----

----

**UNITED        STATES**

**SECURITIES        AND EXCHANGE COMMISSION**

**WASHINGTON,        D.C. 20549**

| [                  ] | **REGISTRATION                  STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF**                                                                                                                         |
|----------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                 | **THE                  SECURITIES EXCHANGE ACT OF 1934**                                                                                                                                                |
|                 |                                                                                                                                                                                                    |
|                 | **OR**                                                                                                                                                                                                  |
|                 |                                                                                                                                                                                                    |
| [X]                  | **ANNUAL                  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE**                                                                                                                               |
|                 | **SECURITIES                  EXCHANGE ACT OF 1934**                                                                                                                                                    |
|                 | **For                  the fiscal year ended: December 31, 2006**                                                                                                                                       |
|                 |                                                                                                                                                                                                    |
|                 | **OR**                                                                                                                                                                                                  |
|                 |                                                                                                                                                                                                    |
| [                  ] | **TRANSITION                  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE**                                                                                                                           |
|                 | **SECURITIES                  EXCHANGE ACT OF 1934**                                                                                                                                                    |
|                 |                                                                                                                                                                                                    |
|                 | **OR**                                                                                                                                                                                                  |
|                 |                                                                                                                                                                                                    |
| [                  ] | **SHELL                  COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES                  EXCHANGE                  ACT OF 1934**                                                      |
|                 | Date                  of event requiring this shell company                  report.......................................                          |
|                 |                                                                                                                                                                                                    |
|                 | **For                  the transition period from ........................... to                  ...........................** |

**SR        TELECOM INC.**

*(Exact        name of Registrant as specified in its charter)*

**SR        TELECOM INC.**

*(Translation        of Registrant’s name into English)*

**CANADA**

*(Jurisdiction        of incorporation or organization)*

**8150        Trans-Canada Hwy**

**Montreal,        QC H4S 1M5**

**Canada**

**514-335-1210**

*(Address        of principal executive offices)*

| Title                  of each class | Name                  of each exchange on which registered |
|--------------------------------------|------------------------------------------------------------|
| None                                 | None                                                       |

**Common        Shares**

**None**

**733,393,060**

----

|  Large                accelerated filer  [  ] |  Accelerated                  filer [                   ] |  Non-accelerated                  filer [X] |
|-------------------------------------------------------------------|---------------------------------------------------------------------|--------------------------------------------------|

----

**TABLE        OF CONTENTS**

**Explanatory        notes**

**Exchange        rate information**

**Forward-looking        statements**

| ITEM                    1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND                    ADVISERS                                      | 6   |
|-----------------------------------------------------------------------------------------------------------------------------------------------|-----|
| ITEM                    2. OFFER STATISTICS AND EXPECTED TIMETABLE                                                                       | 6   |
| ITEM                    3. KEY INFORMATION                                                                                               | 6   |
| ITEM                    4. INFORMATION ON THE COMPANY                                                                                    | 19  |
| ITEM                    4A.UNRESOLVED STAFF COMMENTS                                                                                          | 34  |
| ITEM                    5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS                                                                  | 34  |
| ITEM                    6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                                                                         | 67  |
| ITEM                    7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                                                                  | 72  |
| ITEM                    8. FINANCIAL INFORMATION                                                                                              | 74  |
| ITEM                    9. THE OFFER AND LISTING                                                                                              | 75  |
| ITEM                    10. ADDITIONAL INFORMATION                                                                                            | 76  |
| ITEM                    11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET                    RISK                                     | 85  |
| ITEM                    12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY                    SECURITIES.                                        | 86  |
| ITEM                    13.DEFAULTS, DIVIDENDS ARREARAGES AND DELINQUENCIES                                                                   | 87  |
| ITEM                    14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND                    USE OF                    PROCEEDS | 87  |
| ITEM                    15. CONTROLS AND PROCEDURES                                                                                           | 87  |
| ITEM                    16. [RESERVED]                                                                                                        | 87  |
| ITEM                    16A.  AUDIT COMMITTEE FINANCIAL EXPERT                                                                      | 87  |
| ITEM                    16B. CODE OF ETHICS                                                                                                   | 87  |
| ITEM                    16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                                           | 88  |
| ITEM                    16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT                    COMMITTEES                                    | 88  |
| ITEM                    16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED                    PURCHASERS                        | 88  |
| ITEM                    17. FINANCIAL STATEMENTS                                                                                              | 88  |
| ITEM                    18. FINANCIAL STATEMENTS                                                                                              | 88  |
| ITEM                    19. EXHIBITS                                                                                                          | 136 |

----

**EXPLANATORY        NOTES**

**EXCHANGE        RATE INFORMATION**

|                               | 2006  |    | December                    31,                    2005 |   | December                    1,                    2005 |   | 2004  |    | 2003  |   | 2002  |
|------------------------------------|------------|---------|---------------------------------------------------------|--------|--------------------------------------------------------|--------|------------|---------|------------|--------|------------|
|                               | End        | Average |                                                    | End    | Average                                                |   | End        | Average |       | End    | Average    |   | End | Average |   | End | Average |
| Canadian                    Dollar | 1.1653     | 1.1530  |                                                    | 1.1659 | 1.1610                                                 |   | 1.1687     | 1.1811  |       | 1.2020 | 1.2191     |   | 1.2923 | 1.3911 |   | 1.5718 | 1.5666 |

|                             | High  | Low  |
|----------------------------------|------------|-----------|
| December                    2006 | 1.1380     | 1.1670    |
| January                    2007  | 1.1630     | 1.1848    |
| February                    2007 | 1.1565     | 1.1878    |
| March                    2007    | 1.1817     | 1.1500    |
| April                    2007    | 1.1600     | 1.1048    |
| May                    2007      | 1.1163     | 1.0666    |

**FORWARD-LOOKING        STATEMENTS**

*anticipate, assumption, believe, could, expect, goal,        guidance, intend, may, objective, outlook, plan, seek, should, strive, target        *
*will.*

----

**symmetry**

**one**

*“Risk factors”*

*Assumptions, risks        and        uncertainties”*

** **

----

**PART        I**

**ITEM        1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS**

**ITEM        2. OFFER STATISTICS AND EXPECTED TIMETABLE**

**ITEM        3. KEY INFORMATION**

***A. SELECTED        FINANCIAL DATA***

**SR        Telecom Selected Consolidated Financial Data**

| **(in                    thousands, except per share                    data)**                       |   | **Year                    Ended****December 31,**                 |     |   | **One                    month****ended****December 31,** |   |    | **Eleven****months                    ended****November 30,** |   |   |  **Year                    Ended                    December 31,** |   |
|-------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------|----------|--------|----------------------------------------------------------------|--------|---------|--------------------------------------------------------------------|--------|--------|------------------------------------------------------------------------------|--------|
|                                                                                                  |   | **2006**                                                               |     |   | **2005**                                                       |   |    | **2005**                                                           |   |   | **2004**                                                                     |   |   | **2003** |   |   | **2002** |   |
|                                                                                                  |   |                                                                   | $        |   |                                                           |   | $       |                                                               |   |   | $                                                                            |   |   |   | $ |   |   |   | $ |   |   |   | $ |   |
| **Consolidated                    Statements of                    Operations Data (Canadian GAAP):** |   |                                                                   |     |   |                                                           |   |    |                                                               |   |   |                                                                         |   |   |   |   |   |   |   |   |   |   |
| Revenue                                                                                               |   |                                                                   | 87,455   |   |                                                           |   | 7,372   |                                                               |   |   | 69,012                                                                       |   |   |   | 99,074 |   |   |   | 99,970 |   |   |   | 145,949 |   |
| Restructuring,                    asset impairment                    and other charges               |   |                                                                   | 31,515   |   |                                                           |   | -       |                                                               |   |   | 17,200                                                                       |   |   |   | 7,701 |   |   |   | 3,541 |   |   |   | 4,548 |   |
| Operating                    loss from continuing                    operations                       |   |                                                                   | (101,362 | )      |                                                           |   | (2,532  | )                                                                  |   |   | (64,308                                                                      | )      |   |   | (58,036 | ) |   |   | (44,109 | ) |   |   | (24,270 | ) |
| Loss                    from continuing                    operations                                 |   |                                                                   | (116,415 | )      |                                                           |   | (5,160  | )                                                                  |   |   | (77,007                                                                      | )      |   |   | (76,942 | ) |   |   | (49,001 | ) |   |   | (42,803 | ) |
| Net                    loss                                                                           |   |                                                                   | (115,627 | )      |                                                           |   | (9,381  | )                                                                  |   |   | (81,765                                                                      | )      |   |   | (86,134 | ) |   |   | (44,755 | ) |   |   | (20,885 | ) |
| Basic                    and diluted loss per share                    from continuing operations     |   |                                                                   | (0.17    | )      |                                                           |   | (0.08   | )                                                                  |   |   | (4.34                                                                        | )      |   |   | (4.62 | ) |   |   | (6.80 | ) |   |   | (7.82 | ) |
| Basic                    and diluted net loss per                    share                            |   |                                                                   | (0.17    | )      |                                                           |   | (0.14   | )                                                                  |   |   | (4.61                                                                        | )      |   |   | (5.17 | ) |   |   | (6.21 | ) |   |   | (3.82 | ) |
|                                                                                                  |   |                                                                   |     |   |                                                           |   |    |                                                               |   |   |                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                  |   |                                                                   |     |   |                                                           |   |    |                                                               |   |   |                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Consolidated                    Statements of                    Operations Data (US GAAP):**       |   | **Year                    Ended                    December 31,** |     |   |                                                           |   |    |                                                               |   |   |                                                                         |   |   |   |   |   |   |   |   |
|                                                                                                  |   | **2006**                                                               |     |   | **2005**                                                       |   |    | **2004**                                                           |   |   | **2003**                                                                     |   |   | **2002** |   |   |   |   |   |
|                                                                                                  |   |                                                                   | $        |   |                                                           |   | $       |                                                               |   |   | $                                                                            |   |   |   | $ |   |   |   |   |   |   |   | $ |   |
| Net                    loss                                                                           |   |                                                                   | (170,976 | )      |                                                           |   | (98,550 | )                                                                  |   |   | (84,786                                                                      | )      |   |   | (43,700 | ) |   |   | (11,125 | ) |   |   |   |   |
| Basic                    and diluted net loss per                    share                            |   |                                                                   | (0.25    | )      |                                                           |   | (4.52   | )                                                                  |   |   | (5.09                                                                        | )      |   |   | (6.06 | ) |   |   | (2.03 | ) |   |   |   |   |
|                                                                                                  |   |                                                                   |     |   |                                                           |   |    |                                                               |   |   |                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                  |   |                                                                   |     |   |                                                           |   |    |                                                               |   |   |                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

