with the transitional provisions, prior periods will not be restated as a result of adopting this new accounting standard.

HEDGES

The CICA issued Section 3865 of the CICA Handbook, Hedges. The section is effective for years beginning on or after October 1, 2006. It describes when and how hedge accounting may be applied. Hedging is an activity used by a company to change an exposure to one or more risks by creating an offset between changes in the fair value of a hedged item and a hedging item, changes in the cash flows attributable to a hedged item and a hedging item, or changes resulting from a risk exposure relating to a hedged item and a hedging item. Hedge accounting changes the normal basis for recording gains, losses, revenues and expenses associated with a hedged item or a hedging item in a company’s statement of operations. It ensures that all offsetting gains, losses, revenues and expenses are recorded in the same period. The adoption of Section 3865 as of January 1, 2007 will not have a material impact on the Company’s consolidated financial statements.

14

3. SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

COMPREHENSIVE INCOME

The CICA issued Section 1530 of the CICA Handbook, Comprehensive Income. The section is effective for years beginning on or after October 1, 2006. It describes how to report and disclose comprehensive income and its components.

Comprehensive income is the change in a company’s net assets that results from transactions, events and circumstances from sources other than just the company’s shareholders. It includes items that would be excluded from net earnings, such as changes in the currency translation adjustment relating to self-sustaining foreign operations, the unrealized gains or losses on available-for-sale investments and the unrealized gains and losses on derivatives in cash flow hedging relationships.

The CICA also made changes to Section 3250 of the CICA Handbook, Surplus, and reissued it as Section 3251, Equity. The section is also effective for years beginning on or after October 1, 2006. The changes in how to report and disclose equity and changes in equity are consistent with new requirements of Section 1530, Comprehensive Income.

Adopting these sections on January 1, 2007 will require the Company to start reporting, to the extent that they are relevant, the following items in the consolidated financial statements:

•   Comprehensive income and its components

•   Accumulated other comprehensive income and its components

4. ACCOUNTS RECEIVABLE, NET

	December 31,			December 31,			December 1,
		2006			2005			2005
		$			$			$
Trade		25,407			33,525			40,969
Trade, unbilled		856			882			550
Other (i)		7,153			7,029			6,948
Allowance for doubtful accounts (i)		(6,476	)		(8,425	)		(8,153	)
		26,940			33,011			40,314

(i) Includes an account receivable from Teleco de Haiti as follows:

	December 31, 2006				December 31, 2005				December 1, 2005
	$		US$		$		US$		$		US$
Account receivable	5,452		4,679		5,455		4,679		5,461		4,679
Allowance for doubtful accounts	(3,121	)	(2,679	)	(3,706	)	(3,179	)	(3,710	)	(3,179	)
	2,331		2,000		1,749		1,500		1,751		1,500

In December 2001, SR Telecom filed a statement of claim in New York for US$4.9 million against MCI International and Telecommunications d’Haiti, S.A.M. (Teleco de Haiti). The claim was filed pursuant to a clause mandating three-party arbitration before the International Court of Arbitration in respect of funds that ceased flowing to SR Telecom under a Tripartite Agreement between Teleco de Haiti, MCI International and SR Telecom. The agreement provided for the financing of a contract between SR Telecom and Teleco de Haiti pursuant to which SR Telecom was to supply and install certain telecommunications equipment to Teleco de Haiti for approximately US$12.9 million. In the eleven-month period ended November 30, 2005, following various proceedings and actions during 2002 to 2005, the Company determined that the most likely outcome would not result in the full recovery of the receivable and accordingly recorded a provision for doubtful accounts in the amount of $3.7 million (US$3.2 million).

In the fourth quarter of 2005, SR Telecom came to a settlement with MCI and Teleco de Haiti. The settlement was signed by SR Telecom and MCI, but was not signed by Teleco de Haiti. Teleco de Haiti did not agree to execute the settlement agreement despite the fact that it agreed to the terms of the settlement in December 2005. As a result, the case was returned to litigation and its outcome remained uncertain. Management believed that the most likely outcome would not result in the recovery of the receivable and accordingly, in the third quarter of 2006, increased its provision for doubtful account for the entire balance outstanding of $5.5 million.

In March 2007, SR Telecom reached a settlement with MCI and Teleco de Haiti in the amount of $2.3 million (US$2.0 million). SR Telecom received the settlement amount in late March 2007. As such, the provision for doubtful accounts as at December 31, 2006 was adjusted to reflect the settled amount.

15

5. LONG-TERM ACCOUNTS RECEIVABLE, NET

The long-term accounts receivable of $2.4 million as at December 31, 2006 (nil as at December 31, 2005 and December 1, 2005), is comprised of holdbacks (retainages) on contracts that are due in 2009 and 2010.

6. INVENTORY

	December 31,			December 31,			December 1,
		2006			2005			2005
		$			$			$
Raw materials		17,572			25,983			25,321
Work-in-process		529			1,574			2,315
Finished goods		4,914			3,428			6,296
Reserve for obsolescence		(10,989	)		(122	)		–
		12,026			30,863			33,932

During the year, charges to adjust inventory cost to its net realizable value were incurred (see note 22).

7. PROPERTY, PLANT AND EQUIPMENT

	December 31, 2006			December 31, 2005			December 1, 2005
		Accumulated			Accumulated			Accumulated
		depreciation/	Net book		depreciation/	Net book		depreciation/	Net book
	Cost	amortization	value	Cost	amortization	value	Cost	amortization	value
	$	$	$	$	$	$	$	$	$
Land	2,234	–	2,234	2,234	–	2,234	2,234	–	2,234
Telecommunications
network equipment	31,581	2,835	28,746	36,063	212	35,851	35,585	–	35,585
Building, improvements and fixtures	5,166	712	4,454	5,608	51	5,557	5,603	–	5,603
Machinery and equipment	7,475	1,623	5,852	11,511	178	11,333	12,363	–	12,363
Computer equipment and licences	3,451	999	2,452	2,936	69	2,867	3,173	–	3,173
	49,907	6,169	43,738	58,352	510	57,842	58,958	–	58,958

During the year, charges to adjust property, plant and equipment to its estimated fair value were incurred (see note 22).

Property, plant and equipment includes $0.3 million of machinery assets held under capital leases as at December 31, 2006 ($0.2 million as at December 31, 2005 and December 1, 2005), and $0.1 million of accumulated depreciation as at December 31, 2006 ($0.01 million as at December 31, 2005 and nil as at December 1, 2005). Computer equipment and licences include software licences of $1.6 million as at December 31, 2006 ($1.5 million as at December 31, 2005 and $1.4 million as at December 1, 2005), and accumulated depreciation of $0.5 million as at December 31, 2006 ($0.03 million as at December 31, 2005 and nil as at December 1, 2005).

Depreciation expense taken in the year ended December 31, 2006 amounted to $6.3 million ($0.5 million in the one month ended December 31, 2005, $8.5 million in the eleven months ended November 30, 2005 and $10.3 million in the year ended December 31, 2004).

8. RESTRICTED CASH AND SHORT-TERM INVESTMENTS
	December 31,		December 31,		December 1,
	2006		2005		2005
		$		$		$
Guaranteed Investment Certificates pledged in support of letters of guarantee issued by
Canadian and foreign chartered banks, bearing interest at rates ranging from 3.0% to 3.15%
(ranging from 1.65% to 1.95% in 2005), maturing through November 2007		173		439		439
Restricted cash held by the Corporation’s financial institution as part of the first ranking moveable
hypothec over the Corporation’s cash and credit balances held at the financial institution		7,546		–		–
Cash sweep accounts in trust in Chile to meet interest and principal obligations		119		293		3
		7,838		732		442

16

9. INTANGIBLEASSETS, NET
	December 31, 2006			December 31, 2005			December 1, 2005
		Accumulated			Accumulated			Accumulated
		depreciation/	Net book		depreciation/	Net book		depreciation/	Net book
	Cost	amortization	value	Cost	amortization	value	Cost	amortization	value
	$	$	$	$	$	$	$	$	$
Customer relationships	3,160	1,185	1,975	9,653	161	9,492	9,653	–	9,653
Technology	32,961	7,142	25,819	32,961	549	32,412	32,961	–	32,961
	36,121	8,327	27,794	42,614	710	41,904	42,614	–	42,614

An impairment charge of $5.4 million ($6.5 million, net of $1.1 million of accumulated amortization) for customer relationships was recorded in the third quarter of 2006 (see note 22). This charge resulted from management’s continued restructuring activities, including the realignment of its business on performing products. As a result, customer relationships directly related to products that the Company is either discontinuing or phasing out over time were written down to their estimated fair value determined as the present value of related estimated future cash flows.

Amortization expense taken in the year ended December 31, 2006 amounted to $8.7 million ($0.7 million in the one month ended December 31, 2005, $0.8 million in the eleven months ended November 30, 2005 and $0.9 million in the year ended December 31, 2004).

10. OTHER ASSETS, NET
	December 31, 2006			December 31, 2005			December 1, 2005
		Accumulated			Accumulated			Accumulated
		depreciation/	Net book		depreciation/	Net book		depreciation/	Net book
	Cost	amortization	value	Cost	amortization	value	Cost	amortization	value
	$	$	$	$	$	$	$	$	$
Deferred charges	3,384	622	2,762	2,493	213	2,280	2,467	–	2,467

As at December 31, 2006, other assets are comprised of professional fees of $3.4 million ($2.5 million as at December 31, 2005 and December 1, 2005) primarily relating to the establishment of the credit facility in 2005 and the amount allocated to the debt component of the convertible term loan obtained in 2006. The Company is amortizing these costs over the terms of the credit facility and the convertible term loan.

11. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
	December 31,		December 31,		December 1,
	2006		2005		2005
		$		$		$
Trade accounts		20,887		20,475		18,684
Commissions		4,572		5,291		5,929
Accrued payroll and related expenses		3,681		3,186		4,107
Income taxes		749		344		355
Restructuring provision (note 22)		380		928		1,158
Accrued interest		526		471		188
Other		5,140		4,783		4,492
		35,935		35,478		34,913

In February 2006, the Company reached settlements with certain trade suppliers on outstanding accounts payable. These trade suppliers were also former contract manufacturers for certain of the Company’s products. As a result of these transactions, a gain on settlement was recorded in cost of sales in the amount of $0.8 million (US$0.7 million) as of November 30, 2005.

17

12. LONG-TERM DEBT
	December 31,		December 31,		December 1,
	2006		2005		2005
		$		$		$
Notes payable issued by CTR, under a term loan facility (i)		18,336		18,159		18,180
Notes payable issued by CTR, under a term loan facility (i)		14,780		16,288		16,307
Obligations under capital leases, bearing interest at rates ranging from 8.8% to 12.0%,
repayable at various dates to April 2009		206		343		398
Senior unsecured debentures issued by the Corporation, due October 15, 2011,
bearing interest at 8.15% payable semi-annually, redeemable at the option
of the Company at a price equal to the greater of (i) 100% of the principal amount and
(ii) the Canadian yield price (as defined in the trust indenture), together in each case
with accrued interest, if any, to the date fixed for redemption (ii)		270		270		270
		33,592		35,060		35,155
Current portion		33,211		34,581		34,667
		381		479		488

(i)   On February 1, 2007, the Company announced the closing of the sale of CTR. As a result of the sale, the Company was fully released from all of its obligations with respect to CTR, including liabilities in respect of loans to CTR and capital lease obligations of CTR, and thus, the Company will not be required to make any payments for such liabilities.

Pursuant to the terms of an Amendment Agreement dated May 19, 2005, the CTR lenders agreed to restructure the repayment schedule of their loans and to postpone the maturity of the loans until May 17, 2008. As at December 31, 2006, a principal amount of $32.6 million or US$28.0 million ($34.3 million or US$29.5 million as at December 31, 2005 and December 1, 2005) was outstanding. The interest rate was at LIBOR plus 4.5%, and an additional 1% per year, payable in kind at maturity, which, at December 31, 2006, is included in long-term debt in the amount of $0.5 million ($0.1 million as at December 31, 2005 and December 1, 2005). SR Telecom continued to guarantee the performance of the obligations of CTR to the CTR lenders up to an amount of US$12.0 million. This guarantee was secured against the assets of SR Telecom, ranked pari passu with the Convertible Debentures and was subordinate to the security for the credit facility.

These notes were secured by a pledge of all the assets of CTR and a pledge of the shares of the intermediate holding companies. The Company had agreed to support CTR, including the completion of the network and the maintenance of the Company’s initial equity investment in CTR. SR Telecom had agreed to provide CTR with the appropriate funds and resources required to complete the construction of the network as originally planned at the time of the signing of the loan agreements in 1999. Equally, SR Telecom could repatriate its equity funds from Chile to Canada over and above the amount of the initial equity and SR Telecom’s loans to CTR were subordinated to the notes payable.

Guarantees were provided by the Company that, in certain circumstances, were limited to an amount of US$12.0 million. As at December 31, 2006, the lenders had full recourse against SR Telecom for the complete amount of the loans.

These notes were subject to a number of performance, financial performance and financial position covenants, which were in default at December 31, 2006. In accordance with GAAP, these notes were classified as current liabilities. The covenants under the notes fell into two main categories: (1) the financial covenants required the achievement of specific objectives for the current ratio, debt service coverage ratio, debt to equity ratio, minimum earnings before income taxes, depreciation and amortization, minimum recurring revenues and receivables turnover; (2) the performance covenants focused on timely completion of the network and timely achievement of financial independence for the project. While the foregoing is not an exhaustive list of covenants, it includes the majority of non-reporting covenant requirements.

(ii)   All but $0.3 million face value of the senior unsecured debentures were exchanged for the Convertible Debentures in August 2005 (see note 14).

18

13. CREDIT FACILITY

On May 19, 2005, SR Telecom entered into a US-dollar-denominated Credit Agreement providing for a credit facility of up to US$39.6 million with a syndicate of lenders, comprised of certain previous holders of the 8.15% debentures and subsequent shareholders of the Company, and BNY Trust Company of Canada as administrative and collateral agent. The credit facility was revolving until October 1, 2006, followed by a non-revolving term that extends to October 2, 2011. The credit facility is secured by a first priority lien on all of the existing and after-acquired assets of the Company.

The credit facility of US$39.6 million was fully drawn as at December 31, 2006, December 31, 2005 and December 1, 2005 in the amount of $46.2 million, $46.3 million and $46.2 million, respectively. The interest on the credit facility is comprised of a cash portion, which is the greater of 6.5% and the three-month US Dollar LIBOR rate plus 3.85%, and additional interest payable in kind, which is the greater of 7.5% and the three-month US Dollar LIBOR rate plus 4.85% . The additional interest is accrued and included in the Credit Facility as at December 31, 2006, December 31, 2005 and December 1, 2005, in the amounts of $6.8 million, $1.7 million and $1.3 million, respectively. As of February 2007, the Company entered into an agreement with the syndicate of lenders whereby the cash portion of the interest would be payable in kind until December 2007. In addition, the financial terms of the credit facility include the following: a 2% commitment fee based on the facility as it becomes available and a payout fee of either, at the option of the lenders, 5% of the US$39.6 million maximum loan or 2% of distributable value, as defined in the Credit Agreement (which approximates the market capitalization of the Company), at maturity, payable by issuing debt or equity. All 2% commitment fees were paid upon initial draw down of the credit facility amounts. The 5% payout fee is included in accrued liabilities as at December 31, 2006 in the amount of $0.6 million (US$0.5 million) and as at December 31, 2005 and December 1, 2005 in the amount of $0.2 million (US$0.2 million).

14. CONVERTIBLE REDEEMABLE SECURED DEBENTURES

On July 21, 2005 the Company issued a private offering memorandum to its debenture holders to exchange all of the 8.15% senior unsecured debentures and accrued interest into 10% convertible redeemable secured debentures (“Convertible Debentures”), due October 15, 2011. On August 24, 2005, all but $0.3 million face value of the 8.15% debentures were exchanged for $75.5 million face value of Convertible Debentures.

Interest on the Convertible Debentures is payable in cash or in kind by the issuance of additional convertible debentures, at the option of the Company. The Convertible Debentures are secured by a charge over substantially all of the assets of the Company, ranking behind the security interest granted to the lenders under the Credit Facility and pari passu with the CTR notes, and are subject to the terms of an Inter-Creditor agreement entered into between the credit facility lenders, under the terms of the Credit Facility, the Convertible Debenture holders and the CTR lenders, which set out certain rights and obligations between them.

The Convertible Debentures are convertible into common shares at a rate of 4,606 common shares per $1,000 in principal amount of Convertible Debentures, representing a conversion price at closing of approximately $0.217 per common share.

In accordance with their terms, on November 30, 2005, $10.0 million in principal amount of the Convertible Debentures plus accrued interest thereon payable in kind were converted into 47,322,829 common shares at the conversion price of approximately $0.217 per common share. Immediately after the conversion, the holders of the Convertible Debentures held approximately 72.9% of the then outstanding common shares.

On February 2, 2006, the Company converted approximately $61.8 million of Convertible Debentures, including accrued interest payable in kind thereon, into 280,881,314 common shares. In addition, on February 27, 2006, the Company converted approximately $4.5 million of Convertible Debentures, including accrued interest payable in kind thereon, into 20,391,019 common shares. Other conversions of Convertible Debentures and accrued interest payable in kind thereon took place throughout the first quarter of 2006. In aggregate, these conversions resulted in the reclassification of $39.7 million from the debt component and $26.6 million from the equity component to capital stock.

During the three months ended June 30, 2006, the Company converted $0.4 million of Convertible Debentures, including accrued interest payable in kind thereon, into 1,763,286 common shares, which resulted in the reclassification of $0.2 million from the debt component and $0.2 million from the equity component to capital stock.

In accordance with Canadian GAAP, the Convertible Debentures were accounted for on the basis of their substance and are presented in their component parts of debt and equity. The debt component was measured at the issue date as the present value of the cash payments of interest and principal due under the terms of the Convertible Debentures discounted at an interest rate of 21%, which approximated the estimated interest rate of a similar non-convertible financial instrument with comparable terms and risk. The difference between the value as determined and the face value of the Convertible Debentures was allocated to equity. The debt component is accreted to its face value through a charge to earnings over its term.

19

14. CONVERTIBLE REDEEMABLE SECURED DEBENTURES (CONT’D)

As at December 31, 2006, the debt component was $1.8 million ($40.6 million as at December 31, 2005 and $40.0 million as at December 1, 2005), including $0.1 million of accreted interest ($0.7 million as at December 31, 2005 and $0.6 million as at December 1, 2005) and interest payable in kind in the amount of $0.3 million ($2.3 million as at December 31, 2005 and $1.8 million as at December 1, 2005), and the equity component was $1.0 million ($27.8 million as at December 31, 2005 and $27.9 million as at December 1, 2005).

15. CONVERTIBLE TERM LOAN

On December 16, 2006, the Company obtained a $20.0 million convertible term loan from a syndicate of lenders comprised of shareholders of the Company. The convertible term loan bears cash interest at a rate equal to the greater of 6.5% or the three-month US dollar LIBOR rate plus 3.85% and additional interest that may be paid in cash or in kind, at the option of the Company, at a rate equal to the greater of 7.5% or the three-month US dollar LIBOR rate plus 4.85% . As of February 2007, the Company entered into an agreement with the syndicate of lenders whereby the cash portion of the interest would be payable in kind until December 2007. The convertible term loan has a five-year term and is secured by the assets of the Company, subordinated only to the existing credit facility. The holders of the convertible term loan have the right to convert, at any time, the convertible term loan, all “in kind” interest and other accrued but unpaid interest thereon, into common shares of the Company at the conversion rate of $0.17 per common share. The financial terms of the convertible term loan include an up-front, 2% commitment fee and a payout fee of 5% of the convertible term loan due at maturity. As at December 31, 2006, the commitment fee of $0.4 million has been paid and $0.02 million has been accrued for the payout fee.

In accordance with Canadian GAAP, the convertible term loan is accounted for on the basis of its substance and is presented in its component parts of debt and equity. The debt component was measured, prior to adjustment, at the issue date as the present value of the cash payments of interest and principal due under the terms of the convertible term loan using a discount rate of 22%, which approximates the estimated interest rate of a similar non-convertible financial instrument with comparable terms and risk. The equity component was measured, prior to adjustment, at the issue date using the Black-Scholes option pricing model using the following assumptions: dividend yield of 0.0%; volatility of 100.0%; risk-free interest rate of 3.9%; and expected life of 5 years. Both components, individually valued as described above, were adjusted, on a pro rated basis, to arrive at each component of the convertible term loan. The debt component is accreted to its face value through a charge to earnings over its term.