| **(in                      thousands, except per share                      data)**    |   | **As                      at                      December 31,** |    |   | **As                      at December                      1,** |   |    | **As                      at                      December 31,** |   |   |     |   |
|----------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------|---------|--------|-----------------------------------------------------------------|--------|---------|-----------------------------------------------------------------------|--------|--------|----------|--------|
|                                                                                   |   | **2006**                                                              |    |   | **2005**                                                        |   |    | **2005**                                                              |   |   | **2004** |   |   | **2003** |   |   | **2002** |   |
|                                                                                   |   |                                                                  | $       |   |                                                            |   | $       |                                                                  |   |   | $        |   |   |   | $ |   |   |   | $ |   |   |   | $ |   |
| **Consolidated                      Balance Sheet                      Data:**         |   |                                                                  |    |   |                                                            |   |    |                                                                  |   |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                      Assets                                                      |   |                                                                  | 150,553 |   |                                                            |   | 187,551 |                                                                  |   |   | 195,967  |   |   |   | 227,624 |   |   |   | 289,775 |   |   |   | 320,805 |   |
| Long-term                      Debt(1)                                                 |   |                                                                  | 100,554 |   |                                                            |   | 129,498 |                                                                  |   |   | 128,647  |   |   |   | 117,370 |   |   |   | 131,437 |   |   |   | 140,300 |   |
| Capital                      Stock                                                     |   |                                                                  | 352,174 |   |                                                            |   | 230,086 |                                                                  |   |   | 229,927  |   |   |   | 219,653 |   |   |   | 180,866 |   |   |   | 147,985 |   |
| Shareholders’                      Equity                                        |   |                                                                  | 10,933  |   |                                                            |   | 21,348  |                                                                  |   |   | 30,636   |   |   |   | 52,640 |   |   |   | 91,740 |   |   |   | 102,326 |   |
| Shareholders’Equity                      (US                      GAAP)          |   |                                                                  | (24,692 | )      |                                                            |   | 20,616  |                                                                  |   |   |     |   |   |   | 33,207 |   |   |   | 70,687 |   |   |   | 80,218 |   |
|                                                                                   |   |                                                                  |    |   |                                                            |   |    |                                                                  |   |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Other                      Data:**                                                   |   |                                                                  |    |   |                                                            |   |    |                                                                  |   |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Number                      of Shares                      Issued:                     |   |                                                                  |    |   |                                                            |   |    |                                                                  |   |   |     |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    Common                      shares                                   |   |                                                                  | 733,393 |   |                                                            |   | 65,667  |                                                                  |   |   | 64,933   |   |   |   | 17,610 |   |   |   | 10,467 |   |   |   | 5,523 |   |
|    Dividends                      per                      common share |   |                                                                  | -       |   |                                                            |   | -       |                                                                  |   |   | -        |   |   |   | - |   |   |   | - |   |   |   | - |   |

| (1) |   | Long-term                  debt includes the current portion of long-term debt, capital leases,                  lease                  liability and other long-term                  liabilities. |
|-----|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Exchange        Rate Data**

***B.  CAPITALIZATION        AND INDEBTEDNESS***

***C.         REASONS FOR THE OFFER AND USE OF PROCEEDS***

***D.  RISK        FACTORS***

***RISKS        RELATING TO OUR LIQUIDITY AND FINANCIAL CONDITION***

**We        are substantially leveraged, which could impair our ability to gain access        to        necessary additional funding and may require us to file for insolvency        protection.**

----

**The        credit facilities (which include the convertible term loan agreement) impose        significant operating and financial restrictions on        us.**

| - | pay                  dividends or make other restricted payments or                  investments; |
|---|---------------------------------------------------------------------------------------------------|

| - | incur                  additional indebtedness and issue preferred                  stock; |
|---|--------------------------------------------------------------------------------------------|

| - | create                  liens on assets; and |
|---|----------------------------------------------|

| - | merge,                  consolidate, or sell all or substantially all of our                  assets. |
|---|-------------------------------------------------------------------------------------------------------|

**Our        common shares may be deemed to be penny stock under the penny stock rules,        broker-dealers may experience difficulty in completing customer transactions        and        trading activity in our securities may be adversely        affected.**

| - | make                  a special written suitability determination for the                  purchaser; |
|---|-------------------------------------------------------------------------------------------------------|

| - | receive                  the purchaser's written agreement to a transaction prior to                  sale; |
|---|-------------------------------------------------------------------------------------------------------------|

| - | provide                  the purchaser with risk disclosure documents that identify certain                  risks                  associated with investing in “penny stocks” and which describe the market                  for these “penny stocks” as well as a purchaser's legal remedies;                  and |
|---|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| - | obtain                  a signed and dated acknowledgment from the purchaser demonstrating                  that                  the purchaser has actually received the required risk disclosure                  document                  before a transaction in a "penny stock" can be                  completed. |
|---|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**We        have a history of net losses and may not achieve or maintain profitability,        which could impair our share price and liquidity.**

**Our        share price has been and will continue to be volatile and could decline        substantially.**

| - | a                  failure to deliver WiMAX products; |
|---|-------------------------------------------------------|

| - | a                  failure to secure new business; |
|---|----------------------------------------------------|

| - | the                  possibility that we will not be able to obtain additional financing                  as and                  when needed; |
|---|------------------------------------------------------------------------------------------------------------------------------------------------|

| - | risk                  that we would be unable to meet our debt repayment                  obligations; |
|---|--------------------------------------------------------------------------------------------------------|

| - | the                  delay of expected customer orders; |
|---|---------------------------------------------------------|

| - | the                  introduction of new products or changes in product pricing policies                  by us                  or our competitors; |
|---|------------------------------------------------------------------------------------------------------------------------------------------------------|

| - | an                  acquisition or loss of significant customers, distributors, suppliers                  and                  contract manufacturers; |
|---|---------------------------------------------------------------------------------------------------------------------------------------------------------|

| - | changes                  in earnings estimates by analysts; |
|---|-------------------------------------------------------------|

| - | changes                  in third-party reimbursement practices;                  and |
|---|---------------------------------------------------------------------------------------|

| - | fluctuations                  in the economy generally and general market                  conditions. |
|---|--------------------------------------------------------------------------------------------------------|

----

**If        we have a material weakness in our internal controls over financial reporting,        investors could lose confidence in the reliability of our financial statements,        which could result in a decrease in our share price.**

**Our        operating results and liquidity may be adversely affected if we do not        successfully resolve pending commercial disputes.**

**Five        institutional investors and        affiliated entities own over 80% of our commons shares and will be able to        exert        significance influence on us.**

----

**RISKS        RELATED TO OUR BUSINESS AND        OPERATIONS**

**Our        continuation as a going concern is dependent on many factors and there can        be no        assurance that we will remain so.**

**We        may not be able to maintain our        operations if the sources of funding we rely upon become        unavailable.**

**We        have recently experienced a number of significant changes in our senior        management and our operating and administrative        personnel.**

**A        key element of our business plan is the introduction of WiMAX products; the        commercial viability of our products, and the industry as a whole, may prove        to        be less than currently anticipated or our products may be less competitive        than        those developed by other companies.**