As at December 31, 2006, the debt component is $10.5 million, including $0.04 million of accreted interest and interest payable in kind in the amount of $0.1 million, and the equity component is $9.6 million.

Issue costs amounting to $1.4 million have been allocated between the debt and equity components of the convertible term loan: $0.7 million was allocated to the debt component and has been included in deferred costs; and $0.7 million was allocated to the equity component and has been included in deficit.

16. LEASE LIABILITY

With the acquisition of Netro Corporation in 2003, the Company assumed SR Telecom USA Inc.’s San José, California operating lease. As this location was not in use by SR Telecom USA Inc., at the time of acquisition in 2003, a lease liability of $8.6 million was recorded as the fair value of future lease payments, less expected sub-leasing revenue. The Company had been unable to sub-lease the premises, nor did it expect to be able to sublease the premises in the near term. As such, in the fourth quarter of 2004, the Company revised its estimate of expected sub-lease revenue, resulting in a $1.6 million charge in the statement of operations and a corresponding increase in the lease liability.

In 2005, the landlord of the lease filed a lawsuit against SR Telecom USA Inc., seeking payment for rent and damages. On January 13, 2006, the Company reached a US$3.6 million settlement with the landlord for the full discharge of the lease liability, resulting in a gain of $2.7 million being recorded in the eleven months ended November 30, 2005. As at December 1, 2005 and December 31, 2005, the Company’s lease liability was $4.2 million (US$3.6 million) reflecting the settlement payable. This settlement was paid in the first quarter of 2006. As at December 31, 2006, the Company’s lease liability was nil.

20

17. CAPITAL STOCK AND WARRANTS
Authorized
An unlimited number of common shares
An unlimited number of preferred shares issuable in series
	Issued and outstanding			Capital
	common shares			stock
					$
Opening balance as at January 1, 2004		10,467,283			180,866
February 18, 2004
Public offering (a)		5,714,287			31,029
Private placement (a)		571,500			3,104
February 24, 2004, over-allotment option related to public offering (a)		857,142			4,654
Termination of Employee Stock Purchase Plan – cancellation of common shares (b)		(80	)		–
Closing balance as at December 31, 2004		17,610,132			219,653
November 30, 2005 mandatory conversion of Convertible Debentures (c)		47,322,829			10,274
Closing balance as at December 1, 2005		64,932,961			229,927
Conversions of debentures during the fourth quarter of 2005 (c)		734,000			159
Closing balance as at December 31, 2005		65,666,961			230,086
February 2, 2006
Private placement (d)		333,333,333			50,000
Conversion of debentures (d)		280,881,314			61,806
February 27, 2006
Private placement (d)		28,498,302			4,275
Conversion of debentures (d)		20,391,019			4,485
Conversion of debentures during the first quarter of 2006		89,269			21
Conversions of debentures during the second quarter of 2006		1,763,286			393
July 24, 2006 issuance of shares (e)		2,769,576			1,108
Closing balance as at December 31, 2006		733,393,060			352,174

(a)   On February 18, 2004, the Company completed a public offering and a private placement of Units. Each Unit issued was comprised of one common share and one-half of one common share purchase warrant. Each whole warrant entitled the holder to acquire one common share at a price of $9 per common share until the end of February 2006. On February 24, 2004, the over-allotment option related to the public offering was exercised. The total net proceeds to the Company amounted to $46.8 million after deducting share issue costs of $3.2 million.

The gross proceeds of $50.0 million were allocated between common shares and warrants based on their then fair market values. Accordingly, $38.8 million was allocated to common shares and $11.2 million to the warrants. The fair value of the warrants was determined using the Black-Scholes option pricing model, assuming a weighted average risk-free interest rate of 4.3%, a dividend yield of 0%, expected volatility of 72.5% and expected life of the warrants of two years.

(b)   The Company effectively terminated its Employee Stock Purchase Plan as of January 1, 2004 and cancelled 80 common shares in 2004.

(c)   On November 30, 2005, pursuant to the terms of the Convertible Debentures, $10.0 million in principal amount of the Convertible Debentures and $0.3 million of accrued interest payable in kind thereon were converted into common shares. Other conversions of Convertible Debentures took place in 2005.

(d)   On February 2, 2006, the Company completed a private placement and converted Convertible Debentures, including accrued interest payable in kind thereon, into common shares. On February 27, 2006, the Company completed a similar private placement and converted Convertible Debentures, including interest payable in kind thereon, into common shares. Share issue costs amounted to $1.0 million.

(e)   On July 24, 2006, the Company issued common shares to its former Interim President and Chief Executive Officer as per the terms of an agreement. Compensation expense of $1.1 million, as well as $0.7 million for all applicable taxes, was included in selling, general and administrative expenses in 2006.

21

17. CAPITAL STOCK AND WARRANTS (CONT’D)
Warrants
	December 31,		December 31,		December 1,
	2006		2005		2005
	Number of		Number of		Number of
	warrants		warrants		warrants
Warrants issued in July 2003
Exercise price of $10 per common share, expiring on July 18, 2008 and August 27, 2008		352,941		352,941		352,941
Warrants issued in February 2004
Exercise price of $9 per common share, expired on February 20, 2006		–		3,571,465		3,571,465
Issued and outstanding warrants		352,941		3,924,406		3,924,406

Upon the adoption of fresh start accounting on December 1, 2005, the value of the warrants was determined to be nil as at the revaluation date (see note 1). This value was determined using the Black-Scholes option pricing model.

Stock-based compensation plan
The following table summarizes the activity in the Employee Stock Option Plan:
							Pre-fresh start (note 1)
	Year ended			One month ended			Eleven months  ended			Year ended
	December 31, 2006			December 31, 2005			November 30, 2005			December 31, 2004
			Weighted			Weighted			Weighted			Weighted
			average			average			average			average
	Number of		exercise	Number of		exercise	Number of		exercise	Number of		exercise
	options		price	options		price	options		price	options		price
			$			$			$			$
Outstanding, beginning of period	232,480		30.17	285,430		27.23	406,580		25.03	306,310		32.96
Granted	27,435,835		0.32	–		–	–		–	149,000		7.47
Forfeited/expired	(2,867,600	)	0.91	(52,950	)	14.32	(121,150	)	19.85	(48,730	)	21.17
Outstanding, end of period	24,800,715		0.54	232,480		30.17	285,430		27.23	406,580		25.03
Options exerciseable, end of period	170,180		30.55	201,730		32.94	249,580		29.45	168,940		40.61

The following table summarizes information about the Company’s outstanding and exercisable stock options as at December 31, 2006:

		Weighted average
	Options	remaining	Weighted average	Options	Weighted average
Range of exercise prices	outstanding	contractual life	exercise prices	exercisable	exercise prices
$			$		$
0.18 to 0.24	1,609,400	6.9 years	0.21	–	–
0.32 to 0.41	23,008,735	6.4 years	0.33	–	–
6.64 to 8.80	78,000	7.1 years	7.62	66,900	7.64
16.40 to 22.90	35,250	4.7 years	18.11	33,950	18.06
45.30 to 57.80	53,830	3.1 years	51.07	53,830	51.07
83.30 to 89.70	15,500	2.5 years	85.57	15,500	85.57
	24,800,715	6.4 years	0.54	170,180	30.55

Stock options under the Employee Stock Option Plan (old ESOP) may be granted to officers and other key employees of the Company to purchase common shares of the Company at an exercise price equal to the weighted-average trading price of all common shares for the five days preceding the grant date. The options are exercisable during a period not to exceed ten years. The right to exercise options generally vests over a period of four to five years.

In March 2006, the Board of Directors approved a new employee and director stock option plan (new ESOP). The plan was approved by the shareholders of the Company at the Annual General Meeting of Shareholders held on June 8, 2006. Options are granted to directors and employees at the discretion of the Board of Directors. All stock options granted to employees under this plan vest over four years and expire seven years from the grant date. All stock options granted to directors under this plan vest over one year and expire seven years from the grant date. The exercise price of stock options granted under this plan shall be determined by the Board of Directors, but shall not be lower than the greater of the following: (a) the volume weighted average trading price of the common shares on the TSX for the five trading days immediately preceding the date of grant of the option; and (b) the average closing price of the shares on the TSX for the fifteen trading days immediately preceding the date of the grant of the option.

22

17. CAPITAL STOCK AND WARRANTS (CONT’D)

The number of shares reserved for issuance under both plans cannot exceed 10% of issued and outstanding securities of the Company at any time. As at December 31, 2006, 73.3 million shares were reserved for issuance. The Company intends to issue new shares upon any share option exercise.

Effective January 1, 2004, the Company adopted the recommendations of the Canadian Institute of Chartered Accountants relating to stock-based compensation and other stock-based payments. The Company determined compensation cost of stock options using the fair value method and applied this change retroactively without restatement of prior periods (see note 3).

The following amounts are recognized as compensation expense in the statement of operations for awards granted since January 1, 2002:

	$
For the year ended December 31, 2004	247
For the eleven months ended November 30, 2005	728
For the one month ended December 31, 2005	–
For the year ended December 31, 2006	1,911

The fair value of direct awards of stock is determined based on the quoted market price of the Company’s stock, and the fair value of stock options is determined using the Black-Scholes option pricing model, using the following weighted average assumptions. The estimated fair value of options is amortized to expense over the option-vesting period

	Year ended			One month ended		Eleven months ended		Year ended
	December 31,			December 31,		November 30,		December 31,
	2006			2005		2005		2004
Options granted		27,435,835			–		–		149,000
Weighted average exercise price		$0.32			–		–		$7.47
Dividend yield		0.0	%		–		–		0.0	%
Volatility		100.0	%		–		–		72.5	%
Risk-free interest rate		4.22	%		–		–		4.10	%
Expected life	5 years				–		–	5 years
Fair value per option granted		$0.29			–		–		$6.33

Loss per share

The Company has outstanding options, warrants, Convertible Debentures and a convertible term loan that could potentially dilute the earnings per outstanding share in the future, but these were excluded from the calculation of diluted net loss per share for the periods presented, as they would have been anti-dilutive. As at December 31, 2006, the amount of common shares that could be issued: (1) from the exercise of all outstanding options is 24,800,715; (2) from the exercise of all outstanding warrants is 352,941; (3) from the conversion of the outstanding Convertible Debentures plus accrued interest payable in kind is 12,343,189; and (4) from the conversion of the outstanding convertible term loan plus accrued interest payable in kind is 118,181,182.

18. RESEARCH AND DEVELOPMENT EXPENSES, NET

Investment tax credits netted against research and development expenses amounted to approximately $0.9 million for the year ended December 31, 2006 ($0.1 million, $1.0 million and $2.1 million, respectively, for the one month ended December 31, 2005, the eleven months ended November 30, 2005 and the year ended December 31, 2004).

The Canadian federal government offers a tax incentive to companies performing research and development (R&D) activities in Canada. This tax incentive is calculated based on pre-determined formulas and rates, which consider eligible R&D expenditures, and can be used to reduce federal income taxes otherwise payable in Canada. Such credits, if not used in the year earned, can be carried forward for a period of twenty years. The Québec provincial government offers a similar incentive, except that it is receivable in cash instead of a credit used to reduce taxes otherwise payable. The cash credit is awarded regardless of whether or not there are Québec provincial taxes payable. The provincial credit is recorded as income taxes receivable until the payment is received. The federal credit was recognized on the balance sheet as investment tax credits to be used in future periods. As of July 1, 2003, the Company ceased the recognition of further federal investment tax credits.

In December 2006, the Company determined that there was insufficient evidence of reasonable assurance that investment tax credits in the amount of $4.6 million (nil in the one month ended December 31, 2005, $8.5 million in the eleven months ended November 30, 2005 and $4.2 million in the year ended December 31, 2004) would be realized within their remaining lives. Accordingly, a reduction of this amount was recorded resulting in a corresponding charge to the statement of operations.

23

19. GAIN ON SALE OF LONG-TERM INVESTMENT

During the third quarter of 2004, the Company sold a long-term investment acquired as part of the acquisition of Netro Corporation in 2003 for cash proceeds of $3.4 million (US$2.7 million). This long-term investment had been recorded at an estimated fair value of nil at the time of the Netro acquisition.

20. FINANCE CHARGES, NET

				Pre-fresh start (note 1)
	Year ended		One month ended	Eleven months ended	Year ended
	December 31,		December 31,	November 30,	December 31,
	2006		2005	2005	2004
	$		$	$	$
Financing charges	882		582	5,035	–
Interest on long-term debt	3,698		283	6,571	8,474
Interest on credit facility	9,336		684	2,475	–
Interest on convertible redeemable secured debentures	1,082		737	2,586	–
Interest on convertible term loan	214		–	–	–
Other interest, net	(352	)	30	402	(391	)
	14,860		2,316	17,069	8,083

Non-cash financing expenses of $6.7 million, comprised of accreted interest on the convertible debentures and convertible term loan as well as interest paid in kind on the credit facility, convertible debentures, convertible term loan and CTR’s long-term debt, are included in financing expenses for 2006 ($0.8 million in the one month ended December 31, 2005 and $11.2 million in the eleven months ended November 30, 2005).

Commitment fees of $0.4 million on the credit facility and the convertible term loan are included in financing charges for 2006 ($0.2 million in the one month ended December 31, 2005 and $0.2 million in the eleven months ended November 30, 2005).

21. INCOME TAXES
					Pre-fresh start (note 1)
	Year ended		One month ended		Eleven months ended		Year ended
	December 31,		December 31,		November 30,		December 31,
	2006		2005		2005		2004
	$		$		$		$
Income tax recovery at statutory rates	37,041		1,593		23,921		17,273
Decrease relating to non-deductible items	(2,781	)	(536	)	(1,131	)	(830	)
Reversal of temporary differences relating to subsidiaries	–		–		–		(994	)
Benefit of losses not previously recognized	85		83		914		–
Decrease due to non-recognition of losses carried forward	(31,651	)	(1,093	)	(20,222	)	(11,833	)
Write-off of future tax assets	(1,478	)	–		(2,647	)	(24,997	)
Other	(1,952	)	(70	)	(726	)	277
Income tax (expense) recovery	(736	)	(23	)	109		(21,104	)

The Company is currently appealing a tax assessment in the Kingdom of Saudi Arabia. The Company has accrued $0.9 million in relation to this matter for taxes and penalties. The appeal committee has not yet issued a decision on this matter.

Future income taxes consist of the following temporary differences:

	As at		As at		As at
	December 31,		December 31,		December 31,
	2006		2005		2005
	$		$		$
Investment tax credits	–		(1,571	)	(1,571	)
Excess of tax value over book value of property, plant and equipment and intangible assets	11,513		11,585		11,482
Holdbacks	(853	)	(173	)	(173	)
Unclaimed research and development expenses	28,629		30,921		30,708
Losses carried forward	89,406		55,144		53,725
Other	2,524		3,012		2,966
Valuation allowance	(131,219	)	(98,918	)	(97,137	)
	–		–		–

24

21. INCOME TAXES (CONT’D)

The timing difference arising from investment tax credits is due to the recognition of these tax credits for accounting purposes versus the non-recognition for tax purposes, resulting in future income taxes since in the year that investment tax credits are used, they are subject to income taxes.

Certain research and development expenditures incurred in Canada, in the amount of approximately $74.0 million, can be carried forward indefinitely to reduce future taxable income. The timing difference arising from unclaimed research and development expenditures is the amount that has yet to be claimed for tax purposes and can be carried forward indefinitely to reduce future taxable income.

During the fourth quarter of 2004, as a result of continued losses and the significant uncertainties surrounding the future prospects of the Company, management determined that a valuation allowance on all the future income tax assets was appropriate.

The expiry dates of the Company’s losses carried forward for tax purposes by principal jurisdiction are in the approximate amounts as follows:

	Amount		Expiry date
	$
Canada		177,000		2010 – 2026
Chile		58,000	Indefinite
United States		53,000		2023 – 2024

Due to ownership changes for US income tax purposes in September 2003, the Company’s use of its net operating losses and tax credits, which were incurred prior to and including the date of ownership change, is subject to an annual limitation.

The Company also has unrecorded investment tax credits that can be used to reduce future income taxes payable, expiring at various dates and in different tax jurisdictions as follows:

	Amount		Expiry date
	$
Canada		24,000		2010 – 2026
United States		7,000		2018

The components of income tax (expense) recovery are as follows:
					Pre-fresh start (note 1)
	Year ended		One month ended		Eleven months ended	Year ended
	December 31,		December 31,		November 30,	December 31,
	2006		2005		2005	2004
	$		$		$	$
Current expense (recovery)	(736	)	(23	)	109	(829	)
Future expense	–		–		–	(20,275	)
	(736	)	(23	)	109	(21,104	)

22. RESTRUCTURING, ASSET IMPAIRMENT AND OTHER CHARGES

2006 Restructuring, asset impairment and other charges

For the year ended December 31, 2006, restructuring charges of $31.5 million were incurred.

The Wireless Telecommunications Product segment includes a charge of $13.9 million to adjust inventory to its realizable value, an impairment charge for intangible assets of $5.4 million and an impairment charge for property, plant and equipment of $2.3 million, which took place in the third quarter of 2006. The charges result from management’s continued restructuring activities, which include the realignment of the business on performing products. As a result, inventory, property, plant and equipment and intangible assets directly related to products that the Company is either discontinuing or phasing out over time were written down. Inventory was written down to management’s best estimate of net realizable value. The intangible assets, comprised of customer relationships, were written down to their estimated fair value determined based on the present value of the related estimated future cash flows. The property, plant and equipment was written down to its estimated fair value based on the estimated sale price for such assets.

In the third quarter of 2006, an impairment charge of $7.2 million on property, plant and equipment was recorded in the Telecommunications Service Provider segment. In light of performance below par and non-binding purchase offers received, the Company tested CTR’s net assets for recoverability. Total estimated future cash flows on an undiscounted basis were less than the carrying value of the net assets. The impairment loss of $7.2 million was measured as the difference between the fair value, based on discounted estimated future cash flows, and the carrying value of the net assets.

25

22. RESTRUCTURING, ASSET IMPAIRMENT AND OTHER CHARGES (CONT’D)

During the first six months of 2006, restructuring charges included $1.2 million of severance and termination benefits in relation to the Company’s ongoing efforts to reduce its cost structure. A revision to these estimates was made in the fourth quarter of 2006 based on new information related to the terminations, resulting in additional charges of $0.1 million. These costs primarily related to the Company’s decision to outsource its manufacturing operations and to a reduction of employees in its France subsidiary. In total, 74 employees were terminated, including 67 operations employees, 4 administration employees and 3 sales and marketing employees.

Pursuant to the Company’s decision to outsource manufacturing operations of non-WiMAX products, the Company agreed to sell, during the second quarter of 2006, certain manufacturing assets with a carrying amount of $1.7 million to the contract manufacturer for $0.4 million. This sale, which was concluded on May 5, 2006, resulted in an impairment charge of $1.3 million recorded during the first quarter of 2006.

During the second quarter of 2006, $0.1 million was accrued as a result of a reduction in expected sub-lease revenue related to a Montréal facility that was vacated.

The following table summarizes the 2006 restructuring charges:
	Severance and		Asset impairment
	termination		and other costs		Total
	$		$		$
Liability as at December 31, 2005	908		20		928
Additions	1,255		30,260		31,515
Amounts paid/written down	(1,783	)	(30,280	)	(32,063	)
Liability as at December 31, 2006	380		–		380

2005 Restructuring, asset impairment and other charges

For the eleven months ended November 30, 2005, restructuring charges of $17.2 million were incurred.

These charges were comprised of $3.0 million related to severance and termination benefits for the termination of employees originally laid-off in January 2005 in the Canadian location, and salary continuance for a period ranging from eighteen to twenty-four months relating to the termination of employment contracts for certain executives. These charges were taken by the Company to continue to reduce its cost structure in line with current and projected revenue levels. In total, 95 employees were terminated including 41 research and development employees, 16 project management employees, 9 sales and marketing employees, 19 operations employees and 10 administration employees.

During the second quarter of 2005, as part of its restructuring efforts, the Company undertook a review of certain aspects of its operations and its intended future direction. Accordingly, the Company decided that it would manufacture discontinue certain product lines, no longer support prior versions of certain products and change its approach to repairs. As a result, inventory comprised mostly of raw materials and repair stock, totalling $19.9 million offset by an inventory provision of $3.3 million, was written off or written down to its estimated net realizable value. The inventory affected was located primarily in Canada and France. The inventory write down related to France, in the amount of $2.8 million, is included in discontinued operations (see note 23).

During 2005, the Company determined that certain satellite-related assets to be deployed had deteriorated. Accordingly, a charge of $0.3 million was recorded to write down such assets to their fair market value. In addition, $0.1 million was accrued for lease charges related to a Montréal (Québec) manufacturing facility that was vacated in November 2005.

The following table summarizes the 2005 restructuring charges:
	Severance and		Asset impairment
	termination		and other costs		Total
	$		$		$
Liability as at December 31, 2004	280		664		944
Additions	3,038		14,162		17,200
Amounts paid/written down	(2,255	)	(14,731	)	(16,986	)
Liability as at December 1, 2005	1,063		95		1,158
Amounts paid/written down	(155	)	(75	)	(230	)
Liability as at December 31, 2005	908		20		928

26

22. RESTRUCTURING, ASSET IMPAIRMENT AND OTHER CHARGES (CONT’D)

2004 Restructuring, asset impairment and other charges

During the second and third quarter of 2004, restructuring charges of $7.7 million were incurred.

These charges were undertaken by the Company to reduce its cost structure in line with current and projected revenue levels. These costs were comprised primarily of severance and termination benefits, write-off of specific inventory and other assets and accrued lease charges and operating costs related to the US facilities in Washington, as well as losses on the sale of redundant assets. In total, 45 employees were terminated including 28 research and development employees, 1 project management employee, 6 sales and marketing employees, 4 operations employees and 6 administration employees.

Management decided that it would no longer pursue the development and sale of the Stride 2400 product line. As a result, the Company recorded the write-off of certain inventory of $1.1 million and deferred charges of $0.3 million in the second quarter of 2004.

The following table summarizes the 2004 restructuring charges:
	Severance and		Asset impairment
	termination		and other costs		Total
	$		$		$
Liability as at December 31, 2003	944		–		944
Additions	3,436		4,265		7,701
Amounts paid/written down	(4,100	)	(3,601	)	(7,701	)
Liability as at December 31, 2004	280		664		944

23. DISCONTINUED OPERATIONS

Effective December 1, 2005, the Company sold substantially all of the assets and operations of its subsidiary in France, as well as its Australian subsidiary to a subsidiary of Duons Systèmes of Paris, France (Purchaser). With this transaction, the Company effectively disposed of its Swing product line operations.

The sale price, as per the agreement, was to be established between one euro and €4 million, based on the performance of the sold businesses for the year ended November 30, 2006. The Company agreed to indemnify the Purchaser should the sold businesses realize a loss in the year ended November 30, 2006, up to a maximum of €0.8 million. As of the third quarter of 2006, management estimated, with the available information, that the sold businesses would generate a loss in excess of €0.8 million and as such, recorded a provision of $1.1 million (€0.8 million ) in the third quarter of 2006. However, following negotiations, an agreement was reached with the Purchaser resulting in no amounts payable. As such, the provision established in the third quarter of 2006 was reversed in the fourth quarter.

As a result of the sale transaction, the Company recorded the following charges in the one month ended December 31, 2005 as part of discontinued operations: a write down of $0.4 million of the remaining fixed assets of its France subsidiary that were deemed to have no future use as well as a write-off of $0.6 million for remaining Swing-related inventory not taken by the Purchaser that was estimated to be unrecoverable.

Following the disposal of substantially all of the assets and operations of the France subsidiary, the Company has redirected the remaining operations of the subsidiary to act as a sales office in France for the Company’s other products. The Company entered into negotiations with the landlord of the subsidiary’s premises to terminate the lease in order to find premises more suited to its needs. An agreement was reached in March 2006. The Company accrued, as part of discontinued operations, the settlement of the lease termination as at December 31, 2005 in the amount of $1.5 million (€1.1 million) in the one month ended December 31, 2005. The Company vacated the premises in April 2006.

The results of operations and the cash flows of the Swing product line operations have been presented in the consolidated financial statements as discontinued operations. Prior to their sale, Swing product line operations were presented as part of the Wireless Telecommunications Products segment.

The results of discontinued operations are as follows:
				Pre-fresh start (note 1)
	Year ended	One month ended		Eleven months ended		Year ended
	December 31,	December 31,		November 30,		December 31,
	2006	2006		2005		2004
	$	$		$		$
Revenue of discontinued operations	–	254		13,918		24,862
Loss on disposal of discontinued operations	–	(1,761	)	–		–
Pre-tax earnings (loss) of discontinued operations	788	(4,221	)	(4,583	)	(7,741	)
Earnings (loss) from discontinued operations	788	(4,221	)	(4,758	)	(9,192	)

27

23. DISCONTINUED OPERATIONS (CONT’D)

In conjunction with the sale of its Swing-related operations in December 2005, the Company signed an agreement that provides for royalty payments based on revenue earned on certain specific contracts transferred to the Purchaser. During the year ended December 31, 2006, the Company earned royalties of $0.8 million.

The cash flows from discontinued operations are summarized as follows:
				Pre-fresh start (note 1)
	Year ended	One month ended		Eleven months ended		Year ended
	December 31,	December 31,		November 30,		December 31,
	2006	2005		2005		2004
	$	$		$		$
Cash flows (used in) provided by operating activities	–	(2,115	)	7,791		841
Cash flows provided by (used in) investing activities	–	762		(8	)	(125	)
(Decrease) increase in cash and cash equivalents from discontinued operations	–	(1,353	)	7,783		716
The net assets of discontinued operations are summarized as follows:
		As at		As at		As at
		December 31,		December 31,		December 1,
		2006		2005		2005
		$		$		$
Accounts receivable, net		–		5,809		5,235
Inventory		–		–		1,019
Other		–		250		880
Current assets		–		6,059		7,134
Property, plant and equipment, net		–		53		1,385
Accounts payable and accrued liabilities		–		(8,365	)	(7,621	)
Customer advances		–		(75	)	(362	)
Current liabilities		–		(8,440	)	(7,983	)
Net (liabilities) assets of discontinued operations		–		(2,328	)	536

24. COMMITMENTS AND CONTINGENCIES

(a) Leases

The Company leases land, buildings and equipment under non-cancellable operating leases. Future minimum lease payments for the forthcoming

years are as follows, per business segment:
	Wireless
	Telecommunications		Telecommunications
	Products		Service Provider		Consolidated
		$		$		$
2007		428		3,772		4,200
2008		168		3,473		3,641
2009		65		1,557		1,622
2010		33		132		165
2011		1		71		72
Thereafter		1		80		81
		696		9,085		9,781

With the closing of the sale of CTR on February 1, 2007, the Company was fully released from all of its obligations.

(b) Bonds

SR Telecom has entered into bid and performance-related bonds associated with various customer contracts. Performance bonds generally have a term of twelve months while bid bonds generally have a much shorter term. The potential payments due under these bonds are related to SR Telecom’s performance under applicable customer contracts. The total amount of bid and performance-related bonds that were available and drawn down at December 31, 2006 is $2.9 million ($2.0 million as at December 31, 2005 and $2.2 million as at December 1, 2005).

28

24. COMMITMENTS AND CONTINGENCIES (CONT’D)

(c) Guarantees

The Company has the following major types of guarantees:

(i)   As part of the normal sale of products, the Company has provided its customers with product warranties that generally extend for one year to two years for larger contracts. As at December 31, 2006, the warranty provision is $0.9 million ($0.5 million as at December 31, 2005 and $0.5 million as at December 1, 2005). The following summarizes the accrual of product warranties that is recorded as part of accounts payable and accrued liabilities in the accompanying consolidated balance sheets:

					Pre-fresh start
					(note 1)
	Year ended		One month ended		Eleven months ended
	December 31,		December 31,		November 30,
	2006		2005		2005
	$		$		$
Balance, beginning of period	543		470		815
Payments made during the period	(875	)	(291	)	(1,471	)
Warranties accrued during the period	1,219		364		747
Less: Reduction in provision	–		–		379
Balance, end of period	887		543		470

(ii)   The Company also indemnifies its customers against actions from third parties related to intellectual property claims arising from the use of the Company’s products. Claims under such indemnifications are rare and the associated fair value of the liability is not material.

(iii)   Pursuant to the acquisition of Netro, the Company has agreed to indemnify and hold harmless the directors and officers of Netro for a period of six years to 2009.

(d)   Litigation

The Company included in its accounts payable and accrued liabilities or income taxes payable, as at December 31, 2006, as at December 31, 2005 and as at December 1, 2005, management’s best estimate of the outcome of several litigations, described as follows:

SOLECTRON ARBITRATION:

On December 19, 2002, Solectron California Corporation filed for arbitration against Netro Corporation for disputes arising under its 1998 “Manufacturing Agreement”. Solectron claimed that in 2000, it purchased materials on the basis of Netro’s forecasts which were not supported by sales orders. The arbitration with Solectron resulted in the purchase of US$4,000,000 of inventory by SR Telecom, where US$2,000,000 was paid on August 27, 2004. The remainder was to be paid in three installments in 2005, without any interest accruing. As a result of the settlement with Solectron, the Corporation realized a gain of $4,583,000 (US$3,500,000) in the third quarter of 2004.

The Corporation did not meet its February 2005 payment obligation, pursuant to the settlement agreement, resulting in Solectron serving a judicial citation of US$1,450,000 on March 11, 2005. The Corporation has subsequently come to an agreement with Solectron and has paid the then overdue amount of US$550,000 including interest and fees on June 15, 2005. The remaining balance of US$900,000 due on August 26, 2005, was paid on September 7, 2005. No further obligations existed at December 31, 2005.

FUTURE COMMUNICATIONS COMPANY (“FCC”) LITIGATION

The dispute with FCC relates to the alleged improper drawdown by SR Telecom USA, Inc., a wholly-owned subsidiary, of a letter of credit, opened by FCC, with the Bank of Kuwait and the Middle East, and the alleged refusal by SR Telecom USA, Inc. to accept return of inventory provided to FCC. The Kuwait Appeal Court rejected the appeal, filed on March 2, 2005, and the Company appealed this decision to the highest of the Kuwait Courts on July 4, 2005. On January 7, 2007, the Kuwait Appeal Court handed down its decision which was in favour of FCC for an amount of US$1.0 million plus court fees.

EMPLOYEE-RELATED LITIGATION

As a result of past restructuring efforts, certain employees were terminated and given notices and severances according to local labour laws. Some of these employees are claiming that they did not receive an appropriate amount of severance and/or notice period. The Company intends to vigorously defend itself against these claims with all available defences.

29

24. COMMITMENTS AND CONTINGENCIES (CONT’D)

TAX MATTERS

In the normal course of business, the Company’s tax returns are subject to examination by various domestic and foreign taxing authorities. Such examinations may result in future tax and interest assessments on the Company. The Company has received notice of assessments by foreign governments for sales taxes and corporate taxes, and by Canadian and provincial governments for research and development tax credits relating to prior years. The Company has reviewed these assessments and determined the likely amounts to be paid. Such amounts have been accrued in their respective classification on the statement of operations, including research and development expenses, income tax expense and selling, general and administrative expenses.

GENERAL

The Company is involved in various legal proceedings in the ordinary course of business. The Company is not currently involved in any additional litigation that, in management’s opinion, would have a materially adverse effect on its business, cash flows, operating results or financial condition; however, there can be no assurance that any such proceeding will not escalate or otherwise become material to the Company’s business in the future.

(e) Registration Rights

In connection with the issuance of the convertible redeemable secured debentures and convertible loan (collectively the “convertible debt”), the Company entered into a Registration Rights Agreement (the “Agreement”). Pursuant to the terms of the Agreement, the Company is required to cause the common shares issuable or issued pursuant to the terms of the convertible debt, to be registered under the United States Securities Act of 1933 upon request by the holders thereof. In the event that the Company does not comply with the request and other related conditions within the time limits provided in the Agreement, penalties will be payable by the Company at rates ranging from 0.5% to 2% of the common share amounts.

25. STATEMENTS OF CASH FLOWS
Non-cash working capital items
					Pre-fresh start (note 1)
	Year ended		One month ended		Eleven months ended		Year ended
	December 31,		December 31,		November 30,		December 31,
	2006		2005		2005		2004
	$		$		$		$
Decrease in accounts receivable	6,859		7,819		2,028		28,179
Decrease (increase) in income taxes receivable	1,620		(236	)	(1,337	)	978
Decrease (increase) in inventory	4,920		2,044		571		(10,532	)
(Increase) decrease in prepaid expenses	(1,887	)	610		(1,883	)	1,724
Decrease in investment tax credits	4,616		–		8,534		4,995
Decrease in accounts payable and accrued liabilities	(367	)	(103	)	(15,954	)	(8,875	)
Increase (decrease) in customer advances	1,979		(332	)	(230	)	(2,039	)
	17,740		9,802		(8,271	)	14,430

30

25. STATEMENTS OF CASH FLOWS (CONT’D)
			Pre-fresh start (note 1)
	Year ended	One month ended	Eleven months ended		Year ended
	December 31,	December 31,	November 30,		December 31,
	2006	2005	2005		2004
	$	$	$		$
Cash and cash equivalents are comprised of the following:
Cash in bank	19,250	9,479	4,796		4,549
Supplementary cash flow information
Non-cash financing and investing activities:
Exchange of 8.15% senior unsecured debentures	–	–	(70,730	)	–
Issuance of 10% redeemable secured Convertible Debentures	–	–	75,526		–
Shares issued upon conversion of 10% redeemable secured
Convertible Debentures	66,705	159	10,274		–
Shares issued in connection with compensation expense	1,108	–	–		–
	67,813	159	15,070		–
Cash paid for:
Interest	7,798	275	3,758		8,461
Income taxes	269	2	130		450
Discontinued operations:
Cash flows from discontinued operations	788	–	–		–
26. RELATED-PARTY TRANSACTIONS
			Pre-fresh start (note 1)
	Year ended	One month ended	Eleven months ended		Year ended
	December 31,	December 31,	November 30,		December 31,
	2006	2005	2005		2004
	$	$	$		$
Accounts payable	–	–	–		19
Directors’ fees payable	–	–	–		90
Interest and financing fees payable	609	310	245		1,110
Purchases	254	–	37		199
Directors’ fees	448	17	572		260
Interest on debt	10,654	1,402	8,793		5,732
Financing fees	882	582	5,035		–

Most of the credit facility, debentures, Convertible Debentures and convertible term loan interest expense relate to amounts due to current shareholders and the debenture conversions took place with current shareholders. Furthermore, the Company has entered into transactions involving, primarily, professional services with members of its Board of Directors and their affiliated companies. During 2006, the Company entered into a consulting agreement with a former member of its board. The Company continues to pay director fees to its board members.

27. DERIVATIVE FINANCIAL INSTRUMENTS

At December 31, 2006, December 1, 2005 and December 31, 2005, the Company had no forward contracts.

In March 2004, the Company sold its US$2.0 million forward contract at a rate of 1.4203, which resulted in a realized foreign exchange gain of $0.2 million, recorded in the statements of operations.

28. EMPLOYEE BENEFIT PLAN

The Company maintained a defined contribution retirement program covering the majority of its employees. As of January 2006, the Company suspended the employer contributions to the Retirement Savings Plan with Group Retirement Services as part of its cost cutting initiatives. For the one month ended December 31, 2005, the eleven months ended November 30, 2005, and the year ended December 31, 2004, the Company contributed to the plan and recorded an expense of approximately $0.1 million, $0.8 million and $1.1 million, respectively.

As of January 1, 2005, the Company terminated its employee savings plan covering its US employees (plan qualifying under Section 401(k) of the Internal Revenue Code (“the Code”)). The plan allowed employees to make pre-tax contributions in specified percentages up to the maximum dollar limitations prescribed by the Code. The Company had contributed to this plan in 2004 and accordingly, recorded $0.2 million (US$0.2 million) in 2004 in expenses in the statements of operations.

31

29. BUSINESS SEGMENTS AND CONCENTRATIONS

As at December 31, 2006, SR Telecom operated in two business segments. The first is the designing, building and deployment of advanced, field-proven broadband fixed Wireless Access solutions, as well as providing full turnkey services to customers. These products are used by large telephone and Internet service providers to supply broadband data and carrier-class voice services to end-users in urban, suburban and remote areas around the globe. The second business segment, carried out by CTR in Chile, provides local telephone services to residential, commercial and institutional customers as well as a network of payphones in a large, predominantly rural area of Chile. On February 1, 2007, the Company sold CTR (see note 32).

The accounting policies and methods applied to each of the segments is the same as those described for the consolidated group. Inter-segment eliminations for the balance sheet represent primarily the elimination of investments in subsidiaries and inter-segment amounts receivable.

	Wireless
	Telecommunications					Telecommunications				Inter-Segment
	Products					Service Provider				Eliminations						Consolidated
	2006			2005		2006		2005		2006			2005			2006		2005
	$			$		$		$		$			$			$		$
As at December 31:
Balance sheets
Property, plant and equipment, net		14,356			21,292		29,382		36,550		–			–			43,738		57,842
Intagible assets, net		27,794			41,904		–		–		–			–			27,794		41,904
Other assets, net		2,762			2,280		–		–		–			–			2,762		2,280
Total assets		200,860			229,915		98,832		108,541		(149,139	)		(150,905	)		150,553		187,551
For the year ended December 31, 2006 and the
one-month period ended December 31, 2005:
Statements of operations
External revenue		68,267			5,638		19,188		1,734		–			–			87,455		7,372
Inter-segment revenue		440			24		–		–		(440	)		(24	)		–		–
Gross profit (loss)		(1,084	)		865		19,188		1,734		–			–			18,104		2,599
Finance charges, net		11,184			2,014		3,676		302		–			–			14,860		2,316
Amortization and depreciation of property,
plant and equipment		3,636			292		2,686		218		–			–			6,322		510
Amortization and depreciation of other assets		409			244		–		–		–			–			409		244
Amortization and depreciation of intangible assets		8,700			710		–		–		–			–			8,700		710
Restructuring, asset impairment and other charges		24,313			–		7,202		–		–			–			31,515		–
Income tax expense		736			23		–		–		–			–			736		23
Loss from continuing operations		109,285			5,146		7,130		14		–			–			116,415		5,160
Net loss		108,497			9,367		7,130		14		–			–			115,627		9,381
Purchase of property, plant and equipment		1,571			251		2,760		506		–			–			4,331		757

32

29. BUSINESS SEGMENTS AND CONCENTRATIONS (CONT’D)
	Wireless
	Telecommunications					Telecommunications					Inter-Segment
	Products					Service Provider					Eliminations						Consolidated
	2005					2005					2005						2005
	$					$					$						$
As at December 1:
Balance Sheets
Property, plant and equipment, net		22,694					36,264					–						58,958
Intagible assets, net		42,614					–					–						42,614
Other assets, net		2,467					–					–						2,467
Total assets		238,324					108,179					(150,536	)					195,967
For the eleven months ended November 30, 2005
and the year ended December 31, 2004:
(pre-fresh start accounting, see note 1)
	Nov. 2005		Dec. 2004			Nov. 2005		Dec. 2004			Nov. 2005			Dec. 2004			Nov. 2005		Dec. 2004
		$	$				$	$				$		$				$	$
Statements of operations
External revenue		51,342		80,490			17,670		18,584			–			–			69,012		99,074
Inter-segment revenue		937		782			–		–			(937	)		(782	)		–		–
Gross profit		8,703		24,596			17,670		18,584			–			–			26,373		43,180
Finance charges, net		14,230		5,341			2,839		2,742			–			–			17,069		8,083
Amortization and depreciation of property,
plant and equipment		3,205		4,320			5,328		6,875			–			(942	)		8,533		10,253
Amortization and depreciation of other assets		1,191		477			–		598			–			(49	)		1,191		1,026
Amortization and depreciation of intangible assets		826		914			–		–			–			–			826		914
Restructuring, asset impairment and other charges		16,878		7,701			322		–			–			–			17,200		7,701
Gain on sale of long-term investments		–		3,444			–		–			–			–			–		3,444
Gain on settlement of claim		2,670		4,583			–		–			–			–			2,670		4,583
Income tax recovery (expense)		109		(12,610	)		–		(8,494	)		–			–			109		(21,104	)
Loss from continuing operations		73,190		67,933			3,817		9,009			–			–			77,007		76,942
Net loss		77,948		77,125			3,817		9,009			–			–			81,765		86,134
Purchase of property, plant and equipment		1,127		2,827			2,223		2,253			(19	)		1,012			3,331		6,092

Geographic information

The Company’s basis for attributing revenue from external customers is based on the customer’s location. Telecommunication service revenue is generated entirely in Chile. Sales to customers located outside of Canada was approximately 98% of revenue or $86.0 million for the year ended December 31, 2006 (99% of revenue or $7.3 million for the one-month period ended December 31, 2005, 98% of revenue or $67.5 million for the eleven-month period ended November 30, 2005 and 92% or $91.0 million for the year ended December 31, 2004). The following sets forth external revenue from continuing operations by individual foreign countries where the revenue exceeds 10% of the total consolidated revenue from continuing operations for the period indicated.