**We        have a long sales cycle, which could cause our results of operations and        stock        price to fluctuate.**

| - | availability                  of radio frequency; |
|---|---------------------------------------------------|

| - | currency                  and capital markets crises; |
|---|-------------------------------------------------------|

| - | availability                  of financing to our customers; |
|---|--------------------------------------------------------------|

| - | budget                  allocation by our customers; |
|---|------------------------------------------------------|

| - | political                  and regulatory issues; |
|---|---------------------------------------------------|

| - | scope                  of a given project; |
|---|--------------------------------------------|

| - | complexity                  of a given network; and |
|---|-----------------------------------------------------|

| - | deployment                  and planning of network                  infrastructure. |
|---|--------------------------------------------------------------------------------------|

----

**Our        customer contracts are often frame contracts that set the key terms of agreement        but do not bind our customers to purchase our products within a fixed period        of        time.**

**We        are subject to the risks of doing business in developing        countries.**

| - | trade                  protection measures and import or export licensing                  requirements; |
|---|----------------------------------------------------------------------------------------------------------|

| - | difficulties                  in enforcing contracts; |
|---|-------------------------------------------------------|

| - | difficulties                  in protecting intellectual property                  rights; |
|---|--------------------------------------------------------------------------------------------|

| - | unexpected                  changes in regulatory requirements; |
|---|-----------------------------------------------------------------|

| - | legal                  uncertainty regarding liability, tax, tariffs and other trade                  barriers; |
|---|-----------------------------------------------------------------------------------------------------------------|

| - | foreign                  exchange controls and other currency                  risks; |
|---|---------------------------------------------------------------------------------------|

| - | inflation; |
|---|------------|

| - | government                  appropriations or subsidies that our customers are beneficiaries                  or                  recipients of may be decreased or                  delayed; |
|---|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| - | challenges                  to credit and collections; |
|---|--------------------------------------------------------|

| - | expropriation;                  and |
|---|-------------------------------------|

| - | government                  instability, war, riots, insurrections and other political                  events. |
|---|-----------------------------------------------------------------------------------------------------------------|

**We        may not be able to compete effectively with other leading equipment providers        in        the wireless communications industry, many of whom have greater financial        resources than we have; as a result, our revenues and results of operations        may        be impaired.**

*Universal        access:*

*Enterprise        access:*

----

*Residential        and small business        access: *

*Mobile        traffic backhauling:*

*Private        networks:*

**If        we do not meet product introduction deadlines, or our products do not contain        key enhancements, we may not be competitive and revenues and results of        operations may be impaired.**

**Our        products could become obsolete as a result of rapid technological change,        limiting our ability to generate continuing revenues and        earnings.**

**We        may encounter continued competitive pressures to lower selling prices. If        we        cannot successfully reduce our product costs, our results of operations and        earnings will suffer.**

----

**We        must develop products that work with different standards because we sell        our        products in many countries that have different regulatory schemes; if we        are        unsuccessful, our opportunities for growth will be        limited.**

**Our        business is subject to unexpected interruptions because some of our key        components are from sole source suppliers or require long lead        times,  which could cause our operating results to        suffer.**

**Our        dependence on contract manufacturers for the assembly of our        products.**

| - | potential                  lack of manufacturing capacity; |
|---|------------------------------------------------------------|

| - | limited                  control over delivery schedules; |
|---|-----------------------------------------------------------|

| - | quality                  assurance and control; |
|---|-------------------------------------------------|

| - | manufacturing                  production costs; |
|---|--------------------------------------------------|

| - | voluntary                  or involuntary termination of their relationship with                  us; |
|---|-------------------------------------------------------------------------------------------------------|

| - | difficulty                  in, and timeliness of, substituting any of our contract manufacturers;                  and |
|---|-------------------------------------------------------------------------------------------------------------------------|

| - | their                  financial strength. |
|---|--------------------------------------------|

**The        use of contract manufacturers may result in excess inventory purchases or        the        inability to deliver on time.**

----

**Our        products may contain defects that could harm our reputation, be costly to        correct, expose us to litigation and harm our operating results and        profits.**

**We        may have to acquire significant inventory to maintain future sales and long-term        product support.**

**We        have exposure to currency risk; significant fluctuations in exchange rates        could        reduce revenues, earnings, investments and liquidity.**

**Our        ability to operate could be hindered by the proprietary rights of others        and the        degree to which we are able to adequately protect our intellectual property        rights.**

----

**We        may incur substantial costs as a result of litigation or other proceedings        relating to patent and other intellectual property        rights.**

| - | pay                  substantial damages; |
|---|-------------------------------------------|

| - | cease                  the development, manufacture, use or sale of products that infringe                  upon                  the intellectual property of                  others; |
|---|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| - | expend                  significant resources to design around a patent or to develop or                  acquire                  non-infringing intellectual                  property; |
|---|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| - | discontinue                  processes incorporating infringing technology;                  or |
|---|-------------------------------------------------------------------------------------------------|

| - | obtain                  licenses to the infringing intellectual property, which may not                  be                  available on terms acceptable to us, if at                  all. |
|---|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

***RISKS        FOR US HOLDERS***

**We        may be classified as a “controlled foreign corporation” for United States        federal income tax purposes, which could result in certain adverse tax        consequences to certain US holders.**

| - | US                  citizens or                  residents; |
|---|-------------------------------------------------------------|

| - | US                  domestic partnerships and                  corporations; |
|---|------------------------------------------------------------------------------|

| - | estates                  or trusts other than                  foreign estates or trusts;                  and |
|---|----------------------------------------------------------------------------------------------------------------|

| - | each                  of the above owns 10% or more                  of the total combined voting power of all classes of shares of                  the Company                  (each, a 10% United States                  shareholder). |
|---|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**US        holders are urged to consult their        own tax advisors, as to whether or not the Company may be classified as a        CFC        and the consequences of such classification.**

**Foreign        bankruptcy and insolvency laws may differ from their US        counterparts.**

----

**US        investors in our securities may have difficulties enforcing civil        liabilities.**

**ITEM        4. INFORMATION ON THE COMPANY**

***A.  HISTORY        AND DEVELOPMENT OF THE COMPANY***

**Early        history and development**

**SR**
**SR**

**Acquisitions        and discontinued operations**

*Comunicación y Telefonía Rural S.A.*
**SR**
**angel **

**swing**
**swing**
**swing**

**stride**

----

**shift**
**shift **
**angel**
**shift**

**angel**
**airstar**
** angel**
**symmetry**
**airstar**
**angel**
**airstar**
**angel**
**airstar**
**airstar**
**angel**
**symmetry**

**SR        Telecom today**

**symmetry**
***MX***

**Capital        expenditures**

***RESTRUCTURING***

**Operational**

**symmetry**
**SR**
**SR**

----

**swing**

**Financial**

----

***B.         BUSINESS OVERVIEW***

***BROADBAND        WIRELESS ACCESS BUSINESS***

| - | Voice                  and high-speed data services to residential end-users in suburban                  or urban                  areas, in cases where the service provider prefers a fixed broadband                  access solution for economic or competitive                  reasons. |
|---|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| - | High-quality                  voice, high-speed data and Internet access for small and medium-sized                  businesses in urban areas. |
|---|-------------------------------------------------------------------------------------------------------------------------------------------------|

| - | Data                  networks for wireless Internet service providers that deliver broadband,                  wireless Internet access to suburban and rural                  communities. |
|---|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| - | Affordable                  telecommunications services for rural and isolated regions where                  traditional copper telephony wiring is not cost effective due to                  large                  distances, difficult terrain, and other                  considerations. |
|---|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| - | Connectivity                  for private voice and data networks owned by specific users, such                  as                  government agencies, industrial enterprises and specialized                  carriers. |
|---|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| - | Communication                  networks for SCADA systems that monitor large industrial installations                  (such as pipelines and electric power transmission lines) and provide                  internal voice and data                  communications. |
|---|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                                        | **Percent                    of  Revenues**                         |
|-------------------------------------------------------------|----------------------------------------------------------------------------------------------|
|  **Product**                                           | **Year                    Ended****December                    31,                    2006** | **One                    Month Period****Ended                    December 31,                    2005** | **Eleven                    Month Period****Ended                    November 30,                    2005** | **Year                    Ended****December                    31,                    2004** |
| **symmetry**                                                | 48%(1)                                                                                       | 34%(1) | 28%(1) | 20%(1) |
| **SR500                    and                    SR500ip** | 10%                                                                                          | 26% | 21% | 28% |
| **Airstar**                                                 | 9%                                                                                           | 6% | 14% | 18% |

| (1) | together                  with its predecessor product,                  **angel** |
|-----|------------------------------------------------------------------------------------|