For the year ended December 31, 2006:
	Revenue		% of revenue
	$
Canada		1,425		2	%
Argentina		10,847		12	%
Spain		12,812		15	%
Chile		19,220		22	%
Mexico		19,735		22	%
Others		23,416		27	%
Total		87,455		100	%

33

29. BUSINESS SEGMENTS AND CONCENTRATIONS (CONT’D)
For the one-month period ended December 31, 2005:
	Revenue		% of revenue
	$
Canada		56		1	%
Thailand		1,047		14	%
Chile		1,734		24	%
Mexico		1,771		24	%
Argentina		1,999		27	%
Others		765		10	%
Total		7,372		100	%
For the eleven-month period ended November 30, 2005, pre-fresh start accounting (note 1):
	Revenue		% of revenue
		$
Canada		1,538		2	%
Mexico		10,262		15	%
Spain		10,953		16	%
Chile		17,670		26	%
Others		28,589		41	%
Total		69,012		100	%
For the year ended December 31, 2004, pre-fresh start accounting (note 1):
	Revenue		% of revenue
		$
Canada		8,026		8	%
Thailand		10,576		11	%
Chile		18,622		19	%
Others		61,850		62	%
Total		99,074		100	%

The following sets forth external revenue from continuing operations by individual customer where the revenue exceeds 10% of the total consolidated revenue from continuing operations for the period indicated. All of these customers, except those listed as Others, are part of the Wireless Telecommunications Products business segment.

For the year ended December 31, 2006:
	Revenue		% of revenue
	$
Techtel LMDS Communicaciones		10,844		12	%
Siemens S.A.		12,812		15	%
Axtel S.A. de C.V.		16,632		19	%
Others		47,167		54	%
Total		87,455		100	%
For the one-month period ended December 31, 2005:		$
	Revenue		% of revenue
RTS (2003) Company Ltd.		964		13	%
Telefones de Mexico, S.A. de C.V.		1,385		19	%
Techtel LMDS Communicaciones		1,999		27	%
Others		3,024		41	%
Total		7,372		100	%

34

29. BUSINESS SEGMENTS AND CONCENTRATIONS (CONT’D)
For the eleven-month period ended November 30, 2005, pre-fresh start accounting (note 1):
	Revenue		% of revenue
	$
Telefones de Mexico, S.A. de C.V.		9,857		14	%
Siemens S.A.		10,953		16	%
Others		48,202		70	%
Total		69,012		100	%

For the year ended December 31, 2004, there were no individual customers exceeding 10% of total consolidated revenue from continuing operations.

Intangible assets are located entirely in Canada. The following sets forth the property, plant and equipment of continuing operations by location.

	As at		As at		As at
	December 31,		December 31,		December 1,
	2006		2005		2005
	$		$		$
Canada		14,109		19,673		19,736
Chile		29,382		36,550		36,264
Other		247		1,619		2,958
		43,738		57,842		58,958

30. FINANCIAL INSTRUMENTS

The Company operates internationally, exposing it to significant market risks from changes in interest rates and foreign exchange rates. The Company may use derivative financial instruments to reduce these risks but does not hold or issue financial instruments for trading purposes. These financial instruments are subject to normal credit standards, financial controls, risk management and monitoring procedures.

Interest rate risk

The Company has exposure to interest rate risk for both fixed interest rate and floating interest rate instruments. Fluctuations in interest rates will have an effect on the valuation and collection or repayment of these instruments.

Currency risk

The Company has currency exposure arising from significant operations and contracts in multiple jurisdictions. The Company has limited currency exposure to freely tradable and liquid currencies of first world countries. Where practical, the net exposure is reduced through operational hedging practices.

Monetary assets and liabilities denominated in foreign currencies are as follows:
	As at		As at		As at
	December 31,		December 31,		December 1,
	2006		2005		2005
	$		$		$
Cash and restricted cash		9,035		10,044		3,883
Accounts receivable, net		25,387		25,665		33,436
Accounts payable		24,041		16,017		15,615
Long-term credit facility		52,941		47,862		47,551
Long-term debt		33,116		34,447		34,487

Credit risk

The Company has credit risk exposure equal to the carrying amount of financial assets. Wherever practicable, the Company requires accounts receivable to be insured by an export credit agency and/or by confirmed irrevocable letters of credit. The amount due from four customers represents approximately 65% of the total trade receivable as at December 31, 2006 (as at December 31, 2005 – two customers represented 25%; as at December 1, 2005 – two customers represented 43%).

Fair value

As of December 1, 2005, all assets and liabilities were revalued pursuant to the comprehensive revaluation. Accordingly, management believes that all its financial instruments’ carrying values approximate their fair value as at December 31, 2005.

35

30. FINANCIAL INSTRUMENTS (CONT’D)

As at December 31, 2006, the following methods and assumptions have been used to estimate the fair value of the financial instruments:

•   Current financial assets and liabilities and capital leases approximate their fair values due to their short-term nature.

•   The long-term accounts receivable are valued using estimated discounted future cash flows expected to be generated.

•   Debentures and notes payable are valued using year-end market prices for the instruments or similar freely traded instruments.

The fair value and carrying amount of these financial instruments were as follows:
	December 31, 2006
	Carrying amount		Fair value
	$		$
Long-term accounts receivable, net		2,365		1,782
8.15% Debentures		270		176
10% Convertible redeemable secured debentures (debt and equity components)		2,793		3,296
Long-term credit facility		52,941		52,941
Convertible term loan (debt and equity components)		20,132		20,132

Fair value information for the CTR notes payable has not been presented. As at February 1, 2007, the Company closed the sale of CTR. As a result of this sale, the CTR notes have been assumed by the Purchaser.

31. RECONCILIATION OF AMOUNTS REPORTED IN ACCORDANCE WITH CANADIAN GAAP TO UNITED STATES GAAP AND OTHER SUPPLEMENTARY UNITED STATES GAAP DISCLOSURES

These consolidated financial statements are prepared in accordance with Canadian GAAP, which differ in certain material respects from United States GAAP (US GAAP). While the information is not a comprehensive summary of all differences between Canadian and US GAAP, other differences are considered unlikely to have a significant impact on the consolidated net loss and shareholders’ equity of the Company.

All material differences between Canadian and US GAAP and the effect on net loss, comprehensive loss and balance sheet amounts are presented in the following tables with an explanation of the adjustments.

Reconciliation of consolidated net loss and comprehensive loss
	Year ended December 31,
	2006			2005			2004
	$			$			$
Net loss – Canadian GAAP		(115,627	)		(91,146	)		(86,134	)
Adjustments
Fresh start accounting and asset impairment 2006 (b)		6,009			1,225			–
Asset impairment 2001 (c)		1,666			1,666			1,666
Convertible redeemable secured debentures (d)		(63,370	)		(11,146	)		–
Convertible term loan (e)		17			–			–
Bid costs, deferred charges and start-up costs (f)		–			987			722
Derivative instruments (g)		329			(345	)		(380	)
Stock-based compensation (h)		–			209			247
Tax effect of the above adjustments (*)		–			–			(907	)
Net loss – US GAAP		(170,976	)		(98,550	)		(84,786	)
Basic and diluted loss per share – US GAAP		(0.25	)		(4.52	)		(5.09	)

The weighted average number of common shares outstanding for purposes of determining basic and diluted loss per share are the same as those used for Canadian GAAP purposes.

(*)   The Company ceased recognizing all benefits of tax loss carry forwards in 2004 and as such the reconciling items between Canadian and US GAAP are not tax effected after that date.

Statement of comprehensive loss

Comprehensive loss is the same as net loss and accordingly, a statement of comprehensive loss is not presented.

36

31. RECONCILIATION OF AMOUNTS REPORTED IN ACCORDANCE WITH CANADIAN GAAP TO

UNITED STATES GAAP AND OTHER SUPPLEMENTARY UNITED STATES GAAP DISCLOSURES (CONT’D)

Reconciliation of reported amounts on consolidated balance sheets
Reconciliation of material selected balance sheet accounts between Canadian and US GAAP are as follows:
	Canadian			Adjustments			All other			US
	GAAP			(b)			adjustments			GAAP
	$			$			$			$
As at December 31, 2006
Accounts receivable, net (g)		26,940			–			626			27,566
Property, plant and equipment, net (c)		43,738			11,646			(15,728	)		39,656
Intangible assets, net		27,794			(25,617	)		–			2,177
Other assets, net (e)		2,762			298			686			3,746
Accounts payable (g) (e)		35,935			–			537			36,472
Convertible term loan (e)		10,487			–			6,104			16,591
Convertible redeemable secured debentures (e)		1,785			–			893			2,678
Capital stock (d) (i)		352,174			–			68,411			420,585
Warrants (i)		–			1,815			(764	)		1,051
Equity component of convertible redeemable secured debentures (d)		1,008			–			(1,008	)		–
Equity component of convertible term loan (e)		9,645			–			(9,645	)		–
Contributed surplus/additional paid-in capital (d) (e)		1,911			21,867			(4,751	)		19,027
Deficit, pre-fresh start accounting		(227,142	)		227,142			–			–
Deficit (c) (d) (e) (g) (i)		(126,663	)		(253,844	)		(84,848	)		(465,355	)
	Canadian			Adjustments			All other			US
	GAAP			(b)			adjustments			GAAP
		$			$			$			$
As at December 31, 2005
Property, plant and equipment, net (c)		57,842			18,361			(17,394	)		58,809
Intangible assets, net		41,904			(38,311	)		–			3,593
Other assets, net		2,280			637			–			2,917
Convertible redeemable secured debentures (d)		40,630			–			(36,595	)		4,035
Capital stock (d) (i)		230,086			–			7,273			237,359
Warrants (i)		–			13,029			(764	)		12,265
Equity component of convertible redeemable secured debentures (d)		27,785			–			(27,785	)		–
Contributed surplus/additional paid-in capital (d)		–			1,247			64,124			65,371
Deficit, pre-fresh start accounting		(227,142	)		227,142			–			–
Deficit (c) (d) (g) (i)		(9,381	)		(259,854	)		(25,144	)		(294,379	)

37

31.  RECONCILIATION OF AMOUNTS REPORTED IN ACCORDANCE WITH CANADIAN GAAP TO

UNITED STATES GAAP AND OTHER SUPPLEMENTARY UNITED STATES GAAP DISCLOSURES (CONT’D)

Additional disclosure required under US GAAP is as follows:
(a) Consolidated statement of changes in shareholders’ equity in accordance with US GAAP:
									Additional
	Common								paid-in
	stock				Warrants				capital		Deficit		Total
	Common stock		$		Warrants		$		$		$		$
Balance, December 31, 2003	10,467,283		180,074		352,941		1,656		–		(111,043	)	70,687
Secondary public offering and private placement	7,142,929		38,787		3,571,465		11,214		–		–		50,001
Share issue costs	–		(2,090	)	–		(605	)	–		–		(2,695	)
Cancellation of shares	(80	)	–		–		–		–		–		–
Net loss	–		–		–		–		–		(84,786	)	(84,786	)
Balance, December 31, 2004	17,610,132		216,771		3,924,406		12,265		–		(195,829	)	33,207
Value of beneficial conversion feature recognized on
Convertible Debentures	–		–		–		–		75,526		–		75,526
Shares issued upon mandatory conversion of
Convertible Debentures and related accrued interest	47,322,829		20,274		–		–		(10,000	)	–		10,274
Shares issued on subsequent conversion of
Convertible Debentures	734,000		314		–		–		(155	)	–		159
Net loss	–		–		–		–		–		(98,550	)	(98,550	)
Balance, December 31, 2005	65,666,961		237,359		3,924,406		12,265		65,371		(294,379	)	20,616
Value of beneficial conversion feature recognized on
convertible term loan	–		–		–		–		3,529		–		3,529
Expiry of warrants	–		–		(3,571,465	)	(11,214	)	11,214		–		–
Private placement	361,831,635		54,275		–		–		–		–		54,275
Issuance of shares to former CEO	2,769,576		1,108		–		–		–		–		1,108
Shares issued upon conversion of convertible debentures	303,124,888		128,808		–		–		(62,998	)	–		65,810
Share issue costs	–		(965	)	–		–		–		–		(965	)
Stock-based compensation	–		–		–		–		1,911		–		1,911
Net loss	–		–		–		–		–		(170,976	)	(170,976	)
Balance, December 31, 2006	733,393,060		420,585		352,941		1,051		19,027		(465,355	)	(24,692	)

(b) Fresh start accounting and asset impairment 2006

In accordance with Canadian GAAP, effective November 30, 2005, the Company adopted fresh start accounting (see note 1). The Company reclassified the deficit that arose prior to the conversion to a separate account within shareholder’s equity and re-valued its assets and liabilities to their estimated fair values. The revaluation adjustments were accounted for as a capital transaction and are recorded within the pre-fresh start accounting deficit.

Under US GAAP, the transaction did not qualify as a capital reorganization and accordingly, fresh start accounting was not adopted. The adjustments reflect the reversal of fresh start accounting adjustments recorded under Canadian GAAP and the related effect on current period depreciation, amortization and cost of revenue in the amounts of $2.6 million, $7.9 million and $0.1 million, respectively.

In addition, under Canadian GAAP, the asset impairments recorded in 2006 was based on the excess of the fresh start accounting carrying value of property, plant and equipment and intangible assets over their estimated fair value. Under US GAAP, the impairment charges were determined as the excess of the historical carrying value of such assets, excluding any fresh start accounting, over their estimated fair value. Fair value was determined as the present value of estimated future net cash flows. The asset impairment under US GAAP in excess of that recorded under Canadian GAAP is $7.0 million.

The balance sheet adjustments are net of related depreciation, amortization and impairment charge adjustments.

Estimated future amortization expense, for the intangible assets of $2.2 million under US GAAP, will be $0.6 million per year from 2007 to 2009 and $0.4 million for 2010.

38

31.   RECONCILIATION OF AMOUNTS REPORTED IN ACCORDANCE WITH CANADIAN GAAP TO

UNITED STATES GAAP AND OTHER SUPPLEMENTARY UNITED STATES GAAP DISCLOSURES (CONT’D)

(c) Asset impairment 2001

Under Canadian GAAP, an asset impairment charge recorded in 2001 was based on the difference between the carrying value of certain assets and the undiscounted future net cash flows. Under US GAAP, the impairment charge was calculated as the amount by which the carrying value of the assets exceeded their fair value. Fair value was determined as the present value of estimated future net cash flows. The resulting adjustment is net of the impact of depreciation.

(d) Convertible redeemable secured debentures

Under Canadian GAAP, the convertible redeemable secured debentures are accounted for as described in note 14. Under US GAAP, the issuance of Convertible Debentures in 2005 resulted in the recognition of a beneficial conversion feature measured at the date of issuance. The total value of the feature on August 18, 2005 was $75.5 million and $65.5 million was recognized on that date when the Convertible Debentures were issued and credited to additional paid-in capital. This amount is accreted over the life of the Convertible Debentures using the effective yield method. As at December 31, 2006 and December 31, 2005, $65.4 million and $1.7 million, respectively, were accreted to the Convertible Debenture liability.

The remaining $10.0 million of Convertible Debentures were subject to a mandatory conversion clause, the date of which was contingent on a number of factors, and were initially credited to a liability. The beneficial conversion feature of this portion, being $10.0 million, was only recognized when the contingency was resolved, on November 30, 2005, and on that date it was reclassified from the liability account to additional paid-in capital. On the same date, pursuant to the mandatory conversion feature, an expense of $10.0 million was recognized and recorded as the convertible debenture liability, since the accretion of these debentures was accelerated by the conversion. Upon conversion, $10.0 million of Convertible Debentures, and $10.0 million of additional paid-in capital, were credited to share capital.

The terms and conditions of the Convertible Debentures were examined to determine if any of these terms and conditions created embedded derivatives. These features did not result in the recognition of any such embedded derivatives.

During the year ended December 31, 2006, $63.0 million of the Convertible Debentures were converted, of which $2.2 million had already been accreted and an additional $60.8 million was recognized as accretion expense and credited to the debenture liability. In addition, $63.0 million of Convertible Debentures and $63.0 million of additional-paid in capital were credited to share capital. As at December 31, 2006 and December 31, 2005, interest accrued on these debentures, payable through the issuance of additional debentures not yet issued, amounted to $0.3 million and $2.3 million, respectively.

(e) Convertible term loan

Under Canadian GAAP, the convertible term loan is accounted for as described in note 15. Under US GAAP, the issuance of the convertible term loan in 2006, resulted in the recognition of a beneficial conversion feature measured at the date of issuance. The total value of this feature on December 16, 2006 was $3.5 million. This amount will be accreted over the life of the convertible term loan using the effective yield method. As at December 31, 2006, $29 thousand was accreted to the convertible term loan.

The terms and conditions of the convertible term loan were examined to determine if any features of these terms and conditions created embedded derivatives. These features did not result in the recognition of any such embedded derivatives.

(f) Bid costs, deferred charges and start-up costs

Under Canadian GAAP, bid costs, deferred charges and start-up costs that satisfy specified criteria for recoverability are deferred and amortized. Under US GAAP, such costs are expensed as incurred. The resulting adjustments are net of the amounts amortized under Canadian GAAP. For the year ended December 31, 2006, there were no such costs.

(g) Derivative instruments

Under US GAAP, all derivative instruments, including those embedded in contracts, are recorded on the balance sheet at fair value with gains or losses recognized in earnings. The estimated fair value of foreign exchange embedded derivative net assets is $0.08 million at December 31, 2006 and net liabilities of $0.3 million at December 31, 2005.

39

31.   RECONCILIATION OF AMOUNTS REPORTED IN ACCORDANCE WITH CANADIAN GAAP TO

UNITED STATES GAAP AND OTHER SUPPLEMENTARY UNITED STATES GAAP DISCLOSURES (CONT’D)

(h) Stock-based compensation

Under Canadian GAAP, the Company accounts for stock-based compensation to employees and directors as described in note 17. Under US GAAP, the intrinsic value method was used to account for stock-based compensation of employees to December 31, 2005. Compensation expense recognized under Canadian GAAP, using the fair value method, for the 2004 and 2005 periods would not be recognized under US GAAP. All stock options issued had an exercise price equal to or greater than the market value of the underlying shares at the date of grant; therefore, there is no expense under the intrinsic value method for US GAAP purposes for the one month ended December 31, 2005, eleven months ended November 30, 2005 and year ended December 31, 2004.

In December 2004, the Financial Accounting Standards Board (FASB) published Statement of Financial Accounting Standard (SFAS) No. 123R, Share-Based Payments. SFAS No. 123 amends SFAS 123, Stock-Based Compensation issued in 1995 and supercedes Accounting Principals Board opinion (APB) No. 25 issued in 1972. Beginning on January 1, 2006, the Company applied SFAS No. 123R using the modified version of the prospective application for the stock options granted. Under that transition method, compensation expense is generally recognized over the period during which an employee is required to provide service in exchange for the award (usually the vesting period). Compensation cost is recognized beginning on the required effective date for the portion of outstanding awards for which the requisite service has not yet been rendered, based on the grant-date fair value of those awards calculated under SFAS No. 123 for either recognition or pro forma disclosures. Stock-based compensation expense recognized for the year ended December 31, 2006 was $1.9 million. As of January 1, 2006, the total remaining unrecognized compensation cost related to non-vested stock options was nominal. The financial statements of prior periods do not reflect any restated amounts resulting from the adoption of FAS 123R.

Supplementary disclosures follow:
	Year ended December 31, 2006
			Weighted-average
	Number of		grant date
	options		fair value
Non-vested stock options at the beginning of the year		30,750		7.23
Non-vested stock options at the end of the year		24,630,535		0.29
Stock options granted		27,435,835		0.29
Stock options vested		10,150		8.07
Stock options forfeited		2,867,600		0.91

As of December 31, 2006, the total stock option compensation expense to be recognized in the statement of operations for the next five years is $2.3 million, $1.1 million, $0.5 million, $0.1 million and, nil, respectively.

The 170,180 stock options exercisable at December 31, 2006 have an intrinsic value of nil.