***SYMMETRY***

**symmetry        **
**symmetry**

**symmetry**
**symmetry**
***ONE***
**symmetry**
***MX***
**symmetry**
***MXe***

**symmetry**

**symmetry**

**symmetry**
***ONE***

**symmetry**
***MX***

***symmetryMX***

**ymmetry**
***MXe***

----

**symmetry*MXe***

***DISCONTINUED        PRODUCTS***

**symmetry**
**SR**
**airstar**

***SR500        AND SR500IP***

**SR**
**SR**

**SR**
**SR**
**SR**
**SR**

**SR**
**SR**
**SR**
**SR**

**SR**
**SR**

**SR**
*ip*
**SR**
**SR**
*ip*

**SR**
*ip*
**SR**
*ip*

**SR**
**SR**
*ip*
**SR**
*ip*
**SR**
*ip*
**SR**
*ip*
**SR**
*ip*

***AIRSTAR***

**airstar**

**airstar        **
**airstar**
**airstar **
**airstar **

----

**airstar        **
**airstar**
**airstar**
**airstar **
**airstar**

***RESEARCH        AND        DEVELOPMENT***

| - | IEEE:Institute                    of Electrical and Electronics                    Engineers |
|---|----------------------------------------------------------------------------------------------|

| - | WiMAX                        Forum:Worldwide                        Interoperability for Microwave                        Access |
|---|----------------------------------------------------------------------------------------------------------------------------------|

| - | ETSI:European                    Telecom Standards Institute |
|---|--------------------------------------------------------------|

| - | TEMIC:Telecommunications                    Executive Management Institute of                    Canada |
|---|---------------------------------------------------------------------------------------------------------|

| - | WCAI:Wireless                    Communications Association                    International |
|---|----------------------------------------------------------------------------------------------|

|                                                                               | **Year                    ended**                                                               | **One-month                    period                    ended**                                                    | **Eleven-month                    period                    ended**                       | **Year                    ended**                                               |
|------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------|
|                                                                               | **Dec                    31,**                                                                  | **Dec                    31,**                                                                                      | **Nov                    30,**                                                            | **Dec  31,**                                                          |
|                                                                               | **2006**                                                                                        | **2005**                                                                                                            | **2005**                                                                                  | **2004**                                                                        |
|                                                                               | (in                    thousands of                    dollars)                       |
| Gross                    expenditure                                               |             17,238                  |             1,129                                       |             13,094            |             36,453  |
| Reduction                    of investment tax                    credits          |               4,616       |                    - |               8,534 |             (4,181) |
| Government                    grants and investment                    tax credits |                (900) |              (139)                                 |             (1,018)           |             (2,113) |
| Net                    expense                                                     |             20,954                  |                990                       |             20,610            |             30,159  |

***SERVICES***

----

| - | Network                design and RF planning |
|---|-----------------------------------------------|

| - | Around-the-clock                  technical support |
|---|-----------------------------------------------------|

| - | Customer                  call-tracking |
|---|-----------------------------------------|

| - | On-site                  preventative maintenance |
|---|---------------------------------------------------|

| - | On-site                  system recovery and troubleshooting |
|---|--------------------------------------------------------------|

| - | Certified                  technical experts |
|---|----------------------------------------------|

| - | Emergency                  replacement service |
|---|------------------------------------------------|

| - | Regional                  repair centres |
|---|------------------------------------------|

| - | Training |
|---|----------|

***SALES        AND MARKETING***

| - | Preliminary                  marketing visits; |
|---|------------------------------------------------|

| - | Technical                  seminars provided by SR Telecom to the customer’s                  staff; |
|---|------------------------------------------------------------------------------------------------------------|

| - | Visits                  by the customer to our facilities; |
|---|------------------------------------------------------------|

| - | Analysis                  of the customer’s needs; |
|---|----------------------------------------------------------|

| - | Preparation                  of a request for tender by the                  customer; |
|---|----------------------------------------------------------------------------------------|

| - | Response                  to a customer’s tender (often competitive) by SR Telecom;                  and |
|---|----------------------------------------------------------------------------------------------------------------|

| - | Contract                  negotiations. |
|---|-----------------------------------------|

----

|                                                                 |  **Revenue                    (in                    000's)** |                                                          | **Percent                    of Wireless                    Revenue** |
|----------------------------------------------------------------------|--------------------------------------------------------------------|---------------------------------------------------------------|-----------------------------------------------------------------------|
|                                                                 | Twelve                    months endedDec.                    31,  | One                    month endedDec.                    31, | Eleven                    months endedNov.                    30,     | Twelve                    months endedDec.                    31, |   | Twelve                    months endedDec.                    31, | One                    month endedDec.                    31, | Eleven                    months endedNov.                    30, | Twelve                    months endedDec.                    31, |
|                                                                 | 2006                                                               | 2005                                                          | 2005                                                                  | 2004 |   | 2006 | 2005 | 2005 | 2004 |
|                                                                 |                                                               |                                                          |                                                                  |   |   |   |   |   |   |
| Europe,                    Middle East and                    Africa |    21,583                                           |        240                 |   20,662                                                    |   25,094 |   | 32% | 4% | 40% | 31% |
| Asia                                                                 |      9,906                                |     1,144                                 |     5,523                                         |   31,521 |   | 14% | 20% | 11% | 39% |
| Latin                    America                                     |    32,923                                           |     4,113                                 |   18,865                                                    |     9,608 |   | 48% | 73% | 37% | 12% |
| Other                                                                |      3,855                                |        141                 |     6,292                                         |   14,267 |   | 6% | 3% | 12% | 18% |
|                                                                 |    68,267                                           |     5,638                                 |   51,342                                                    |   80,490 |   | 100% | 100% | 100% | 100% |

***CUSTOMERS***

The        broadband wireless environment is constantly evolving for        carriers worldwide. SR Telecom is in a unique position to understand this        evolution, because for 25 years carriers worldwide have been entrusting us        to        help them build their core networks and carry mission-critical applications.        Our        technological innovations are aimed at addressing evolving customer needs,        and        we believe these innovations set us apart in design and performance requirements        and position us as a leading supplier for advanced broadband        solutions.

|                                                                    |  **Revenue                    (in                    000's)** |                                                          |  **Percent                    of                    Revenue** |
|-------------------------------------------------------------------------|--------------------------------------------------------------------|---------------------------------------------------------------|--------------------------------------------------------------------|
|                                                                    | Twelve                    months endedDec.                    31,  | One                    month endedDec.                    31, | Eleven                    months endedNov.                    30,  | Twelve                    months endedDec.                    31, |   | Twelve                    months                    endedDec.                    31, | One                    month endedDec.                    31, | Eleven                    months endedNov.                    30, | Twelve                    monthsendedDec.                    31, |
|                                                                    | 2006                                                               | 2005                                                          | 2005                                                               | 2004 |   | 2006 | 2005 | 2005 | 2004 |
|                                                                    |                                                               |                                                          |                                                               |   |   |   |   |   |   |
| Siemens                    S.A.                                         |    12,812                                           |         -             |  10,953                                                       |         - |   | 15% |             - | 16% |  - |
| Techtel                    LMDS                    Comunicaciones       |    10,844                                           |    1,999                                       |         -                  |         - |   | 12% | 27% |             - |  - |
| Axtel                    S.A. de                    C.V.                |    16,632                                           |         -             |         -                  |         - |   | 19% |             - |             - |  - |
| RTS                    (2003) Company                    Ltd.           |           -      |       964                       |         -                  |         - |   |            - | 13% |             - |  - |
| Telefonos                    de Mexico, S.A. de                    C.V. |           -      |    1,385                                       |    9,857                                            |         - |   |            - | 19% | 14% |  - |
|                                                                    |    40,288                                           |    4,348                                       |  20,810                                                       |         - |   | 46% | 59% | 30% |  0% |

|   | 1) | Incumbent                  local exchange carriers (ILEC). Our products for telephony are                  installed                  primarily, but not exclusively, in areas where tele-density (the                  number of                  phone lines per hundred population) is low. Our **symmetry**                  platform is designed to meet the IP broadband needs (voice and                  data) of                  local exchange carriers in slightly more dense deployments, as                  would be                  found in suburban areas and larger rural                  towns. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2) | Competitive                  local exchange carriers (CLEC). This group offers competitive voice                  and                  data services in both developing and developed countries. The                  **symmetry**platform addresses this market, which is                  characterized by the need for small and medium-sized business                  applications; such as, high-speed, leased-line data, LAN-to-LAN                  connections, and high-quality voice, fax and Internet                  connections. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | 3) | Wireless                  Internet Service Providers (WISP). These customers provide end-users                  in                  rural, suburban and urban areas, with high-speed connection to                  the                  Internet. Our **symmetry** platform is used to deliver                  high-speed Internet access to users in suburban, urban and rural                  areas. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 4) | Mobile                  telecommunications networks. As WiMAX technology further develops,                  an                  increasing number of carriers will seek to offer broadband services                  with                  limited or full mobility. ; Our                  **symmetry*****MXe*** product                  specifically addresses this market                  segment. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 5) | Owners                  of private telecommunications networks. This group of customers                  includes                  energy-generating companies (electricity and gas), pipeline operators                  (oil                  and gas), resource companies (mining and exploration), and industrial                  and                  service organizations with scattered facilities. These organizations,                  generally spread out over wide geographical areas, require highly                  reliable                  voice and data communications to control crucial factors of their                  operations. The **symmetry** platform is gaining traction as                  the market begins to realize the efficiency, reliability, and flexibility                  that WiMAX technology offers. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 6) | Mobile                  backhauling. These customers are mobile service providers. The                  **symmetry*****MX***** **product                  family is used for mobile backhaul, which is connecting mobile                  base                  stations to the core telecommunications network.                  **symmetry*****MX***** **is                  well suited for this application as it provides a high-capacity                  airlink                  and is more cost-effective than the traditional wireline and                  point-to-point wireless backhaul infrastructure typically used                  by mobile                  operators. **symmetry*****MX***’s                  functionality makes it an efficient and reliable solution for backhauling                  both second-generation (2G) and third-generation (3G) mobile                  networks. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