Had costs for the stock-based compensation plans been determined based on the fair value at the grant dates for awards consistent with SFAS 123, the Company’s pro forma net loss and loss per share for the years ended December 31, 2005 and 2004 would have been as follows:

	December 31,
	2005			2004
	$			$
Net loss – US GAAP – as reported		(98,550	)		(84,786	)
Fair value of stock-based compensation		(754	)		(980	)
Net loss – pro forma		(99,304	)		(85,766	)
Basic and diluted loss per share – US GAAP – as reported		(4.52	)		(5.09	)
Basic and diluted loss per share – US GAAP – pro forma		(4.56	)		(5.15	)

40

31.   RECONCILIATION OF AMOUNTS REPORTED IN ACCORDANCE WITH CANADIAN GAAP TO

UNITED STATES GAAP AND OTHER SUPPLEMENTARY UNITED STATES GAAP DISCLOSURES (CONT’D)

The fair value of each option is estimated at the date of grant using the Black-Scholes option pricing model, using the following weighted average assumptions:

	Years ended December 31,
	2005		2004
Dividend yield		n/a		0.0	%
Expected volatility		n/a		72.5	%
Weighted average risk-free interest rate		n/a		4.1	%
Expected life		n/a	5 years

The weighted average fair value per option granted for all options outstanding as of December 31, 2005 and 2004 is $11.17 and $11.81, respectively.

(i) Share issue costs, restructuring costs and gross profit relating to CTR

Under Canadian GAAP, share issue costs may be charged to retained earnings. Under US GAAP, share issue costs must be deducted from the proceeds of issue. In 2006, share issue costs deducted from retained earnings amounted to $965 thousand ($3.6 million in 2005).

For US reporting purposes, inventory write downs in the nature described in note 22 would be included as a component of cost of revenue and not included in restructuring charges.

Under Canadian reporting, telecommunications operating expenses have not been included in the determination of gross profit. Under US reporting, all operating costs related to CTR would be included in the determination of gross profit. The resulting gross (loss) profit (including the impact of other items described in this note that affect gross profit) under US GAAP for the years ended 2006, 2005 and 2004 was ($9.9) million, $1.3 million and $29.3 million, respectively.

(j) Net unrealized holding gains (losses)

Under SFAS 115, Accounting for Certain Investments in Debt and Equity Securities, the Company’s investments in securities would be classified as available-for-sale securities and are carried at fair value. Unrealized holding gains and losses on available-for-sale securities are excluded from earnings under US GAAP and reported as a net amount in accumulated other comprehensive income (loss), which is a separate component of shareholders’ equity on the balance sheet, until realized. Upon realization, comprehensive income (loss) would be adjusted to reflect the reclassification of the gains or losses into income (loss). As at December 31, 2006 and December 31, 2005, the Company was not holding any investments.

(k) Research and development

Under Canadian GAAP, investment tax credits on research and development are deducted from research and development expense. Under US GAAP, Canadian federal investment tax credits are included in the provision for income taxes. The Company ceased recognizing benefits of federal investment tax credits carry forwards in 2003 and as such no reconciling item between Canadian and US GAAP is required for the 2004, 2005 and 2006 periods.

(l) Recent pronouncements

In June 2005, the FASB ratified EITF Issue 05-5, Accounting for Early Retirement or Post-employment Programs with Specific Features. The Company does not provide any early retirement or post-employment programs and thus, the adoption of EITF 05-5 is not expected to have a material impact on the Company’s consolidated financial statements.

In June 2006, the FASB issued FASB Interpretation (FIN) 48, Accounting for Uncertainty in Income Taxes, an Interpretation of SFAS 109, Accounting for Income Taxes, to create a single model to address accounting for uncertainty in tax positions taken or expected to be taken in a tax return. Under FIN 48, the tax benefit from an uncertain tax position may be recognized only if it is more likely than not that the tax position will be sustained, based solely on its technical merits. The Company plans to adopt FIN 48 beginning January 1, 2007. The cumulative effect of adopting FIN 48 will be recorded in retained earnings. The Company is currently evaluating the potential impact, if any, that the adoption of FIN 48 will have on the Company’s consolidated financial statements.

In September 2006, the FASB issued SFAS 157, Fair Value Measurements. This Statement defines fair value, establishes a framework for measuring fair value in US GAAP, and expands disclosures about fair value measurements. This Statement applies to other accounting pronouncements that require or permit fair value measurements; the FASB having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, this Statement does not require any new fair value measurements. The Company plans to adopt this Statement beginning January 1, 2007. The Company is currently evaluating the potential impact, if any, that the adoption of SFAS 157 will have on the Company’s consolidated financial statements.

41

32. SUBSEQUENT EVENTS (a) Term loan

On July 3, 2007, the Company entered into an agreement with a syndicate of lenders comprised of shareholders of the Company providing for a term loan of up to $45.0 million, of which $35.0 million will be drawn at closing and an additional $10.0 million will be available for drawdown for a period of up to one year from closing. The term loan has a five-year term and is subject to the same security as the existing loans under the credit facility, but ranking senior to the existing loans. The term loan bears cash interest at a rate equal to the greater of 6.5% or the three-month US dollar LIBOR rate plus 3.85% and additional interest that may be paid in cash or in kind, at the option of the Company, at a rate equal to the greater of 7.5% or the three-month US dollar LIBOR rate plus 4.85% . The cash portion of the interest will be payable in kind until December 2008. A payout fee of 5% of the term loan will be paid to lenders upon repayment or maturity of the loan. Closing of the transaction occurred on July 3, 2007.

In connection with entering into this new term loan, the syndicate of lenders has agreed to amend certain terms of the initial advances under the credit facility and the convertible term loan. The maturity date has been amended to match the maturity date of this new financing, and the cash portion of the interest will be payable in kind until December 2008.

In addition, amendments were also made to the terms of the credit facility and the convertible term loan for the portion of the debt held by two of the lenders. A conversion right was granted to these two lenders whereby their respective portions would be convertible into common shares of the Company. As well, the conversion price of the portion of the convertible term loan held by one of the lenders was amended.

(b) Reorganization plan

On April 16, 2007, the Company announced a plan to reorganize its internal operations, including the wind-up of legacy product operations and centralization of activities. In conjunction with the implementation of this plan, the Company will be eliminating approximately 75 positions worldwide severance costs are estimated to be $0.8 million.

(c) Sale of property

On April 12, 2007, the Company closed the sale of its land and building located in Montréal (Québec), Canada for gross proceeds of $8.6 million.

The land and building had a net book value of $2.0 million and $3.1 million respectively as at December 31, 2006. This property is presented as part of the Wireless Telecommunications Products segment as at December 31, 2006. The land and building did not qualify to be presented as held-for-sale at year-end given that the Company has leased back a significant portion of the sold property for a term of 10 years at a rate of approximately $0.6 million per year. In accordance with GAAP, the Company will be accounting for the leaseback of the property as an operating lease. The Company realized a gain on sale of property of $3.6 million in the second quarter of 2007, which will be deferred and amortized over the term of the lease. As part of the lease agreement, the Company is to provide a security deposit of three months’ rent to be returned, proportionately, at the end of the third, fourth and fifth year of the lease. In addition, the purchaser has retained three months’ rent from the proceeds as additional security deposit to be returned at the earliest of when the Company completes two consecutive profitable quarters or the end of the lease term.

(d) Debenture conversion

On February 14, 2007, the Company announced that it would redeem its outstanding 10% convertible debentures on March 6, 2007 for an amount equal to $1,038.63 per $1,000 of principal amount, representing the principal amount plus $38.63 of accrued but unpaid interest thereon to the redemption date. Up to the redemption date, debenture holders had the option to convert all or a portion of their convertible debentures and accrued but unpaid interest thereon into common shares at an effective rate of $0.15 per common share.

Prior to March 6, 2007, $2.0 million convertible debentures, including accrued but unpaid interest thereon were converted into 13,181,651 common shares. The Company will record these conversions as induced early conversions, with the number of shares converted being measured at $0.217 per common share, pursuant to the original terms of the convertible debentures, and additional shares issued to induce the conversion being measured at fair value. The resulting debt settlement gain of $0.1 million will be included in financing expenses and incremental conversion costs of $0.9 million will be included in deficit.

On March 6, 2007, the Company redeemed $0.7 million of convertible debentures and accrued but unpaid interest thereon for $0.8 million. The Company will record this redemption as an early redemption of debt, with the consideration paid on extinguishment being allocated to the debt and equity components of the convertible debentures. The resulting gain of $0.05 million relating to the debt component will included in financing expenses and the resulting loss of $0.04 million relating to the equity component will be included in deficit.

As of March 6, 2007, there were no outstanding 10% convertible redeemable secured debentures.

42

32. SUBSEQUENT EVENTS (CONT’D)

(e) Sale of CTR

On February 1, 2007, the Company announced the closing of the sale of the shares of its Chilean subsidiary, CTR (Telecommunications Service Provider segment) to Chile.com, an integrated telecom service provider, for proceeds of nil. As part of this transaction, the Company was fully released from all of its obligations with respect to CTR, including liabilites in respect of loans to CTR amounting to approximately US$28.0 million for which SR Telecom was guaranteeing up to an amount of US$12.0 million.

The results of operations and the cash flows of the Telecommunications Service Provider segment did not qualify for presentation as discontinued operations as of December 31, 2006 as CTR only became available for sale in its present condition in 2007.

Beginning February 1, 2007, the results of operations and the cash flows of the Telecommunications Service Provider segment will be presented in the financial statements as discontinued operations.

The following information sets forth the summarized pro forma condensed consolidated balance sheet of the Company as if the sale transaction had occurred on December 31, 2006, and the results of operations and cash flows as if the sale transaction had occurred on January 1, 2006. Certain transaction costs were assumed in arriving at the pro forma information. The sale of CTR resulted in a loss of $0.2 million, recognized in the first quarter of 2007.

43

32. SUBSEQUENT EVENTS (CONT’D)
CONDENSED CONSOLIDATED BALANCE SHEET
	Pro forma
	as at
	December 31, 2006
	$
Assets
Current assets		67,507
Property, plant and equipment		14,356
Other assets		33,320
		115,183
Liabilities
Current liabilities		37,278
Long-term credit facility		52,941
Long-term convertible term loan		10,487
Long-term liability		1,749
Long-term debt		270
Convertible redeemable secured debentures		1,785
		104,510
Shareholders’ Equity
Capital stock		352,174
Equity components of Convertible Debentures and convertible term loan		10,653
Contributed surplus		1,911
Deficit pre-fresh start accounting		(227,142	)
Deficit		(126,923	)
		10,673
		115,183
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
	Pro forma
	For the year ended
	December 31, 2006
		$
Revenue		68,707
Cost of revenue		69,724
Gross profit		(1,017	)
Operating loss from continuing operations		(99,462	)
Finance charges		11,184
Loss from continuing operations		(110,697	)
Net loss		(109,909	)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
	Pro forma
	For the year ended
	December 31, 2006
		$
Cash flows used in continuing operating activities		(49,811	)
Cash flows provided by continuing financing activities		67,664
Cash flows used in continuing investing activities		(8,289	)

44

srtelecom.com

SR Telecom Inc.

Corporate Head Office

8150 Trans-Canada Highway

Montréal (Québec)

H4S 1M5

Canada

Tel.: +1 514 335 1210

Fax: +1 514 334 7783

Web site: www.srtelecom.com

Email: info@srtelecom.com

Printed in Canada

EX-99.3

Exhibit 99.3

EX-99.4

Exhibit 99.4

Notice of annual meeting

Management proxy circular

September 6, 2007

NOTICE OF ANNUAL MEETING OF COMMON

SHAREHOLDERS OF SR TELECOM INC.

Date:	Thursday, September 6, 2007	Business of the meeting:
Time:	10:00 a.m. (eastern time)	1.	Receipt of the Company’s financial statements for the year ended
			December 31, 2006 and the auditors’ report thereon;
Place:	Hotel InterContinental
	Salon Saint-Jacques	2.	Election of directors;
	360, rue Saint-Antoine Ouest
	Montréal, Québec	3.	Appointment of auditors;
		4.	To consider and, if thought fit, adopt, with or without any changes,
			the resolution as set forth in Schedule “A” to the accompanying
			management proxy circular, approving the amendments to the 2006
			employee and director stock option plan; and
		5.	To consider any other business that may be properly brought before
			the meeting.

By order of the board of directors

 

Serge Fortin

President and Chief Executive Officer

August 1, 2007

Important
The record date for the meeting is August 7, 2007. For more information on the record date and the shareholders entitled to vote at the meeting, please see “How many shares are eligible to vote?” in section 1 of the accompanying management proxy circular.

Shareholders who are unable to be present at the annual meeting of common shareholders are requested to complete and sign the enclosed form of proxy. Please return it promptly in the envelope provided, or forward it by fax to 416-263-9524 or 1-866-249-7775 (toll-free), so that your shares will be represented whether or not you attend. Proxies should be received at the Toronto office of the transfer agent, Computershare Investor Services Inc., 100 University Avenue, 9th Floor, Toronto, Ontario, M5J 2Y1, no later than 5:00 p.m. (eastern time) on September 4, 2007, or hand-delivered at the registration table on the day of the meeting prior to the commencement of the meeting.

2 | SR Telecom – Notice of annual meeting

MANAGEMENT PROXY CIRCULAR

Dear shareholder:

SR Telecom’s annual meeting of common shareholders will be held at Hotel InterContinental, Salon Saint-Jacques, 360, rue Saint-Antoine Ouest, Montréal, Québec, on Thursday, September 6, 2007 at 10:00 a.m. (eastern time).

This management proxy circular contains important information about the Company and the business to be conducted at the meeting and the Company. We hope you will take the time to consider the information set out in the management proxy circular. It is important that you exercise your vote, either in person at the meeting or by completing and sending in your proxy.

We invite you to join us at this meeting. You will have an opportunity to ask questions and meet with our management team, the board of directors and your fellow shareholders.

Yours sincerely,

Lionel Hurtubise	Serge Fortin
Chairman of the Board	President and Chief Executive Officer

Management proxy circular

As of August 1, 2007, except as otherwise provided.

What’s inside?
SECTION 1:	VOTING INFORMATION	SECTION 3: GENERAL PROXY INFORMATION
SECTION 2:	BUSINESS OF THE MEETING	Executive compensation
Receipt of financial statements		Equity compensation plan information
Election of directors		Indebtedness of directors and executive officers
Appointment of auditors		Directors and officers liability insurance
Amendment to the 2006 employee and director stock option plan		Report on corporate governance
		Committees of the board of directors
		Management responsibility and board independence from management
		Interests of insiders and other persons in material transactions
		Receipt of shareholder proposals for the 2008 annual meeting
		Discretionary authority
		Schedule “A”: resolution in respect of the amendment to the stock option plan
		Schedule “B”: statement of corporate governance practice

| SR Telecom – Management proxy circular | 3

SECTION 1 – VOTING INFORMATION

How do I vote?

If you are eligible to vote and your shares are registered in your name, you can vote your shares in person at the meeting or by proxy, as explained below.

What will I be voting on?

You will be voting on:

•   The election of directors of the Company (see page 5).

•   The appointment of Deloitte & Touche LLP as the Company’s auditors (see page 7).

•   The amendment of the 2006 employee and director stock option plan (see page 7).

•   Any other business, which may be properly brought before the meeting.

How will these matters be decided at the meeting?
You will have one vote for every SR Telecom common share you own at the close of business on August 7, 2007, the record date for the meeting. All of the matters voted on at the meeting will be decided based on a simple majority of the votes cast thereon.

How many shares are eligible to vote?
As of the date of this circular, there were 754,992,769 common shares issued and outstanding in the capital stock of the Company.

The common shares carry the right to vote and the holders of record at the close of business on August 7, 2007, the record date for the annual meeting, will be entitled to one vote for each common share held in respect of each of the matters to be considered and voted on at the meeting.

As of the date hereof, and to the knowledge of the directors and officers of the Company, no person beneficially owns, or directly or indirectly controls, more than 10% of the common shares, other than the following:

	Number of	Percentage of outstanding
common shares owned		common shares owned
DDJ Capital Management, LLC (1)	262,337,321		34.7	%
Greywolf Capital Management LP (2)	135,928,924		18.0	%
Morgan Stanley & Co.	94,909,200		12.6	%

(1)   These securities are held by certain funds and accounts managed by DDJ Capital Management, LLC. Collectively, these entities are referred to as DDJ. These entities include B IV Capital Partners, L.P.; GP Capital IV, LLC; The October Fund, Limited Partnership; October G.P., LLC;

GMAM Investment Funds II; and DDJ Canadian High Yield Fund.

(2)   These securities are held by certain funds and accounts managed by Greywolf Capital Management LP. These include Greywolf Overseas Fund and Greywolf Capital Partners II LP, for which it acts as investment manager, and certain other affiliated entities.

What is the quorum for the meeting?

For the meeting to be properly constituted, at least two shareholders, or duly appointed proxyholders, holding at least twenty-five percent of outstanding common shares must be present at the meeting.

Who is soliciting my proxy?

The Company’s management is soliciting your proxy for use at the annual meeting. The Company will bear the costs of the solicitation, which will be made primarily by mail; the Company’s directors, officers and employees may also solicit proxies personally or by telephone.

Voting by proxy

Management requests that you sign and return the proxy form to ensure your votes are exercised at the meeting. Whether or not you attend the meeting, you can appoint someone else to vote for you as your proxyholder. You can use the enclosed proxy form, or any other proper form of proxy, to appoint your proxyholder. The persons named in the enclosed form of proxy are directors or officers of the Company. However, you can choose another person to be your proxyholder, including someone who is not a shareholder of the Company. You may do so by deleting the names printed on the proxy and inserting another person’s name in the blank space provided, or by completing another proper form of proxy.

4 | SR Telecom – Management proxy circular |

How will my proxy be voted?

The form of proxy grants discretionary authority upon the proxyholders with respect to voting on amendments or other matters brought before the meeting. If other matters properly come before the meeting, the proxyholders will vote on them in accordance with their judgment, pursuant to the discretionary authority conferred by such proxy with respect to such matters.

The shares represented by proxies appointing the persons, or any one of them, designated by management to represent you as a shareholder at the meeting will be voted in accordance with the instructions you give on the proxy. Unless otherwise directed, the voting rights attached to the shares represented by a proxy will be voted “IN FAVOUR” of the approval of the following resolutions and proposals:

(1)   the election as directors of the five nominees proposed by management;

(2)   the appointment of the auditors and the authorization given to the directors to fix their remuneration; and

(3)   the amendment of the 2006 employee and director stock option plan.

What if I change my mind and want to revoke my proxy?

You can revoke your proxy at any time before it is acted upon. You can do this by stating clearly, in writing, that you want to revoke your proxy and delivering this written statement to SR Telecom’s head office not later than 5:00 p.m. on September 5, 2007, or to the Chairman of the meeting on the day of the meeting or any adjournment.

Who counts the votes?

Proxies are counted by Computershare Investor Services Inc., the transfer agent and registrar of SR Telecom’s common shares.

How can a non-registered shareholder vote?

If your common shares are not registered in your own name, they will be held in the name of a “nominee”, which is usually a trust company, securities broker or other financial institution. If your shares are registered in the name of a nominee, you are a “non-registered shareholder”. Your nominee is required to seek your instructions as to how to vote your shares. For that reason, you have received this circular from your nominee, together with a voting instruction form. Each nominee has its own signing and return instructions, which you should follow carefully to ensure your shares will be voted. If you are a non-registered shareholder who has voted and want to change your mind and vote in person, contact your nominee to discuss whether this is possible and what procedure to follow. If you are a non-registered shareholder and you wish to vote in person at the meeting, you must insert your own name in the space provided for the appointment of a proxyholder on the voting instruction card provided by your nominee and carefully follow the nominee’s instructions for the return of the executed form.

SECTION 2 – BUSINESS OF THE MEETING

Financial statements

The consolidated financial statements for the year ended December 31, 2006 have been mailed to shareholders who have requested it with this management proxy circular. You can also access the consolidated financial statements on the SR Telecom website (www.srtelecom.com), SEDAR (www.sedar.com), or EDGAR (www.sec.gov).

Election of directors

The articles of the Company provide for a minimum of three and a maximum of twelve directors. The incumbent directors have determined that the number of directors to be elected at the meeting is five and propose that the five persons named below be nominated for election at the meeting. Each elected director will hold office until the close of the next annual meeting, unless he or she resigns or otherwise lawfully ceases to be a director.

The persons designated as proxyholders in the accompanying form of proxy will vote the common shares represented by a properly executed proxy, for the election of the persons nominated as directors, unless specifically directed to withhold such vote. Four of the five proposed nominees are currently members of the board and were elected by the Company’s shareholders at the last annual meeting of shareholders.