***COMPETITION***

|   | 1) | Traditional                  wire-line methods, that connect telephone and data subscribers                  using pole                  lines with open wire or overhead cable, buried cable or fibre optic,                  and                  electronic systems designed to enhance these methods. The choice                  between                  our systems or one of these other methods is generally determined                  by an                  engineering and economic feasibility study performed by the                  customer. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2) | Other                  wireless methods, such as cellular mobile radio systems and point-to-point                  wireless systems. These systems typically offer a lower data rate                  than our                  products. Point-to-point wireless systems can be used to backhaul                  mobile                  networks or to provide broadband data connectivity to large enterprises.                  However they are neither as economical nor as easy to manage as                  a                  point-to-multipoint topology as used in our                  products. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3) | Satellite-based                  systems, which are used to provide telephone and data services                  to some                  extremely remote locations where terrestrial facilities would clearly                  be                  far too expensive or impractical. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

***Universal        access:***

***Enterprise        access:***

***Residential        and small business access:***

***Mobile        infrastructure:***

----

***Private        networks:***

***EMERGING        TECHNOLOGIES AS        COMPETITION***

**Technology        Status**

| Current                  cellular technologies: 1xEVDO, HSPA+              | Have                  already won today’s mobile-broadband segment, but are not up to the task                  of providing wireline-equivalent service, and are not focused on                  the BWA                  spectrum bands.                     |
|----------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Future                  cellular technology: Long-Term Evolution (LTE)     | LTE                  is a few years behind WiMAX but with similar capabilities. Its                  benefit and                  its weakness is that it will leverage the current                  infrastructure.                                                 |
| Other                  technologies:TD-CDMA,                  802.20, WiFi | No                  longer a threat. The high-tech standards have failed to gain enough                  momentum to be serious, and WiFi is already beginning to run up                  against                  serious design issues for wide-area deployments.  |
| Proprietary                  technologies                                  | Will                  be successful in backhaul, and for some niche markets. WiMAX will                  eventually start to encroach on both of these as it matures, much                  as                  mobility crippled the fixed-cellular industry.       |

***REGULATORY        ENVIRONMENT***

***INTELLECTUAL        PROPERTY***

----

***TELECOMMUNICATIONS        SERVICE PROVIDER BUSINESS - CTR***

|    |   |                                                                                  |   |                                                                                                          |   |                                                                                 |   |                                                              |
|---------|--------|---------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------|
|    |   | Year                    ended December                    31,                    2006 |   | One                    month ended                    December                    31,                    2005 |   | Eleven                    months ended November 30,                    2005          |   | Year-endedDecember                    31,                    2004 |
| Revenue |   |         19,188                                |   |                1,734               |   |              17,670 |   |        18,584                  |

**angel**
**symmetry**

----

***C.  ORGANIZATIONAL        STRUCTURE***

***D.    PROPERTY,        PLANT AND EQUIPMENT***

**ITEM        4A. UNRESOLVED STAFF COMMENTS**

**ITEM        5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS**

***SR Telecom        Management’s Discussion and Analysis (MD&A) of Financial Condition and        Results of Operations***

**THE        YEAR AT A GLANCE**

----

**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 symmetry*mx*                  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**

----

*anticipate, assumption, believe, could, expect, goal,        guidance, intend, may, objective, outlook, plan, seek, should, strive, target        *
*will.*

** **

*“Assumptions,        risks and        uncertainties”*

** **

*“Risk factors”*

** **

----

----

| *($                  thousands)*                                                           | *Prior                  to the**adoption                  of fresh**start                  accounting* November                  30, 2005 |  Fresh                  start adjustments |   Notes |  *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                                                       |
| **  **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. |
|------|------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| **Consolidated                  balance sheets**                        | December                  31, 2006 |   | December                  31, 2005 |   | December                  1, 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**                            |                           Year                  ended                  December                  31, 2006 |   | One                  month ended                  December                  31, 2005 |   | Eleven                  months ended                  November                  30, 2005 |   |                 Year                  ended                  December                  31, 2005 |   |                        Year                  ended                  December                  31, 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**

*Duons        Systèmes*

----

| **Results                  of discontinued operations**          |   |  Year                  ended December                  31, 2006 |   |   | One                  month ended                  December                  31, 2005 |   |   | Eleven                  months ended                  November                  30, 2005 |   |   |  Year                  ended December                  31, 2005 |   |   |  Year                  ended December                  31, 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 | ) |

----

| **Cash                  flows from discontinued operations**                                               |   | Year                  ended December                  31, 2006 |   |   | One                  month ended                  December                  31, 2005 |   |   | Eleven                  months                  ended November                  30,                  2005 |   |   | Year                  ended                  December                  31, 2005 |   |   | Year                  ended                  December                  31, 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 December 31,                  2006 |   |   | As                  at December 31,                  2005 |   |   | As                  at December 1,                  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 |   |

----

| **From                  continuing operations**               |                             Year                  ended December 31, 2006 |   | One                  month ended                  December                  31, 2005 |   | Eleven                  months ended                  November                  30, 2005 |   |                 Year                  ended                  December                  31, 2005 |   |                        Year                  ended                  December                  31, 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**

**Revenue        by geographic region**

----

|                                                                                                            | Revenue                                                                     |   | Percent                  of wireless revenue                                                      |
|-----------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------|
|                                                                                                            |                                                                        |   |                                                                                              |
|                                                                                                            | Year                  ended                  Dec.                  31, 2006 |   | One                  month                  ended                  Dec.                  31, 2005 |   | Eleven                  months                  ended                  Nov.                  30, 2005 |   | Year                  ended                  Dec.                  31, 2005 |   | Year                  ended                  Dec.                  31, 2004 |   | Year                  ended                  Dec.                  31, 2006 |   | One                  month                  ended                  Dec.                  31, 2005 |   | Eleven                  months                  ended                  Nov.                  30, 2005 |   | Year                  ended                  Dec.                  31, 2005 |   | Year                  ended                  Dec.                  31, 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% |

**Gross        profit**

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

----

**Agent        commissions**

*Foreign Corrupt        Practices Act *

**Sales,        general and administrative expenses**

**Research        and development expenses, net of investment tax credits**

----

**Restructuring,        asset impairment and other charges**

**Finance        charges**

----

**Foreign        exchange**

**Income        taxes**

**Backlog**

----

| **From                  continuing operations**                             |               |               |
|-----------------------------------------------------------------------------|--------------------|--------------------|
|                                                                        | 2006               |               | 2005 |
|                                                                        | Q4                 | Q3                 | Q2 | Q1 |   | 1                  month ended                  Dec.                  31 | 2                  months ended                  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**

**Revenue        by geographic region**

| Three                  months ended December 31, | Revenue     |   | Percent                  of wireless revenue |
|--------------------------------------------------|-------------|--------|----------------------------------------------|
|                                             | 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% |

----

**Gross        profit**

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

**Sales,        general and administrative expenses**

**Research        and development expenses, net of investment tax credits**

**Finance        charges**

----

*Comunicacion        y Telefonia Rural*

|                                             |                             Year                  ended                  December                  31, 2006 |   | One                  month ended                  December                  31, 2005 |   | Eleven                  months ended                  November                  30, 2005 |   |                 Year                  ended                  December                  31, 2005 |   |                        Year                  ended                  December                  31, 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**

**Operating        expenses**

**Restructuring,        asset impairment and other charges**

----

**Finance        charges**

**Foreign        exchange**

|                                     |        |              |                         |
|------------------------------------------|-------------|-------------------|------------------------------|
|                                     |  2006  |              |                    2005 |
|                                     | Q4          | Q3                | Q2                           | Q1 |   | 1                  month ended                  Dec.                  31 | 2                  months ended  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**

**Operating        expenses**

----

*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 |
| Fromcontinuingoperations                                                                                 | (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             discontinuedoperations | -      | -      | -      | -      |   | (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) |

**Accounts        receivable**

**Inventory**

**Investment        tax credits**

----

**Property,        plant and equipment**

**Intangible        assets**

**Other        assets**

**Accounts        payable and accrued liabilities**

----

**Long-term        debt and shareholders’ equity**

|                                                                       |   | December                  31, 2006 |   | December                  31, 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**