The following table lists the individuals whom management proposes to nominate at the meeting for election as a director of the Company, as well as other pertinent information, including: all other positions and offices with the Company held by each individual, if any; their principal occupation or employment; period of service as a director of the Company; municipality of residence; other principal board and committee positions; and the approximate number of common shares beneficially owned, or over which each individual exercised control or direction, as at August 1, 2007. The information regarding common shares beneficially owned, or over which the individuals exercise control or direction, is not within the Company’s direct knowledge and has been individually provided by the respective directors or nominees.

| SR Telecom – Management proxy circular | 5

Paul J. Griswold(1)(2)	PAUL J. GRISWOLD was appointed to our board of directors in August 2005. Mr. Griswold is CEO
Armonk, New York, USA	and director of Havells Sylvana BV Ltd. of Frankfurt, Germany. He is a director of CML Holdings Intl. LLC
Nil common shares	(formerly SLI Holdings International, LLC) of Purchase, New York, a company which he also served as
183,100 stock options	CEO prior to April 2007. He is also a director of Weinstein Beverages of Seattle, Washington. Prior to

•   Chairman of the corporate governance committee	May 2003, he served as President, CEO and director of Paxar Corporation; he was named President
•   Member of the compensation committee	and CEO in August 2001 after having served as President and COO since February 2000. Prior to that time,
	Mr. Griswold was the Senior Vice-president, Protective Packaging and International Operations,
	at Pactiv Corporation, formerly Tenneco Packaging. Prior to joining Tenneco in 1994, he was the Vice-
	president of Packaging Development and Procurement for Pepsi International. Mr. Griswold has a BA
	in Mathematics from Fordham University and an MBA in Finance from Seton Hall University.

Lionel P. Hurtubise(3)	LIONEL P. HURTUBISE has served on our board of directors since 1999. He was formerly President and
Montréal, Québec, Canada	CEO of Ericsson Canada Inc. and served as its Chairman until July 31, 2005. Mr. Hurtubise has been
3,348 common shares	at the forefront of telecommunications and computer science technology in Canada for many years.
183,600 stock options	Prior to joining Ericsson Canada in 1986, he served as President of International Systcoms Ltd., then
•   Chairman of the board of directors	a leader in the field of mobile radio telephony. He was also a principal in the formation of Westech
•   Member of the audit committee	Systems Ltd., a joint venture in which Alberta Government Telephones was a participant, in
	developing Canada’s first cellular mobile telephone network. Mr. Hurtubise is active in private and
	governmental organizations dedicated to the advancement of telecommunications research
	and development.

Patrick J. Lavelle	PATRICK J. LAVELLE was appointed to our board of directors in August 2005. Mr. Lavelle is CEO of
Toronto, Ontario, Canada	Patrick J. Lavelle and Associates, a management consulting firm. He is currently Chairman of
Nil common shares	UE Waterheaters Inc., and is a director of McQuarry Energy Inc., Tahera Diamond Corporation, and
183,100 stock options	Canadian Bank Note Company Limited. He serves as a Trustee of Arriscraft International Income
•   Chairman of the audit committee	Fund and Trustee of Retrocom Mid-Market Real Estate Investment Trust and is on the advisory board
•   Member of the compensation committee	of International M.B.A. Program at York University. Mr. Lavelle has previously served as Chairman
•   Member of the corporate governance committee	and CEO of Unique Broadband Systems Inc.; VP Corporate Development at Magna International Inc.;
	Chairman of Export Development Corp., Business Development Bank of Canada, and
	Canadian Council for Aboriginal Business; and a director of Lions Gate Entertainment Corp.,
	Solign Technologies, Inc., Proprietary Industries Inc., and Newmex Minerals Inc. He has served as
	Deputy Minister of Industry, Trade and Technology for Ontario, First Secretary of the Premier’s Council,
	a senior advisor to the Planning and Priorities Board of the Ontario Cabinet and as Agent General
	for the Government of Ontario in Paris, France.

Louis A. Tanguay	LOUIS A. TANGUAY joined our board of directors in 2004. Mr. Tanguay possesses an extensive
Montréal, Québec, Canada	understanding of the management of telecommunications company operations; he retired from
5,000 common shares	Bell Canada after a career spanning over four decades during which he held a number of executive
183,100 stock options	positions, including President of Bell Canada International from 1998 until 2001. He currently serves
•   Chairman of the compensation committee	as a director of several companies, including Aéroports de Montréal, Bell Aliant, Medisys Inc.,
•   Member of the audit committee	Rona Inc. and Saputo Group Inc. He holds a Bachelor of Commerce degree from Concordia University.
•   Member of the corporate governance committee
Serge Fortin	SERGE FORTIN is a new nominee to our board of directors. Mr. Fortin was appointed President and
Montréal, Québec, Canada	CEO of SR Telecom in July 2006 to advance our leadership position in the dynamic broadband
Nil common shares	wireless marketplace. He is a telecom industry veteran with more than 30 years of executive
7,306,235 stock options	management experience. Prior to joining SR Telecom, Mr. Fortin served, from 2004 to 2006, in an
•   President and CEO of the Company	executive capacity at London, England-based FLAG Telecom, a part of the Reliance Group of
	Companies, a major corporation in India. From 2000 to 2004, he held various senior management
	positions in engineering, operations, sales and marketing at Teleglobe, including that of Chief
	Operations Officer. Prior to that, he was also President and CEO of Bell Actimedia, whose operations
	included Yellow Pages and Sympatico, as well as President and CEO of TATA Teleservices, an Indian
	telco provider and one of the world's first major fixed wireless operators. Mr. Fortin also held several
	executive positions with Bell Canada. He is an engineer and has a Bachelor’s degree in Pure and
	Applied Sciences from the Université de Sherbrooke.

(1)   DDJ Capital Management LLC, which controls a significant number of the Company’s shares as discussed above, has a controlling interest in SLI Holdings International, LLC.

(2)   If elected, Mr. Griswold will be appointed Chairman of the Company’s board of directors.

(3)   If elected, Mr. Hurtubise will step down as Chairman of the board of directors and will be appointed as Vice-chairman of the board of directors.

6 | SR Telecom – Management proxy circular |

Appointment of Auditors

Deloitte & Touche LLP, Chartered Accountants, have been the Company’s auditors for a period in excess of five years. It is proposed to reappoint Deloitte & Touche LLP as the Company’s auditors at the meeting, to hold office until the close of the next annual meeting of shareholders. Except where authority to vote in respect of the appointment of auditors is withheld, the persons named in the accompanying form of proxy will vote the shares represented for the appointment of Deloitte & Touche LLP as auditors of the Company.

Amendment to the 2006 employee and director stock option plan

At the annual meeting, shareholders will be asked to consider, and, if thought fit, to approve an ordinary resolution confirming certain amendments to the 2006 plan (defined below, in the section entitled “Share compensation arrangements”). On August 1, 2007, the board of directors approved, subject to shareholder and regulatory approval, new amendment provisions for the 2006 plan.

The 2006 plan does not currently provide for an amending procedure. According to the TSX Company Manual, any proposed amendment to the 2006 plan will be subject to shareholder approval as it does not contain a provision empowering the board of directors, or one of its committees, to make specific amendments to the 2006 plan. The board of directors believes that it is in the best interest of the Company to make, and have approved, amendments to the 2006 plan to provide for an amending procedure that will enable the board to amend the 2006 plan, without shareholder approval, in certain circumstances.

If the resolution appended as Schedule “A” to this management proxy circular is adopted by the shareholders at the meeting, the following amendments to the 2006 plan cannot be adopted by the board of directors without obtaining shareholder approval:

(1)   an increase in the maximum number of common shares of the Company reserved for issuance pursuant to options granted under the 2006 plan;

(2)   a reduction in the exercise price with respect to an option held by an insider;

(3) a cancellation of options held by an insider for the purpose of re-issuing new options in replacement thereof;

(4)   an extension of the term of an option beyond the expiration of its original exercise period;

(5)   a change to the class of eligible participants that may be granted options under the 2006 plan; or

(6)   an amendment to allow options to become transferable, assignable or pledgeable in the 2006 plan.

The board of directors may at any time suspend or terminate the 2006 plan in whole or in part or amend them in such respects as the board of directors may deem appropriate without having to obtain shareholder approval. The board of directors shall be required to obtain the consent of optionholders in the event that the amendment, suspension or termination of the 2006 plan prejudices the rights of any such optionholder. Without limiting the scope of the foregoing, the board of directors may amend the 2006 plan for one or more of the following reasons, without having to obtain shareholder approval:

(1)   to change the conditions for granting or exercising options;

(2)   to make additions, deletions or corrections to the 2006 plan which, in the opinion of the board of directors, are required for the purpose of correcting any ambiguity, defect, inconsistent provision, clerical omission, mistake or manifest error or to respond to requirements arising from changes in legislation or regulation, stock exchange rules or accounting or auditing requirements; or

(3)   changes relating to the administration of the 2006 plan.

The board of directors may also amend features of any outstanding option granted pursuant to the 2006 plan (including, without limitation, the cancellation of an option or an amendment to the date or dates on which an option or a portion thereof becomes exercisable) without having to

obtain shareholder approval, provided that:

(1)   the amendment does not reduce the exercise price of an option held by an insider or extend the expiry date of an option already awarded;

(2)   the board of directors would have had the authority to initially grant the option under terms as so amended; and

(3)   the amendment does not materially prejudice the rights of the optionee affected by such amendment.

Pursuant to the TSX Company Manual, an option can terminate on a fixed expiration date (fixed term) or a certain number of days after this fixed date (conditional expiration date), if the fixed term falls within, or immediately after, a blackout period during which insiders of the Company are prohibited from exercising options they hold in accordance with the Company’s policy on insider trading (blackout period), provided that the 2006 plan and, in particular, the conditional expiration date have been approved by security holders.

| SR Telecom – Management proxy circular | 7

On August 1, 2007, the board of directors approved, subject to shareholder and regulatory approval, amendments to the 2006 plan providing for a maximum extension of 10 business days during which options may be exercised after the fixed term if that date falls during or immediately after the end of a blackout period.

Therefore, if the fixed term falls within a blackout period, the options may be exercised within 10 business days of the end of the blackout period. However, where the fixed term falls within 10 business days of the end of the blackout period (for example, four days later), the options may be exercised after the fixed term during a period of 10 business days less the number of business days elapsed between the end of the blackout period and the fixed term (in this example, six days).

All optionees may avail themselves of the conditional expiry dates in accordance with the same terms and conditions. However, the conditional expiry dates may only be used by an option holder if neither the Company nor such insider is the subject of a cease trade order.

The board also proposes to amend the method of determining the exercise price of options granted under the 2006 plan. Currently, the exercise price is determined by the board or the compensation committee, at the time of granting, in its discretion, provided that such price may not be lower than the greater of: (a) the average closing price of the common shares of the Company on the TSX for the 15 trading days immediately prior to the date of grant of the option; and (b) the volume weighted average trading price of the common shares of the Company on the TSX for the five trading days immediately preceding the date at grant of the option. The proposed amendment will remove the first restriction to the determination of the exercise price of options in (a) above.

In addition, certain amendments have been made to the 2006 plan in order to clarify certain definitions, including “eligible person”, “exercise period” and “insiders”.

At the meeting, shareholders will be asked to consider and, if thought fit, to pass an ordinary resolution approving the amendment to the 2006 plan appended as Schedule “A” to this management proxy circular. This must be approved by at least a majority of the votes cast at the annual meeting by all the shareholders of the Company present or represented by proxy in order for it to be adopted. The persons designated as proxyholders in the accompanying form of proxy will vote the common shares represented by a properly executed proxy, for the approval resolution amending the 2006 plan appended to this management proxy circular, unless specifically directed to withhold such vote.

For more information on the 2006 plan, please see “Share compensation arrangements – 2006 employee and director stock option plan” below.

8 | SR Telecom – Management proxy circular |

SECTION 3 – GENERAL PROXY INFORMATION

Executive compensation

COMPENSATION OF NAMED EXECUTIVE OFFICERS

The following table summarises the compensation for the three fiscal year periods ended December 31, 2006, for the Company’s named executive officers, namely the CEO and CFO, the former interim CEO and former interim CFO, and the three most highly compensated executive officers other than the CEO and the CFO. The determination of the most highly compensated executive officers is made on the basis of the total annual salary and annual incentive bonuses earned during the fiscal year ended December 31, 2006.

SUMMARY COMPENSATION TABLE
								Long Term
				Annual Compensation				Compensation
							Other		Stock Options	All Other
	Year		Salary		Bonus		Compensation		Granted	Compensation
			($)		($)		($)		(#)	($)
Serge Fortin	2006		176,923	(1)	150,000	(2)	17,692	(3)	7,306,235	–
President and CEO
Marc Girard	2006		122,040	(4)	25,000	(5)	–		1,800,000	–
Senior Vice-president and CFO
William E. Aziz	2006	(14)					1,176,519	(7)		–
Former Interim CEO	2005		–		750,000	(6)	450,000	(8)	–
Peter Campbell	2006	(15)			–		189,999	(8)	–	–
Former Interim CFO	2005		28,282	(9)	–		30,000	(8)	–	–
	2004		106,715		–		5,335	(10)	–	–
Charles Immendorf	2006		275,000		40,538	(11)	–		1,800,000	–
Senior Vice-president,	2005		237,780		–		6,748	(10)	–	–
Innovations	2004		204,914		–		115,945	(12)	–	–
Garry Forbes	2006		207,395		–		–		1,200,000	–
Senior Vice-president, Sales	2005		39,928	(13)	–		–		–	–
Albert Israel	2006		267,012	(16)	–		–		–	–
Former Senior Vice-president,	2005		190,000		43,846	(11)	9,500	(10)	–	–
Operations and Customer Solutions	2004		184,000		–		9,188	(10)	–	–

(1)   Mr. Fortin was appointed President and CEO on July 10, 2006 and was employed for a period of approximately five and a half months during the last completed financial year. The 2006 salary amount is based on an annual salary of $400,000.

(2)   This amount relates to a signing bonus and a guaranteed bonus.

(3)   This amount relates to an annual salary supplement of $40,000, per the employment contract.

(4)   Mr. Girard was appointed Senior Vice-president, Finance and CFO on June 1, 2006 and was employed for a period of approximately six and a half months during the last completed financial year. The 2006 salary amount is based on an annual salary of $240,000.

(5)   This amount relates to a guaranteed bonus.

(6)   This amount relates to a completion bonus of $600,000 and a signing bonus of $150,000, as described in the “Employment agreements” section.

(7)   This amount consists of consulting fees and payment of income taxes on shares issued. In addition, 2,769,576 common shares were issued to BlueTree Advisors in connection with the services provided by Mr. Aziz as Interim CEO.

(8)   This amount consists of consulting fees.

(9)   Mr. Campbell was appointed Interim CFO on December 20, 2005. The 2005 salary amount is to March 1, 2005 based on an annual salary of $113,300 plus an amount for accumulated vacation not taken.

(10)   This amount consists of an included contribution to a retirement savings plan.

(11)   This amount relates to a retention bonus as the whole is more particularly described under the title “Retention Bonus” below.

(12)   Mr. Immendorf joined SR Telecom through our acquisition of Netro Corporation in September 2003 and transferred to Montréal in August 2004 from the Redmond office. This amount relates to a transfer bonus and contributions to a retirement savings plan.

(13)   Mr. Forbes joined SR Telecom on October 3, 2005. The 2005 salary amount is based on an annual salary of $188,745.

(14)   Mr. Aziz stepped down as Interim CEO on July 10, 2006. During the last completed financial year, Mr. Aziz was employed for a period of approximately six months.

(15)   Mr. Campbell stepped down as Interim CFO on August 15, 2006. During the last completed financial year, Mr. Campbell was employed for a period of approximately seven and one half months.

(16)   Mr. Israel stepped down as Senior Vice-president, Operations and Customer Solutions on November 7, 2006. During the last completed financial year, Mr. Israel was employed for a period of approximately ten months. The 2006 salary amount is based on an annual salary of $240,000 plus an amount for accumulated vacation not taken.

| SR Telecom – Management proxy circular | 9

SHARE COMPENSATION ARRANGEMENTS
Key Employee Stock Option Plan (KESOP)
The KESOP served as a tool to retain and motivate key employees, directors and consultants of the Company. As of August 1, 2007, there were 174,580 options to purchase common shares outstanding under the KESOP (or approximately 0.02% of the Company’s issued and outstanding common shares), from a total of 438,800 common shares authorized for issuance under this plan (or approximately 0.06% of commons shares issued and outstanding), leaving 264,220 common shares available for further option grants under the KESOP (or approximately 0.04% of common shares issued and outstanding). However, following the adoption of the new plan, discussed under the title “2006 employee and director stock option plan” below, no further stock options have been and will be granted by the board of directors under the KESOP.

The KESOP provides that no person may hold options to purchase more than 5% of the number of common shares of the Company issued and outstanding at any time. In addition, the KESOP provides that the number of shares issuable or reserved for issuance to insiders under all security based compensation arrangements of the Company cannot, at any time, exceed 10% of the Company’s issued and outstanding common shares.

The exercise price of the options granted under the KESOP was determined by the board of directors or the compensation committee in its discretion at the time that each option was granted, however such price could not be lower than the volume weighted average trading price of the common shares on the TSX for the 5 trading days immediately preceding the date of grant of the option.

Unless otherwise determined by the board of directors, all stock options granted to key employees or consultants under the KESOP will vest or vested, as applicable, as to 20% a year commencing on the first anniversary of the date of grant, and will expire 10 years from the date of grant. All options granted to directors under the KESOP vested one year after the grant date. Options granted under the KESOP are not assignable by their holder.

In addition, all options granted pursuant to the KESOP will expire on the date on which any option holder ceases to be a key employee or consultant, where such person’s employment or office is terminated for any reason, including for cause, other than death, retirement or disability, or such other date, as determined by the board, which shall not be more than 30 days after the date on which the holder thereof ceases to be a key employee or consultant. In the event of death, retirement or disability of the option holder, any vested option held at the time of death, retirement or disability, as the case may be, shall expire on the date which is earlier of the date on which such option will otherwise expire or twelve months after the date of such death, retirement or disability.

There is no amending procedure in the current implementation of the KESOP. Accordingly, any proposed amendment to the KESOP would require shareholder approval pursuant to the requirements of the TSX Company Manual. In addition, any proposed amendments to the KESOP must receive approval from the compensation committee and the Company’s board of directors prior to seeking approval from the shareholders or any applicable regulatory authorities.

2006 employee and director stock option plan

In March 2006, the board of directors approved a new employee and director stock option plan (2006 plan), which was approved by shareholders at the last annual meeting of the shareholders of the Company held on June 8, 2006. The purpose of the 2006 plan is to encourage, retain and motivate key employees, directors and consultants of the Company and its subsidiaries. An aggregate of 72,886,020 common shares may be issued under the 2006 plan representing approximately 9.65% of the Company’s current issued and outstanding common shares. As of August 1, 2007, there were options to purchase 23,929,185 common shares under this plan (or approximately 3.17% of common shares issued and outstanding) and a current reserve of 48,956,835 common shares is available under this plan for future issuances (or approximately 6.48% of common shares issued and outstanding).

The 2006 plan provides that no person may hold options to purchase more than 5% of the number of common shares of the Company issued and outstanding at any time. In addition, the 2006 plan provides that the number of shares issuable or reserved for issuance to insiders under all security based compensation arrangements of the Company cannot, at any time, exceed 10% of the Company’s issued and outstanding common shares and the number of common shares issued to insiders within a one year period cannot exceed 10% of the Company’s issued and outstanding common shares.

The exercise price of the options granted under the 2006 plan is currently determined by the board of directors or the compensation committee in its discretion at the time that each option is granted, however such price shall not be lower than the greater of: (a) the average closing price of the common shares on the TSX for the 15 trading days immediately preceding the date of grant of the option and; (b) the volume weighted average trading price of the common shares on the TSX for the 5 trading days immediately preceding the date of grant of the option. At the meeting, shareholders will be asked to consider and, if thought fit, approve an amendment to the 2006 plan to remove the first restriction to the determination of the exercise price by the board in (a) above.

Unless otherwise determined by the board of directors, all stock options granted to key employees or consultants under the 2006 plan will vest as to 25% a year commencing on the first anniversary of the date of grant, and will expire 7 years from the date of grant. All options granted to directors under the 2006 plan will vest one year after the grant date. Options granted under the 2006 plan are not assignable by their holder.

10 | SR Telecom – Management proxy circular |

In addition, all options granted pursuant to the 2006 plan are not transferable and will expire on the earlier of the date on which the options expired or 90 days following the date on which any option holder ceases to be a key employee or consultant, where such person’s employment or office is terminated for any reason, including for cause, other than death, retirement or disability, or such other date, as determined by the board, which shall not be less than 90 days and not more than 180 days after the date on which the holder thereof ceases to be a key employee or consultant. In the event of death, retirement or disability of the option holder, any vested option held at the time of death, retirement or disability, as the case may be, shall expire on the date which is earlier of the date on which such option will otherwise expire or twelve months after the date of such death, retirement or disability.

In addition, under the 2006 plan any unvested options will vest upon a change of control of the Company if the employment or office of the option holder is terminated within 24 months of such change of control for any reason other than for cause (a serious reason) and such options may be exercised within 90 days of the date of termination.

The 2006 plan does not currently provide for an amending procedure and any proposed amendment would require shareholder approval pursuant to the TSX Company Manual. However, at the annual meeting, shareholders will be asked to consider and, if thought fit, to approve an amendment to the 2006 plan providing for an amending procedure pursuant to which the board will be allowed to amend, without shareholder approval, certain features of the plan in certain circumstances. In addition, any proposed amendments to the 2006 plan must currently also receive approval from the compensation committee and the Company’s board of directors prior to seeking approval from the shareholders or any applicable regulatory authorities.

For more information on the proposed amendments to the 2006 plan, please see “Amendment to the 2006 employee and director stock option plan” above in Section 2 of this management proxy circular.

EQUITY COMPENSATION PLAN INFORMATION

The following table lists common sets forth information with respect to options outstanding to purchase common shares under the Company’s KESOP and 2006 employee and director stock option plan.

			Number of
			securities remaining
	Number of	Weighted	available for future
	securities to be	average	issuance under
	issued upon exercice	exercise price	equity compensation
	of outstanding	of outstanding	plans (excluding
	options, warrants	options, warrants	securities reflected
	and rights	and rights	in column (a))
Plan category	(a)	(b)	(c)
Equity compensation plans approved by security holders	24,103,765	$0.52	49,221,055
Equity compensation plans not approved by security holders	n/a	n/a	n/a
Total	24,103,765	$0.52	49,221,055

2006 MANAGEMENT INCENTIVE PLAN

The Company adopted a management incentive plan for the fiscal year ended December 31, 2006 (2006 management incentive plan). The plan was based on the performance of the Company. The Company’s performance was established by comparing year-end results vs. plan in terms of EBITDA (i.e. earnings before interest, taxes, depreciation and amortization). Individuals became eligible to receive a bonus when the Company reached at least 100% of its normalized budgeted results. Payout targets and maximums varied based on groups of employees. Ranges went from 0% to 40% for the manager and director level, to 60% for Vice-president level, 80% for Senior Vice-president and 100% for President level. In 2006, no such bonuses were paid out as the targets under the 2006 management incentive plan were not met.

2007 SHORT-TERM INCENTIVE PLAN

For the fiscal year ending December 31, 2007, the Company has discontinued the 2006 management incentive plan and has adopted a new short-term incentive plan (2007 short-term incentive plan). The 2007 short-term incentive plan is based on the Company’s and the individual’s performance and is available to all employees. The Company’s performance is established by comparing year-end results vs. plan in terms of EBITDA (i.e. earnings before interest, taxes, depreciation and amortization) and revenue; with both EBITDA and revenue having equal 50% weighting. Individuals become eligible to receive a bonus when the Company reaches or surpasses thresholds for EBITDA and revenue based on its normalized budgeted results. Individuals can also achieve a bonus multiplier based on their personal performance. Payout targets and maximums vary based on groups of employees. Ranges go from 5% of base salary for non professionals, to 10% for professionals, 15% for Managers, 20% for Directors, 30% for Vice-presidents, 40% for Senior Vice-presidents and 50% for the President. The maximum payout, including the multipliers for Company and individual performance is twice the payout targets listed above.

| SR Telecom – Management proxy circular | 11

OPTION GRANTS DURING 2006

The following table provides summary information regarding stock options granted to the Company’s named executive officers during the fiscal year ended December 31, 2006.

			Percent of total					Market value of the
	Common		options granted					securities underlying
	shares under		to employees in			Exercise price		options at the date		Date of
Name and principal position	options		financial year			($/security)		of grant ($/security)		expiration
Serge Fortin
President and CEO		7,306,235		30.18	%		$0.34		$0.35	July 2013
Marc Girard		1,100,000		4.54	%		$0.41		$0.40	June 2013
Senior Vice-president and CFO		700,000		2.89	%		$0.35		$0.34	August 2013
Charles Immendorf		1,300,000		5.37	%		$0.32		$0.33	April 2013
Senior Vice-president, Innovations		500,000		2.07	%		$0.35		$0.34	August 2013
Garry Forbes		900,000		3.72	%		$0.32		$0.33	April 2013
Senior Vice-president, Sales		300,000		1.24	%		$0.35		$0.34	August 2013

AGGREGATED OPTION EXERCISES DURING 2006 AND FINANCIAL YEAR-END OPTION VALUES

The following table provides summary information concerning the exercise of options by each of the Company’s named executive officers during the fiscal year ended December 31, 2006 and the total number of options to acquire common shares held by each of them as of December 31, 2006. The value realized upon exercise is the difference between the market value of the common shares on the date of exercise and the exercise price. The value of unexercised in-the-money options is calculated based on the difference between the exercise price of the option and the market value of the common shares at December 31, 2006. The market value of a common share on the Toronto Stock Exchange was $0.18 on December 31, 2006.

							Value of
							unexercised
					Number of		in-the-money
Securities					unexercised		options at
acquired on			Aggregate value		options at		year-end
exercise			realized		year-end		($)
Name and principal position	(#	)	($)		exercisable/unexercisable		exercisable/unexercisable
Serge Fortin
President and CEO	0			–		0 / 7,306,235		– / –
Marc Girard
Senior Vice-president and CFO	0			–		0 / 1,800,000		– / –
Charles Immendorf
Senior Vice-president, Innovations	0			–		0 / 1,800,000		– / –
Garry Forbes
Senior Vice-president, Sales	0			–		0 / 1,200,000		– / –

EMPLOYMENT AGREEMENTS

On July 5, 2006, our President and CEO, Mr. Serge Fortin and the Company entered into an executive employment agreement commencing July 10, 2006. Under this agreement, Mr. Fortin’s annual salary was fixed at $400,000 plus an annual salary supplement of $40,000. Mr. Fortin received a one-time settling-in bonus of $50,000 and was granted options to purchase 7,306,235 common shares at an exercise price of $0.34, as determined by the greater of the average closing price of the common shares on the TSX for the 15 trading days immediately preceding the date of grant or the average price for common shares in the TSX for the five trading days immediately prior to the grant. For the year ended December 31, 2006, Mr. Fortin received a guaranteed bonus of $100,000. The agreement also provides for Mr. Fortin to be eligible for an annual bonus ranging from 100% to 200% of base salary based on attaining or surpassing target objectives. For 2006, these target objectives were based on the attainment of planned EBITDA. In addition, this agreement entitles Mr. Fortin to an annual stock option grant under the Company’s 2006 employee and director stock option plan as approved by the compensation committee and the board of directors. The Company may terminate Mr. Fortin’s employment for serious reason at any time without prior notice or compensation. If the Company terminates Mr. Fortin’s employment without serious reason, including without limitation Mr. Fortin’s inability to carry out his functions for a period exceeding 90 days, or in the event of a change of control, upon giving an indemnity equivalent to: (i) 12 months base salary if the termination occurs within 24 months of employment; (ii) 15 months base salary if the termination occurs after 24 months of employment; (iii) 18 months base salary if the termination occurs after 36 months of employment. Furthermore, any vested options shall be exercisable during the severance period and shall terminate upon the earlier

12 | SR Telecom – Management proxy circular |

of the applicable severance period or seven years from the original date of grant. Mr. Fortin can also terminate the employment agreement at any time by providing 4.5 months prior notice to the Company. The agreement also includes specific provisions regarding Mr. Fortin’s non-solicitation and non-competition obligations, as well as the protection of the Company’s interests, such as confidential information and intellectual property.

On May 30, 2006, Mr. Marc Girard, our Senior Vice-president finance and CFO, and the Company entered into an executive employment agreement commencing June 1, 2006. Mr. Girard’s annual salary was fixed at $240,000 and upon signing, Mr. Girard was granted options to purchase 1,100,00 common shares at an exercise price of $0.41, as determined by the greater of the average closing price of the common shares on the TSX for the 15 trading days immediately preceding the date of grant or the average price for common shares in the TSX for the five trading days immediately prior to the grant. For the year ended December 31, 2006, Mr. Girard received a guaranteed bonus of $25,000 and an additional grant to purchase 700,000 common shares at an exercise price of $0.35. The agreement also provides for Mr. Girard to be eligible for an annual bonus ranging from 40% to 80% of base salary based on the Company attaining or surpassing planned EBITDA. In addition, this agreement entitles Mr. Girard to an annual stock option grant under the Company’s 2006 employee and director stock option plan. The Company may terminate Mr. Girard’s employment for serious reason at any time without prior notice or compensation. If the Company terminates Mr. Girard’s employment without serious reason, including without limitation Mr. Girard’s inability to carry out his functions for a period exceeding 90 days, or in the event of a change of control, upon giving an indemnity equivalent to: (i) 9 months base salary if the termination occurs within 12 months of employment; (ii) 12 months base salary if the termination occurs after 12 months of employment; (iii) 15 months base salary if the termination occurs after 24 months of employment; (iv) 18 months base salary if the termination occurs after 36 months of employment. Furthermore, any vested options shall be exercisable during the severance period and shall terminate upon the earlier of the applicable severance period or seven years from the original date of grant. Mr. Girard can also terminate the employment agreement at any time by providing 4.5 months prior notice to the Company. The agreement also includes specific provisions regarding Mr. Girard’s non-solicitation and non-competition obligations, as well as the protection of the Company’s interests, such as confidential information and intellectual property.

On September 1, 2006, Mr. Charles Immendorf, our Senior Vice-president, Innovations, and the Company signed an executive employment agreement in which Mr. Immendorf’s annual salary was fixed at $275,000 and which granted Mr. Immendorf a one-time retention bonus of US$25,000 to be paid in January 2007. This retention bonus was related to Mr. Immendorf’s 2004 transfer to Canada from the United States. For the year ended December 31, 2006, Mr. Immendorf was granted options to purchase 1,300,00 common shares at an exercise price of $0.32, and an additional grant to purchase 500,000 common shares at an exercise price of $0.35, as determined by the greater of the average closing price of the common shares on the TSX for the 15 trading days immediately preceding the date of grant or the average price for common shares in the TSX for the five trading days immediately prior to the grant. Under the agreement, Mr. Immendorf is eligible for an annual bonus ranging from 40% to 80% of base salary based on the Company attaining or surpassing planned EBITDA. In addition, this agreement entitles Mr. Immendorf to an annual stock option grant under the Company’s 2006 employee and director stock option plan. The Company may terminate Mr. Immendorf’s employment for serious reason at any time without prior notice or compensation. If the Company terminates Mr. Immendorf’s employment without serious reason, including without limitation Mr. Immendorf’s inability to carry out his functions for a period exceeding six months, or in the event of a change of control, upon giving an indemnity equivalent to 12 months base salary. Mr. Immendorf can also terminate the employment agreement at any time by providing 60 days prior notice to the Company. The agreement also includes specific provisions regarding Mr. Immendorf’s non-solicitation and non-competition obligations, as well as the protection of the Company’s interests, such as confidential information and intellectual property.

Pursuant to an agreement we entered into with BlueTree Advisors on April 25, 2005, BlueTree Advisors agreed to provide, as an independent contractor, the management services of Mr. Aziz as our Chief Restructuring Officer for a six-month period ending October 25, 2005. In consideration for such services, BlueTree Advisors received work fees of $50,000 and payment of reasonable expenses per month until the expiration of such agreement and was eligible for a completion bonus of $750,000 payable October 24, 2005 for delivery of a restructuring and business plan that has now been completed, with 50% of each $50,000 monthly payment to be credited and applied against the completion bonus. Pursuant to this agreement, BlueTree Advisors was paid $600,000 on October 24, 2005. We had, but did not exercise, an option to extend this agreement for an additional three-month period. Mr. Aziz was subsequently appointed as Interim President and Chief Executive Officer by our board of directors for a period ending December 31, 2006. For such additional services, we entered into an agreement with BlueTree Advisors that provided that BlueTree Advisors was paid a one-time fee of $150,000, a work fee of $50,000 and reasonable expenses per month and was eligible for a success bonus of (i) $800,000 if the normalized earnings before interest, taxes, depreciation and amortization (EBITDA) targeted for 2006 (as approved by our board of directors) (the 2006 EBITDA) was obtained, (ii) $1,000,000 if we obtained 110% of the 2006 normalized EBITDA, or (iii) $1,200,000 if we obtained 115% of the 2006 normalized EBITDA. BlueTree Advisors were also granted 1,953,125 common shares, plus an additional entitlement of 816,451 common shares on July 24, 2006 with a gross-up to pay for the tax that results from such issuance. Mr. Aziz stepped down as Interim President and Chief Executive Officer on July 10, 2006; his total compensation for the year ended December 31, 2006 is shown on page 9 of this management proxy circular.

| SR Telecom – Management proxy circular | 13

RETENTION BONUSES

For the year ended December 31, 2006, Mr. Charles Immendorf, Senior Vice-president, Innovations, was entitled to receive a retention bonus, as described under “Employment agreements” above. For the year ended December 31, 2005, Mr. Albert Israel, Former Senior Vice-president, Operations and Customer Solutions received a retention bonus. Other key employees of the Company were eligible for the retention bonus as well.

COMPOSITION OF THE COMPENSATION COMMITTEE

The following individuals currently serve on the compensation committee: Louis A. Tanguay (Chair), Paul J. Griswold and Patrick J. Lavelle.

REPORT ON EXECUTIVE COMPENSATION

The policies followed by the Compensation committee with respect to the compensation paid to all executive officers are set out below.

Compensation for named executive officers and for executive officers as a whole, may, in addition to base salary, include compensation in the form of an annual bonus and the grant of stock options.

In order to attract, retain and motivate executives of above median talents, the Company’s policy is to offer total compensation that is at the median of its market in terms of fixed compensation, at the median of its market in terms of variable compensation, and linked to the Company’s performance, such that the total compensation offered by the Company is in line with the market median for results that are at par with objectives/budgets and conform to internal equity principles.

The committee approves base salaries for executive officers based on reviews of market data. The level of base salary is also determined by the level of past performance, as well as by the level of responsibility and the importance of the position to the Company.

Under the general policy with respect to compensation, executive officers may qualify for annual incentive awards. Corporate performance, as assessed by the board of directors, determines the aggregate amount of incentive bonus that may be paid to all senior managers as a group in respect of a fiscal year. Corporate performance is measured by comparing performance targets included in the Annual Operating Plan with actual results for a fiscal year.

The Company paid a bonus to its Senior Vice-president, Innovations in 2006, a signing and guaranteed based bonus to the Company’s President and CEO, and a guaranteed bonus to the Company’s Senior Vice-president and CFO.

Consideration of individual performance enables the Company to recognize and effectively reward those individuals whose special efforts have assisted the Company to attain its corporate performance objectives.

The Company introduced a new employee and director stock option plan in 2006, to give each option holder an interest in preserving and maximizing shareholder value in the long term, to enable the Company to attract and retain individuals with experience and ability, and to reward individuals for current performance and expected future performance.

No one element of executive compensation is permanently emphasized over another. All segments are believed to be of major importance to the Company in assuring the engagement and retention of executives. Some elements may be deemed temporarily more important than others in certain periods and in differing circumstances.

Submitted by the committee

Louis A. Tanguay, Chair

Paul J. Griswold

Patrick J. Lavelle

14 | SR Telecom – Management proxy circular |

PERFORMANCE GRAPH

The following performance graph shows the yearly percentage change in SR Telecom’s cumulative total shareholder return over the five years preceding the financial period ending December 31, 2006 for the Company’s common shares, compared to that of the S&P/TSX Composite Index.

The table illustrates what a fixed $100 investment in the above-mentioned index and in the Company’s common shares, made at the end of the fiscal year in 2001, would be worth at the end of each of the five years following the initial investment.

Five-year cumulative total return on $100 Investment assuming dividends are reinvested (December 31, 2001 – December 31, 2006)

DIRECTORS’ COMPENSATION

The board of directors has adopted a compensation policy for its directors who are not officers or employees of the Company. From August 22, 2005, the Chairman of the Board received an annual fee of US$65,000 and all other directors received an annual fee of US$40,000. The Chairman of a committee received an annual fee of US$3,000 and members of a committee received an annual fee of US$2,000. Directors received an attendance fee for board meetings and committee meetings of US$1,000 per director per meeting attended.

In March 2006, the board of directors adopted a new compensation policy for its directors who are not officers or employees of the Company to take effect on April 1, 2006. The Chairman of the Board receives an all inclusive annualized fee of US$90,000, the Vice-chairman of the Board receives an annualized fee of US$50,000 plus fees for chairing a board committee or being a board committee member, as described herein. All other board members are entitled to an annualized fee of US$40,000 plus fees for chairing a board committee or being a board committee member, as described herein. The audit committee chair receives an annualized fee of US$15,000 and any other committee chair receives an annualized fee of US$7,500. All board committee members, other than the chair of the board committee, receive an annualized fee of US$5,000. Other than the retainers mentioned herein, no additional fees are paid for attendance at meetings. Directors are also eligible to receive stock options under the 2006 plan described herein.

| SR Telecom – Management proxy circular | 15

The aggregate compensation earned by directors in 2006 is as follows:
Directors name	Total fees earned in 2006
		US$
Lionel P. Hurtubise			101,183
Patrick J. Lavelle			90,735
Paul J. Griswold			87,190
Louis A. Tanguay			83,836
David Gibbons (1)			29,519
Kirk Flatow (1)			27,220
Pierre St-Arnaud (1)			28,369
Total			448,052

(1)   Resigned from the board effective June 2006.

In March 2006, the board of directors approved a new employee and director stock option plan. The following table indicates the number of stock options granted to board of directors and named executive officers under this plan as of August 1, 2007:

Stock options granted
Lionel P. Hurtubise	183,100
Patrick J. Lavelle	183,100
Paul J. Griswold	183,100
Louis A. Tanguay	183,100
Serge Fortin	7,306,235
Marc Girard	1,800,000
Charles Immendorf	1,800,000
Garry Forbes	1,200,000

Indebtedness of directors and executive officers

None of the directors, executive officers or employees of the Company was indebted to the Company at any time during the financial year ended December 31, 2006 or as of the date of this proxy circular.

Directors’ and officers’ liability insurance

The Company has purchased and maintains directors’ and officers’ liability insurance with an aggregate limit of liability of US$15,000,000. The Company also has directors’ and officers’ liability insurance coverage for the former directors of the Company in the amount of US$10,000,000 until August 2011.

Under this coverage, protection is provided to the directors and the officers of the Company and all of its subsidiaries. This coverage also insures the Company against payments, which it may be required or permitted by law to make to indemnify directors or officers, subject to a deductible amount of US$100,000 (US$500,000 in the event a claim is made in reference to securities claims and US$350,000 for employment practice claims), in the aggregate.

In 2006, the total amount charged to income by the Company as insurance premium costs with respect to directors and officers as a composite group was approximately $462,000.

Report on corporate governance

The Company’s board of directors believes that sound corporate governance practices are essential to the sustained growth and performance of the Company and consequently maintaining shareholder value. In the past years, considerable attention has been given to publicly traded companies, their boards of directors and corporate governance practices. The Company’s board of directors is committed to ensuring and maintaining the integrity of its practices and thereby promoting investor and shareholder confidence.

Mindful of the impact of the corporate scandals in the United States on the Canadian capital markets, and the continued debate among experts, regulators and stock exchanges in Canada regarding an appropriate response in Canada to these scandals, the Corporate governance committee perceives its role and mandate as having expanded since its inception in 1995, and most significantly in the last few years.

16 | SR Telecom – Management proxy circular |

The Corporate governance committee bears the responsibility for assessing the appropriateness of the Company’s corporate governance policies and practices and recommending changes, when required, to the board of directors. Disclosure requirements practices contained in National Instrument 58-101 – Disclosure of Corporate Governance – require that every listed corporation make full and complete disclosure of its system of corporate governance, on an annual basis, with reference to each of the Guidelines (the Disclosure Instrument) and National Polices 58-201 –Corporate Governance Guidelines (the Guidelines). Schedule “B” of this proxy circular lists the Guidelines and the Company’s conformity with the Guidelines, or reasons for non-compliance, if applicable.