**Credit        facility**

**Convertible        term loan**

----

**Long-term        debt**

*pari passu*
*pari passu*

**Convertible        debentures**

*pari passu*

----

**Other        long-term liability**

|                                                                                        | 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**

|                                                                                                   | Issued                  and outstanding                  common                  shares |                         Capital                  stock($                  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. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Cash        and cash equivalents**

----

**Cash        flows**

**Capital        expenditures**

**Off-balance        sheet and banking arrangements**

**Litigation**

----

**Related-party        transactions**

----

**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 atwww.srtelecom.com**

**Financial        factors**

**Operating        results**

**External        factors**

**Competition**

----

**Long        sales cycles**

**Response        to industry’s change of pace**

----

**Product        viability**

**Product        performance**

**Outsourcing**

**Supply        chain**

**Outdated        inventory**

**Litigation**

----

**Foreign        exchange fluctuations**

**Internal        controls**

**Critical        accounting policies and estimates**

**Going        concern        assumption**

----

**Revenue        recognition**

*Revenue Recognition in Financial Statements*
*Revenue Recognition*
*Revenue Arrangements with Multiple        Deliverables*

----

**Warranty        obligations**

**Allowance        for doubtful        accounts**

**Provision        for excess or obsolete        inventory**

----

**Assessment of impairment of          long-lived          assets**

**Foreign        currencies**

**Income        tax        assets**

**Adoption        of new accounting policies**

*Consolidation of Variable Interest Entities*

*Financial Instruments        - Disclosure and Presentation*

*Stock-Based Compensation and Other Stock-Based        Payments*

----

*Non-Monetary Transactions*

**New        accounting recommendations**

*Financial Instruments –Recognition and Measurement*
*Financial Instruments – Disclosure and        Presentation*

*Hedges*

*Comprehensive Income*

----

*Surplus*
*Equity*
*Comprehensive Income*

|   | · | Comprehensive                  income and its components |
|--------|--------|----------------------------------------------------------|

|   | · | Accumulated                  other comprehensive income and its                  components |
|--------|--------|---------------------------------------------------------------------------------------------|

**ITEM      6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES**

***A.  DIRECTORS      AND SENIOR MANAGEMENT***

**Directors**

| **Name**                                                                                               | **Other                Positions with the Corporation** | **Director                Since** |
|--------------------------------------------------------------------------------------------------------|---------------------------------------------------------|-----------------------------------|
| Paul                J. Griswold (1)                (3)(Armonk,                New York, U.S.A.)        | Vice-Chairman                of the Board of Directors  | 2005                              |
| Lionel                P. Hurtubise (1) (2)                (3)(Montreal,                Quebec, Canada) | Chairman                of the Board of Directors       | 1999                              |
| Patrick                J. Lavelle (1) (2)                (3)(Toronto,                Ontario, Canada)  | Director                                                | 2005                              |
| Louis                A. Tanguay (1)(2)(3)(Montreal,                Quebec, Canada)                     | Director                                                | 2004                              |

----

**Senior      Management**

| Serge              Fortin       |  President              and Chief Executive Officer              |   |
|--------------------------------------|----------------------------------------------------------------------------|--------|
| Marc              Girard        |  Senior              Vice-president and Chief Financial Officer  |   |
| Charles              Immendorf       |  Senior              Vice-president, Innovations                 |   |
| Garry              Forbes       |  Senior              Vice-president, Sales and Marketing         |   |
| Christian              Gervais  |  Senior              Vice-president, Customer solutions          |   |
| Michael              J. Morris  |  Vice-president,              Contracts                          |   |

The      following are brief biographies of our senior      management.

----

***B. COMPENSATION      OF DIRECTORS AND SENIOR MANAGEMENT***

**Compensation      of named senior management**

***Summary      Compensation Table***

| **Name                and principal****position**                                                                                                                                   | **Year**         | **Annual                compensation**                 | **Long                term compensation**          |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------|--------------------------------------------------------|----------------------------------------------------|
| **Salary****($)**                                                                                                                                                                   | **Bonus****($)** | **Other                annual****compensation****($)** | **Stock                options****granted****(#)** |
| **Serge                Fortin**President                and CEO                                                                                                                     | 2006             | 176,923                                                | 150,000(1)                                         | 17,692(2) | 7,306,235 |
| **Marc                Girard**Senior                vice-president and CFO                                                                                                          | 2006             | 122,040                                                | 25,000(3)                                     | - | 1,800,000 |
| **Charles                Immendorf**Senior                Vice-president, Innovations                                                                                               | 2006             | 275,000                                                | 40,538(4)                                          | - | 1,800,000 |
| **Garry                Forbes**Senior                Vice-president, Sales and Marketing                                                                                            | 2006             | 207,395                                                | -                                                  | - | 1,200,000 |
| **William                E. Aziz**Former                Interim CEO (stepped down July 10, 2006)                                                                                    | 2006             | -                                                      | -                                                  | 1,176,519(5) | - |
| **Peter                Campbell**Former                Interim CFO (stepped down August 15, 2006)                                                                                   | 2006             | -                                                      | -                                                  | 189,999(6) | - |
| **Albert                Israel**Former                Senior Vice-president, Operations and Customer Solutions (stepped                down                November 17, 2006)       | 2006             | 267,012                                                | -                                                  | - | - |
| **Benoit                Pinsonnault**Former                Senior Vice-president                Operations (stepped down October 28, 2005, was a consultant in                2006) | 2006             | -                                                      | -                                                  | 341,964(7) | - |
| All                senior managers as a                group                                                                                                                        | 2006             | 1,048,370                                              | 215,538                                            | 1,726,174  | 12,106,235 |

| (1) | This                amount relates to a signing bonus and a guaranteed                bonus. |
|-----|----------------------------------------------------------------------------------------------|

| (2) | This                amount relates to annual salary supplement per the employment                contract. |
|-----|------------------------------------------------------------------------------------------------------------|

| (3) | This                amount relates to a guaranteed                bonus. |
|-----|--------------------------------------------------------------------------|

| (4) | The                amount relates to a retention                bonus. |
|-----|------------------------------------------------------------------------|

| (5) | Consists                of consulting fees and payment of income taxes on shares issued.                In                addition 2,769,576 common shares were issued to Blue Tree advisors                in                connection with the services provided by Mr. Aziz as our Interim                Chief                Executive Officer. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (6) | Consists                of consulting fees. |
|-----|---------------------------------------------|

| (7) | Consists                of consulting fees. |
|-----|---------------------------------------------|

----

***Option      grants during 2006***

***C.      BOARD PRACTICES***

----

***Directors’      compensation***

| **Directors                  Name**              | **Total                  fees earned in 2006**                                       |
|--------------------------------------------------|--------------------------------------------------------------------------------------|
|                                             |  $                                                                              |
| David                  Gibbons (1)               |              29,519 |
| Pierre                  St-Arnaud  (1) |              28,369 |
| Kirk                  Flatow (1)                 |              27,220 |
| Lionel                  P. Hurtubise             |            101,183            |
| Patrick                  J. Lavelle              |              90,735 |
| Paul                  J. Griswold                |              87,190 |
| Louis                  A. Tanguay                |              83,836 |
| Total                                            |            448,052            |

| (1) | Resigned                from the board effective June 2006. |
|-----|-------------------------------------------------------------|

***Audit      committee***

***Compensation      and nominating committee***

----

**D. EMPLOYEES**

***E. SHARE      OWNERSHIP OF DIRECTORS AND SENIOR MANAGEMENT***

|                                                        | Outstandingshares                                                                                       |   | Percentage                of total common shares outstanding                                            |   | Number                of unexercised options                at June 15, 2007exercisable                / unexercisable |   | Exercise                price of options |   |    Expiry                date of options |
|-------------------------------------------------------------|---------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------|--------|---------------------------------------------------------|
| Paul                J. Griswold                             | -                                                                                                       |   | -                                                                                                       |   | 183,100/0                                                                                                              |   | $0.32                                    |   | April                2013                               |
| Lionel                P. Hurtubise                          | *                                                                                                       |   | *                                                                                                       |   | 183,600/0                                                                                                              |   | Range                of $0.32 to $56.60  |   | Varies                from January 2010 to April 2013   |
| Patrick                J. Lavelle                           | -                                                                                                       |   | -                                                                                                       |   | 183,100/0                                                                                                              |   | $0.32                                    |   | April                2013                               |
| Louis                A. Tanguay                             |                  * |   |                  * |   | 183,100/0                                                                                                              |   | $0.32                                    |   | April                2013                               |
| Serge                Fortin                                 | -                                                                                                       |   | -                                                                                                       |   | 0/7,306,235                                                                                                            |   | $0.34                                    |   | July                2013                                |
| Marc                Girard                                  | -                                                                                                       |   | -                                                                                                       |   | 275,000/1,525,000                                                                                                      |   | Range                of $0.35 to $0.41   |   | Varies                from June 2013 to August 2013     |
| Charles                Immendorf                            | *                                                                                                       |   | *                                                                                                       |   | 325,000/1,475,000                                                                                                      |   | Range                of $0.32 to $0.35   |   | Varies                from April 2013 to August 2013    |
| Garry                Forbes                                 |                  - |   |                  - |   | 225,000/975,000                                                                                                        |   | Range                of $0.32 to $0.35   |   | Varies                from April 2013 to August 2013    |
| Michael                J. Morris                            |      *                                                                         |   |      *                                                                         |   | 78,300                /181,600                                                                                         |   | Range                $0.32 to $87.90     |   | Varies                from September 2007 to April 2013 |
|                                                        |                                                                                                    |   |                                                                                                    |   |                                                                                                                   |   |                                     |   |                                                    |
| All                directors and senior managers as a group | 2,782,722                                                                                               |   | 0.38%                                                                                                   |   | 1,636,200                /11,462,835                                                                                   |   | N/A                                      |   | N/A                                                     |

| * | Owns                less than 1% of total outstanding common                shares. |
|---|-------------------------------------------------------------------------------------|

|   |   |
|--------|--------|

**ITEM      7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS**

***A.      MAJOR SHAREHOLDERS***

----

|                                                                                                       | Number                of common shares owned directly or indirectly |   | Number                of common shares beneficially owned |   | Percentage                of outstanding common shares beneficially owned |
|------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------|--------|-----------------------------------------------------------|--------|---------------------------------------------------------------------------|
| DDJ Capital                Management, LLC (1)                                                        | 262,337,317                                                         |   | 262,337,317                                               |   | 35.3%                                                                     |
| Greywolf                Capital Management LP                (2)                                           | 135,928,924                                                         |   | 135,928,924                                               |   | 17.4%                                                                     |
| Catalyst                Fund General Partner I Inc........................ | 76,041,360                                                          |   | 76,041,360                                                |   | 10.0%                                                                     |
| Guardian                Capital LP..........                                                   | 60,802,863                                                          |   | 60,802,863                                                |   | 8.0%                                                                      |
| Morgan                Stanley & Co....                                                             | 94,909,200                                                          |   | 94,909,200                                                |   | 12.4%                                                                     |

|  (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 Trust II; and                DDJ Canadian High Yield Fund. |
|-----------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

***B. RELATED      PARTY TRANSACTIONS***

**Consulting      and professional services**

**Directors’      fees**

**Other**

----

|                                                 |   Year-ended December                  31, 2006                                            |   |  One                  month ended                  December                  31, 2005         |   |  Eleven                  months                  ended                  November  30,                  2005 |   |   Year-ended                  December                  31,                  2004 |
|------------------------------------------------------|-----------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------|
| Interest                  and financing fees payable |                  609 |   |               310            |   |           245                                                            |   |          1,110                                 |
| Interest                  on debt                    |             10,654                            |   |            1,402                            |   |        8,793                                                                            |   |          5,732                                 |
| Financing                  fees                      |                  882 |   |               582            |   |        5,035                                                                            |   |                - |
| Purchases                                            |                  254 |   |                 -  |   |             37                                                 |   |             199                 |
| Directors'                  fees                     |                  448 |   |                 17 |   |           572                                                            |   |             260                 |

***C.  INTERESTS      OF EXPERTS AND COUNSEL***

**ITEM      8. FINANCIAL INFORMATION**

***A.**  **CONSOLIDATED      STATEMENTS AND OTHER FINANCIAL INFORMATION***

----

***B.***
***CHANGES***

**M      9. THE OFFER AND LISTING**

***A.OFFER      AND LISTING DETAILS***

|  Year | Toronto                  StockExchange | Nasdaq                  National Market (through                  December 1, 2005 |
|------------|----------------------------------------|------------------------------------------------------------------------------------|
|       | High                                   | Low                                                                                | High | Low |
| 2002       | 27.50                                  | 7.00                                                                               |  n/a | n/a |
| 2003       | 15.00                                  | 5.50                                                                               |  6.80 | 4.50 |
| 2004       | 9.41                                   | 156                                                                                | 7.25 | 1.28 |
| 2005       | 4.14                                   | 0.16                                                                               | 3.43 | 0.21 |
| 2006       | 0.49                                   | 0.13                                                                               | n/a | n/a |

|  Quarter            | Toronto                  Stock Exchange | Nasdaq                  National Market (through                  December 1, 2005) |
|--------------------------|-----------------------------------------|-------------------------------------------------------------------------------------|
|                     | High                                    | Low                                                                                 | High | Low |
| Q1                  2005 | 4.14                                    | 0.61                                                                                | 3.43 |  0.54 |
| Q2                  2005 | 0.75                                    | 0.28                                                                                | 0.65 | 0.21 |
| Q3                  2005 | 0.55                                    | 0.32                                                                                | 0.47 |    0.26 |
| Q4                  2005 | 0.54                                    | 0.16                                                                                |    0.47 |   0.24 |
| Q1                  2006 | 0.36                                    | 0.13                                                                                |  n/a |  n/a |
| Q2                  2006 | 0.49                                    |  0.30                                                                          |  n/a |  n/a |
| Q3                  2006 | 0.37                                    |  0.24                                                                          |  n/a |  n/a |
| Q4                  2006 |  0.32                              |  0.15                                                                          |  n/a |  n/a |

----

|  Month                    | Toronto                  Stock Exchange |
|--------------------------------|-----------------------------------------|
|                           | High                                    | Low |
| December                  2006 | 0.21                                    | 0.15 |
| January                  2007  | 0.24                                    | 0.16 |
| February                  2007 |  0.27                              | 0.18 |
| March                  2007    | 0.21                                    | 0.16 |
| April                  2007    | 0.23                                    | 0.17 |
| May                  2007      | 0.22                                    | 0.14 |

***B. PLAN      OF DISTRIBUTION***

***C.  MARKETS***

***Common      shares***

***Warrants***

***D.      SELLING SHAREHOLDERS***

***E.      DILUTION***

***F.      EXPENSES OF THE ISSUE***

**ITEM      10. ADDITIONAL INFORMATION **

***A. SHARE      CAPITAL***

***B. MEMORANDUM      AND ARTICLES OF ASSOCIATION***

**Organization      and      Background**

*Canada      Business Corporations Act*

**Board      of      Directors**

----

***Power      to determine compensation***

***Director      Share Ownership Requirements***

**Description      of share      capital**

***Common      shares***

***Preferred      shares***

***Warrants***

***Convertible      debentures***

*pari passu*

----

***Registration      Rights***

**Amendment      to governing documents**

----

**Annual      meeting of shareholders**

**Call      of shareholders meeting**

**Quorum      requirement for any meeting of the holders of common stock**

**Requirements      for extraordinary corporate transactions**

***C. MATERIAL      CONTRACTS***

| - | Supplemental                Deed of Hypothec dated June 28, 2007 in favour of BNY Trust Company,                as                *fondé de pouvoir* on behalf of the Lenders under the Amended and                Restated Credit Agreement, providing for an additional $ 100,000,000                hypothec; |
|---|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| - | Supplemental                Bond Pledge Agreement dated June 28, 2007 in favour of the Lenders                under                the Amended and Restated Credit                Agreement; |
|---|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| - | Amended                and Restated Credit Agreement dated as of June 27, 2007 between the                Company, BNY Trust Company as Administrative Agent and Collateral                Agent                and the Lenders named therein, providing for an additional credit                facility                in the amount of $45,000,000 (in addition to the already existing                US                $39,625,000 facility and the $ 20,000,000 convertible                facility); |
|---|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| - | Manufacturing                Agreement dated May 3, 2007, between the Company and Microelectronics                Technology Inc.; |
|---|------------------------------------------------------------------------------------------------------------------------------------|

| - | Manufacturing                Agreement dated November 15, 2006, between the Company and Triton                Electronique Inc.; |
|---|----------------------------------------------------------------------------------------------------------------------------------|