The following is a brief overview of the Company’s corporate governance practices and policies; further details are provided in Schedule “B”.

BOARD MANDATE

The mandate of SR Telecom Inc.’s board of directors is to supervise the management of the business and affairs of the Company and to act with a view to the best interests of the Company and its shareholders.

There were ten meetings of the board in 2006, exclusive of meetings held by teleconference.

BOARD COMPOSITION AND INDEPENDENT DIRECTORS

The board is composed of a majority of independent directors. The board has engaged in an exercise to analyse each director and their relationship with the Company to determine whether, in their circumstances, they are independent directors. This analysis can be found in greater detail in Schedule “B”, Guideline #1.

Further to its analysis, the board concluded that all directors currently comprising the board are independent. The board believes that each of its members acts independently and, in every case, in what they believe to be the best interests of the shareholders of the Company.

The Company does not have a significant shareholder, defined as a shareholder with the ability to exercise a majority of votes for the election of the board of directors. However, three institutional investors and their affiliated entities or funds which they manage or advise, own an aggregate of approximately 66% of our common shares. As a result of such ownership concentration, these investors may have significant influence over our board of directors. Paul J. Griswold, a member of the Company’s board of directors, is CEO and a director of SLI Holdings International, LLC. DDJ Capital Management LLC, which manages or advises funds that own directly and indirectly approximately 35% of the Company’s common shares, has a controlling interest in SLI Holdings International, LLC.

Committees of the board of directors

The board of directors has established three standing committees, namely the Compensation committee, the Audit committee, and the Corporate governance committee. The board of directors has delegated various functions to each of its committees, and has designated specific mandates, on which the respective committees are to perform an oversight responsibility and ultimately report to the board of directors. Practically speaking, the committees assess, review, advise and make recommendations to the board of directors, where most matters receive formal and final approval.

Compensation committee: The compensation committee is currently composed of three directors: Louis A. Tanguay (Chair), Paul J. Griswold and Patrick J. Lavelle. The committee makes recommendations to the board on, among other things, the compensation of directors, senior executives and all significant compensation matters. The committee also formulates or reviews succession plans, stock incentive plans and training programs, and has responsibilities for the appointment, evaluation and remuneration of senior executives.

Audit committee: The audit committee is currently composed of three directors, Patrick J. Lavelle (Chair), Lionel P. Hurtubise and Louis A. Tanguay. The audit committee is responsible for reviewing and discussing the Company’s financial statements with management and with the external auditors.

Corporate governance committee: The corporate governance committee is composed of three members, Paul J. Griswold (Chair), Patrick J. Lavelle and Louis A. Tanguay. The corporate governance committee is responsible for developing the Company’s approach to governance issues, ensuring the appropriateness of its corporate governance policies and practices, and responding to the Guidelines.

Management responsibility and board independence from management

The board of directors operates independently of management and periodically meets without management present. The functions of Chairman of the Board and Chief Executive Officer are separate, distinct and carried out by two individuals; Mr. Lionel Hurtubise serves as Chairman and is a non-management and unrelated director, while Mr. Serge Fortin, the most senior management officer, serves as the Company’s President and CEO. In addition, the board has put in place mechanisms to ensure that an individual director may, if required, obtain external advice at the Company’s expense.

The Company’s objectives are set through the board’s approval and the continuing review of an Annual Budget and Strategic Plan put forward by the CEO. Long-term commitments, senior management and organizational changes, acquisition of new businesses as well as any material action or significant contract not contemplated by the Annual Budget and Strategic Plan require the prior approval of the board of directors.

| SR Telecom – Management proxy circular | 17

Interest of insiders and others in material transactions

During the financial year ended December 31, 2006, the Company entered into transactions with insiders of the Company. An insider means the Company, its subsidiaries, its directors and officers and those of its subsidiaries and any person controlling at least ten per cent (10%) of the securities of the Company or participating right or an unlimited right to a share of the profits and in its assets in case of winding-up. In this context, DDJ Capital Management, LLC, Greywolf Capital Management LP and Morgan Stanley & Co. are considered insiders as such funds and accounts hold more than 10% of our common shares.

The following are material transactions entered into during fiscal 2006 and thus far in fiscal 2007 by the Company and the insiders listed above:

•   A $50.0 million private placement and the conversion of convertible debentures into common shares entered into on February 2, 2006. The conversion and private placement resulted in the share ownership presented in the table below;

•   A $20.0 million convertible term loan (convertible loan) entered into on December 7, 2006. The amount in principal and interest of the convertible loan is convertible, at any time, at the option of the lenders into common shares of the Company at the rate of $0.17 per share;

•   A $45.0 million credit facility loan agreement (ECF loan #2) entered into on July 5, 2007. $35 million was provided on the date of execution of the agreement with an additional $10.0 million available, as required by the Company, within one year.

The insiders named above were also involved in the currently outstanding $50.0 million emergency credit facility loan agreement (ECF loan) signed on April 18, 2005.

The following table summarizes the Company’s current ownership and their involvement in these material transactions:

			Convertible loan		ECF loan		ECF loan #2
	Current ownership		(December 2006)		(April 2005)		(July 2007)
Holder	Shares	%	$ provided	%	$ provided	%	$ provided	%
DDJ Capital Management, LLC	262,337,321	34.7%	$10,165,092	50.8%	$23,500,000	50.8%	$10,000,000	22.2%
103 Turner Street
Building 3, Suite 600
Waltham, MA 02453
Greywolf Capital Management LP	135,928,924	18.0%	$5,273,972	26.4%	$13,500,000	27.0%	$10,000,000	22.2%
48 Manhattonville Road, Suite 201
Purchase, NY 10577
Morgan Stanley & Co.	94,909,200	12.6%	$3,677,588	18.4%	$2,000,000	4.0%	$10,000,000	44.4%
1585 Broadway
New York, NY 10036
Identified holders	493,175,445	65.3%	$19,116,562	95.6%	$37,200,000	78.0%	$30,000,000	85.7%

In addition, during the year ended December 31, 2006, Mr. David Gibbons, a former member of the Company’s board of directors, was paid approximately $237,000 in consulting fees.

Directors’ compensation for 2006 is detailed above. As part of compensation for services provided as members of our board of directors, we offer to our directors the option to receive our common shares in lieu of cash payments for their services. For the year ended December 31 2006, no common shares were issued to directors under this plan. However, certain members of the board of directors did receive stock options under the 2006 plan as described above.

18 | SR Telecom – Management proxy circular |

Receipt of shareholder proposals for the 2008 annual meeting
Shareholders who will be entitled to vote at the 2008 annual meeting of shareholders and who will wish to submit a proposal in respect of any matter to be raised at the 2008 meeting, and who wish their proposal to be considered for inclusion in the management proxy circular and form of proxy relating thereto, shall ensure that the Corporate Secretary of the Company receives their proposal no later than May 12, 2008.

Discretionary authority

The accompanying form of proxy confers discretionary authority with respect to the matters identified in the Notice of Meeting and on such other business as may properly come before the meeting or any reconvening thereof. Management is not aware that any such amendments or other matters are to be submitted to the meeting. If such amendments or other business properly come before the meeting, or any reconvening thereof, the persons named in such form of proxy will vote the shares represented thereby at their discretion.

Additional information

Additional information on the Company, copies of our 2006 annual report on Form 20-F, this management proxy circular, our 2006 audited consolidated financial statements, and MD&A for the financial year ended December 31, 2006, as well as our quarterly financial statements filed since the date of our latest audited financial statements, may be obtained upon request from our Communications department (514-335-1210 or communications@srtelecom.com), on SEDAR (www.sedar.com), EDGAR (www.sec.gov), or on our website (www.srtelecom.com). Financial information is provided in the Company’s comparative financial statements and MD&A for the most recently completed financial year.

Approval of management proxy circular

The directors have approved the contents and the sending of this management proxy circular.

Montréal, Québec	Serge Fortin
August 1, 2007	President and Chief Executive Officer

| SR Telecom – Management proxy circular | 19

SCHEDULE “A”

RESOLUTION TO AMEND THE 2006 KEY EMPLOYEE AND DIRECTOR STOCK OPTION PLANS

WHEREAS it is deemed appropriate to amend the 2006 key employee and director stock option plan (2006 Plan) of the Company;

IT IS HEREBY RESOLVED that:

1.   the amendments to the 2006 Plan in the manner described in the Management Proxy Circular of the Company dated August 1, 2007 are hereby approved;

2.   any officer or director of the Company be, and each is hereby authorized and directed, for and on behalf of the Company, to sign and execute all documents, to conclude any agreements and to do and perform all acts and things deemed necessary or advisable in order to give effect to this resolution, including compliance with all securities laws and regulations;

3.   the Board of Directors of the Company be, and it is hereby authorized to cause all measures to be taken, such further agreements to be entered into and such further documents to be executed as may be deemed necessary or advisable to give effect to and fully carry out the intent of this resolution; and

4.   notwithstanding the adoption of this resolution by the Company's shareholders, the directors of the Company be hereby authorized to not effect the amendments contemplated in this resolution, without further notice to, or approval by, the shareholders of the Company.

20 | SR Telecom – Management proxy circular |

SCHEDULE “B”

STATEMENT OF CORPORATE GOVERNANCE PRACTICES

Corporate Governance Disclosure

The following compares the Company’s governance practices against National Policy 58-201 Corporate Governance Guidelines and National Instrument

58-101 Disclosure of Corporate Governance Practices as required under form 58-101-F1 “Corporate Governance Disclosure”:

Guidelines		Comments
1. Board of Directors
(a)	Disclose the identity of directors who are independent.	The board of directors is currently composed of 4 persons; of those persons,
		Lionel P. Hurtubise, Paul J. Griswold, Patrick J. Lavelle and Louis A. Tanguay
		are independent.
(b)	Disclose the identity of directors who are not independent, and describe	Mr. Griswold is an independent director for the purposes of the Guidelines.
	the basis for that determination.	He was the President and a director of SLI, Holdings, LLC, a company
		controlled by DDJ Capital Management, LLC, as a result, he is not considered
		to be independent in respect of participation as a member of our audit
		committee. The relationship between DDJ Capital Management LLC and the
		Company is discussed above.
		Serge Fortin, who is nominated for election, is not independent in his role as
		President and CEO of the Company.
(c)	Disclose whether or not a majority of directors are independent. If a	All four of the Company’s current directors, are independent directors as
	majority of directors are not independent, describe what the board of	defined in the Guidelines.
	directors (the board) does to facilitate its exercise of independent
	judgement in carrying out its responsibilities.
(d)	If a director is presently a director of any other issuer that is a reporting	See the description of directors’ principal occupations, directorships and
	issuer (or the equivalent) in a jurisdiction or a foreign jurisdiction, identify	other information on page 6 of this circular.
	both the director and the other issuer.
(e)	Disclose whether or not the independent directors hold regularly	Although not regularly scheduled, the board of directors does meet without
	scheduled meetings at which non-independent directors and members of	management present on an ad hoc basis, when appropriate and advisable.
	management are not in attendance. If the independent directors hold
	such meetings, disclose the number of meetings held since the beginning
	of the issuer’s most recently completed financial year. If the independent
	directors do not hold such meetings, describe what the board does to
	facilitate open and candid discussion among its independent directors.
(f)	Disclose whether or not the chair of the board is an independent director.	The current Chairman, Lionel P. Hurtubise, is an independent director.
	If the board has a chair or lead director who is an independent director,
	disclose the identity of the independent chair or lead director, and	If elected, Paul J. Griswold will be appointed Chairman. Mr. Griswold is also
	describe his or her role and responsibilities. If the board has neither a	an independent director.
	chair that is independent nor a lead director that is independent, describe
	what the board does to provide leadership for its independent directors.

| SR Telecom – Management proxy circular | 21

(g)	Disclose the attendance record of each director for all board meetings held	For the period of January 1, 2006 to July 31, 2007:
	since the beginning of the issuer’s most recently completed financial year.
		Lionel P. Hurtubise attended a total of 47 board of director meetings including meetings held by teleconference.
		Louis A. Tanguay attended a total of 47 board of director meetings including meetings held by teleconference.
		Paul J. Griswold attended a total of 47 board of director meetings including meetings held by teleconference.
		Patrick J. Lavelle attended a total of 47 board of director meetings including meetings held by teleconference.
2. Board mandate
(a)	Disclose the text of the board’s written mandate. If the board does not	The mandate of SR Telecom Inc.’s board of directors is to supervise the management of the
	have a written mandate, describe how the board delineates its role and responsibilities.	business and affairs of the Company and to act with a
		view to the best interests of the Company and its shareholders.
		Given that the board members are not numerous, the roles and responsibilities
		of the board are known by all members and shared equally.

3. Position descriptions
(a)	Disclose whether or not the board has developed written position	The compensation committee has been delegated the responsibility by the
	descriptions for the chair and the chair of each board committee. If the	board of directors to develop position descriptions for the board and the CEO,
	board has not developed written position descriptions for the chair and/or	as well as defining the parameters and limits to management’s
	the chair of each board committee, briefly describe how the board	responsibilities. The position descriptions and responsibility limitations are
	delineates the role and responsibilities of each such position.	then presented by the committee to the full board of directors for approval.
		The board of directors is responsible for taking into consideration the
		recommendations of the compensation committee, as well as approving the
		corporate objectives of the CEO on an annual basis, typically at the time of
		budget reviews.
(b)	Disclose whether or not the board and CEO have developed a written	The CEO was selected based on his experience, expertise and ability to
	position description for the CEO. If the board and CEO have not developed	develop and implement a business plan. The role and responsibility of the
	such a position description, briefly describe how the board delineates the	CEO are included in a written description that the board referred to in
	role and responsibilities of the CEO.	selecting the CEO.
		The compensation committee has the mandate of assessing the performance
		of the CEO against the corporate objectives, and reporting back to the full
		board of directors. The current CEO was nominated, interviewed, assessed,
		and recommended to the Company by the compensation committee.

22 | SR Telecom – Management proxy circular |

4.  Orientation and continuing education
(a)		Briefly describe what measures the board takes to orient new directors		The board of directors does not formally comply with this guideline.
		regarding:		New members joining the board have typically become knowledgeable about
				the business and affairs of the Company through informal meetings with
		•	the role of the board, its committees and its directors, and
				management and other directors. Given the size of the Company, the board of
		•	the nature and operation of the issuer’s business.	directors is of the opinion that such an ad hoc approach to the orientation of
				its new directors is appropriate.
(b)		Briefly describe what measures, if any, the board takes to provide		The board of directors does not formally comply with this guideline. However,
		continuing education for its directors. If the board does not provide		all board directors are considered well seasoned business executives who are
		continuing education, describe how the board ensures that its directors		currently serving other companies, boards and/or ventures.
		maintain the skill and knowledge necessary to meet their obligations
		as directors.
5.  Ethical business conduct
(a)	Disclose whether or not the board has adopted a written code for the directors, officers and employees. If the board has adopted a written code:			The board has adopted a Code of Ethics. Directors, officers and employees are
				subject to the provisions of the Company’s Code of Ethics.
	(i)	disclose how a person or company may obtain a copy of the code;
				(i)	A copy of this code may be obtained from the Company upon request
	(ii)	describe how the board monitors compliance with its code, or if the board does not monitor compliance,			or may be found as exhibit 11.1 included in the Company’s 20-F filing
		explain whether and how the board satisfies itself regarding compliance with its code; and			on SEDAR (www.sedar.com) on July 10, 2007.
	(iii)	provide a cross-reference to any material change report filed since		(ii)	The code of ethics provides a framework for directors, officers and
		the beginning of the issuer’s most recently completed financial year that			employees on the conduct and ethical decision-making integral to
		pertains to any conduct of a director or executive officer that			their work. The board, through its corporate governance committee
		constitutes a departure from the code.			and its compensation committee, reviews the implementation and
					respect of the code of ethics throughout the Company and its
					subsidiaries.
				(iii)	There has been no material change report filed since the beginning of
					the issuer’s most recently completed financial year that pertains to
					any conduct of a director or executive officer that constitutes a
					departure from the code of ethics.
(b)		Describe any steps the board takes to ensure directors exercise		The Company’s code of ethics states clearly that directors and executive officers
		independent judgement in considering transactions and agreements in		should avoid any transaction or event that could potentially create a conflict of
		respect of which a director or executive officer has a material interest.		interest. Should an event or a transaction occur in respect of which a director or
				executive officer has a material interest, full disclosure to the board is required
				and such director must abstain from voting on any such matter.
				In addition, any individual director may engage the services of an external
				advisor, at the expense of the Company, in appropriate circumstances,
				provided they obtain the prior approval of the corporate governance committee.
(c)		Describe any other steps the board takes to encourage and promote a		The board’s adherence to the code of ethics encourages an ethical business
		culture of ethical business conduct.		conduct throughout the Company.

| SR Telecom – Management proxy circular | 23

6. Nomination of directors
(a)	Describe the process by which the board identifies new candidates for	As part of its mandate, the compensation committee has the responsibility for
	board nomination.	proposing nominees to the board of directors. The committee will propose to
		the board additional directors, from time to time, as the board of directors
		considers appropriate, or as vacancies arise.
(b)	Disclose whether or not the board has a nominating committee composed	The compensation committee is comprised of three directors, Mr. Paul J.
	entirely of independent directors. If the board does not have a nominating	Griswold, Mr. Patrick J. Lavelle and Mr. Louis A. Tanguay, all of whom are
	committee composed entirely of independent directors, describe what	independent.
	steps the board takes to encourage an objective nomination process.
(c)	If the board has a nominating committee, describe the responsibilities,	The compensation committee makes recommendations to the board on,
	powers and operation of the nominating committee.	among other things, the compensation of directors, senior executives and all
		significant compensation matters. The committee also formulates or reviews
		succession plans, stock incentive plans and training programs, and has
		responsibilities for the appointment, evaluation and remuneration of senior
		executives.
7. Compensation
(a)	Describe the process by which the board determines the compensation for	Details of the compensation of executive officers and directors are disclosed
	the issuer’s directors and officers.	on page 9 of this circular.
(b)	Disclose whether or not the board has a compensation committee	The compensation committee is composed entirely of independent directors.
	composed entirely of independent directors. If the board does not have a
	compensation committee composed entirely of independent directors,
	describe what steps the board takes to ensure an objective process for
	determining such compensation.
(c)	If the board has a compensation committee, describe the responsibilities,	The compensation committee makes recommendations to the board on,
	powers and operation of the compensation committee.	among other things, the compensation of directors, senior executives and all
		significant compensation matters. The committee also formulates or reviews
		succession plans, stock incentive plans and training programs, and has
		responsibilities for the appointment, evaluation and remuneration of senior
		executives.
(d)	If a compensation consultant or advisor has, at any time since the	Individual directors, through the committees, may engage outside advisors at
	beginning of the issuer’s most recently completed financial year, been	the expense of the Company.
	retained to assist in determining compensation for any of the issuer’s
	directors and officers, disclose the identity of the consultant or advisor	In 2006, the compensation committee approved the retention of Mercer HR
	and briefly summarize the mandate for which they have been retained.	Consultants to review and propose a new KESOP plan, sales incentive plan
	If the consultant or advisor has been retained to perform any other work	and an annual incentive plan.
	or the issuer, state that fact and briefly describe the nature of the work.

24 | SR Telecom – Management proxy circular |

8.  Other board committees
	If the board has standing committees other than the audit and compensation	The board has no other standing committees other than the audit committee,
	committees, identify the committees and describe their function.	the compensation committee and the corporate governance committee.
9.  Assessments
	Disclose whether or not the board, its committees and individual directors are	In the past, the full board of directors has, on an annual basis, assumed the
	regularly assessed with respect to their effectiveness and contribution.	responsibility of assessing and considering its effectiveness, as well as that
	If assessments are regularly conducted, describe the process used for the	of its committees and individual directors. The board has adopted a formal
	assessments. If assessments are not regularly conducted, describe how the	policy and assessment process to be led by the corporate governance
	board satisfies itself that the board, its committees, and its individual	committee.
	directors are performing effectively.

| SR Telecom – Management proxy circular | 25

srtelecom.com
SR Telecom Inc.
Corporate Head Office
8150 Trans-Canada Highway
Montréal (Quebec)
H4S 1M5
Canada
Tel:	+	1 514 335 1210
Fax:	+	1 514 334 7783
Web site:		www.srtelecom.com
Email:		info@srtelecom.com
Printed in Canada