----

| - | Manufacturing                  Agreement dated March 17, 2006, between the Company and Positron                  Technologies Inc.; |
|---|-------------------------------------------------------------------------------------------------------------------------------------|

| - | Amended                and restated registration rights agreement (the "Canadian                Registration Rights Agreement") dated December 15, 2006 betweenthe                Company                and BIV Capital Partners, L.P., GMAM Investment Funds Trust II, DDJ                Canadian High Yield Fund and The October Fund, Limited                Partnership; |
|---|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| - | Amended                and restated registration rights agreement (US Registration Rights                Agreement) dated December 15, 2006 between the Company and BIV Capital                Partners, L.P., GMAM Investment Funds Trust II, DDJ Canadian High                Yield Fund, DDJ October Fund, Onshore Feeder Limited Partnership,                October                05 Investment Sub 2006, Ltd., The October Fund, Limited Partnership,                Greywolf Capital Management L.P. and Morgan                Stanley & Co.                Incorporated; |
|---|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| - | First                supplemental indenture (First Supplemental Indenture) made                February 1, 2006 between the Company, Computershare Trust Company of                Canada and Manufacturers and Traders Trust Company, amending the                terms of                the trust indenture (Indenture) between the Issuer and such parties                dated                August 22, 2005, governing the convertible                debentures; |
|---|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| - | The                second supplemental indenture (Second Supplemental Indenture) made                February 13, 2006 between the Company, Computershare Trust Company                of                Canada and Manufacturers and Traders Trust Company, amending the                terms of                the trust indenture (Indenture) between the Issuer and such parties                dated                as of August 22, 2005 governing the Convertible                Debentures; |
|---|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| - | Share                Purchase Agreement made January 23, 2006 between the Company and BIV                Capital Partners, L.P.; |
|---|--------------------------------------------------------------------------------------------------------------------------------------------|

| - | Share                Purchase Agreement made January 23, 2006 between the Company and GMAM                Investment Funds Trust II; |
|---|-------------------------------------------------------------------------------------------------------------------------------------------|

| - | Share                Purchase Agreement made January 23, 2006 between the Company and DDJ                Canadian High Yield Fund; |
|---|-----------------------------------------------------------------------------------------------------------------------------------------|

| - | Share                Purchase Agreement made January 23, 2006 between the Company and The                October Fund, Limited Partnership; |
|---|--------------------------------------------------------------------------------------------------------------------------------------------------|

| - | Share                Purchase Agreement made January 23, 2006 between the Company and                Greywolf Capital                Management L.P.; |
|---|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|

| - | Share                Purchase Agreement made January 23, 2006 between the Company and                Guardian Capital LP; |
|---|-------------------------------------------------------------------------------------------------------------------------------------|

| - | Share                Purchase Agreement made January 23, 2006 between the Company and                Catalyst Fund General Partner                I Inc.; |
|---|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| - | Share                Purchase Agreement made January 23, 2006 between the Company and                North Pole Capital Master Fund; |
|---|-------------------------------------------------------------------------------------------------------------------------------------------|

| - | Share                Purchase Agreement made January 23, 2006 between the Company and                Morgan Stanley & Co.                Incorporated; |
|---|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| - | Agreement                between the Company and Blue Tree Advisors dated November 14, 2005                providing for the services of William E. Aziz as Interim Chief Executive                Officer; |
|---|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| - | Consulting                Agreement dated October 1, 2005 between the Company and David                Gibbons; |
|---|----------------------------------------------------------------------------------------------------------------------|

| - | Canadian                Registration Rights Agreement dated August 22, 2005 between the Company                and DDJ Capital Management, LLC; |
|---|-------------------------------------------------------------------------------------------------------------------------------------------------|

| - | US                Registration Rights Agreement dated August 22, 2005 between the Company                and the 10% convertible debenture holders specified                therein; |
|---|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| - | Supplemental                Indenture dated August 22, 2005 between the Company and Computerhsare                Trust Company of Canada and Montreal Trust company amending the terms                of                the 8.15% Debentures; |
|---|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| - | Credit                Agreement dated May 19, 2005 between the Company and BNY Trust Company                providing for a credit facility of up to US $39.625 million as amended                from time to time including the Eighth Amendment which provides for                an                additional $20 million convertible term                loan; |
|---|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| - | Security                Agreement dated May 19, 2005 between the Company and BNY Trust Company                of                Canada; |
|---|-----------------------------------------------------------------------------------------------------------------------------------------|

| - | Bond                Pledge Agreement dated May 19, 2005 between the Company, BNY Trust                Company                of Canada and the lenders named                therein; |
|---|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| - | Amended                  Principles of Restructuring dated May 16, 2005 between the Company,                  DDJ                  Capital Management, LLC, Guardian Capital LP, Greywolf Capital                  Management                  LP, Catalyst Fund General Partner I Inc, and Polar Securities                  Inc.; |
|---|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| - | Deed                of Hypothec bearing a formal date of May 12, 2005 between the Company                and BNY Trust Company of Canada. |
|---|------------------------------------------------------------------------------------------------------------------------------------------------|

***D. EXCHANGE      CONTROLS***

***E. TAXATION***

***CERTAIN      CANADIAN FEDERAL INCOME TAX CONSIDERATIONS***

*Income Tax Act *

*Canada-United States      Tax Convention      (1980) *

**The      common shares**

----

**The      warrants**

*The      Common Shares*

*The Common Shares*

***CERTAIN      US FEDERAL INCOME TAX CONSIDERATIONS***

**TO      ENSURE COMPLIANCE WITH US TREASURY DEPARTMENT CIRCULAR 230, US HOLDERS ARE      HEREBY NOTIFIED THAT: (A) ANY DISCUSSION OF FEDERAL TAX ISSUES IN THIS DOCUMENT      OR ANY ATTACHMENTS HERETO IS NOT INTENDED OR WRITTEN TO BE RELIED UPON, AND      CANNOT BE RELIED UPON, BY HOLDERS FOR THE PURPOSE OF AVOIDING PENALTIES THAT      MAY      BE IMPOSED ON HOLDERS UNDER THE US INTERNAL REVENUE CODE OF 1986, AS AMENDED      (CODE); (B) SUCH DISCUSSION IS INCLUDED HEREIN IN CONNECTION WITH THE PROMOTION      OR MARKETING (WITHIN THE MEANING OF US TREASURY DEPARTMENT CIRCULAR 230) OF      THE      TRANSACTIONS OR MATTERS ADDRESSED HEREIN; AND (C) HOLDERS SHOULD SEEK ADVICE      BASED ON THEIR PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX      ADVISOR.**

|   | - | an                  individual who is a citizen or resident of the United                  States; |
|--------|---|----------------------------------------------------------------------------------------------------|

|   | - | a                corporation, or other entity treated as a corporation for US federal                income tax purposes, created or organized in or under the laws of                the                United States, any State thereof or the District of                Columbia; |
|--------|---|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | - | an                estate, the income of which is includible in gross income for US                federal                income tax purposes regardless of its source;                or |
|--------|---|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | - | a                trust, the administration of which is subject to the primary supervision                of a court in the United States and for which one or more US persons                have                the authority to control all substantial decisions, or a trust that                has a                valid election in effect under applicable Treasury regulations to                be                treated as a United States person. |
|--------|---|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**US      holders are urged to consult their own tax advisors regarding the tax      consequences of owning and disposing of common shares and warrants in light      of      their particular circumstances, including the tax consequences under state,      local, non-US and other tax laws and the possible effects of changes in US      federal and other tax laws.**

**Possible      Treatment of the Company as a Controlled Foreign      Corporation**

----

| - | US                citizens or residents; |
|---|------------------------------------------|

| - | US                Domestic partnerships and                corporations; |
|---|--------------------------------------------------------------------------|

| - | estates                or trusts other than foreign estates or trusts;                and |
|---|-------------------------------------------------------------------------------------------|

| - | each                of which owns 10% or more of the total combined voting power of all                classes of shares of the Company (each, a 10% United States                shareholder). |
|---|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Warrants**

***Exercise      of warrants***

***Sale,      exchange or other disposition of warrants***

***Expiration      of warrants***

***Constructive      dividends***

----

**Common      shares**

***Distributions      on common shares***

***Sale,      exchange or other disposition of common shares***

**Foreign      tax credit considerations**

**Passive      foreign investment company considerations**

**Receipt      of Canadian dollars**

----

**Information      reporting and backup withholding**

***F. DIVIDENDS      AND PAYING AGENTS***

***G.      STATEMENT BY EXPERTS***

***H. DOCUMENTS      ON DISPLAY***

***I. SUBSIDIARY      INFORMATION***

**ITEM      11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET      RISK**

**Interest      rate risk**

**Currency      risk**

----

|                                       |   |                                   |       |   |                                   |       |       |                                  |   |
|--------------------------------------------|--------|----------------------------------------|------------|--------|----------------------------------------|------------|------------|---------------------------------------|--------|
|                                       |   | **As                  at**             |       |   | **As                  at**             |       |       | **As                  at**            |   |
|                                       |   | **December                  31, 2006** |       |   | **December                  31, 2005** |       |       | **December                  1, 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**

**Fair      value of financial instruments**

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

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

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

|                                                                                                 |   | **December                  31, 2006** |       |
|------------------------------------------------------------------------------------------------------|--------|----------------------------------------|------------|
| (000's)                                                                                              |   | **Carrying                  amount**   |       |   | **Fair                  value** |   |
|                                                                                                 |   |                                   | **$**      |   |   |   | **$** |   |
|                                                                                                 |   |                                   |       |   |   |   |   |   |
| Long-term                  accounts receivable, net                                                  |   | ** **                             | **2,365**  |   |   | ** ** | **1,782** |   |
| 8.15%                  Debentures                                                                    |   | ** **                             | **270**    |   |   | ** ** | **176** |   |
| 10%                  Convertible redeemable debentures (debt and equity                  components) |   | ** **                             | **2,793**  |   |   | ** ** | **3,296** |   |
| Long                  term credit facility                                                           |   | ** **                             | **52,941** |   |   | ** ** | **52,941** |   |
| Long-term                  convertible term loan (debt and equity components)              |   | ** **                             | **20,132** |   |   | ** ** | **20,132** |   |

**ITEM      12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.**

----

**ITEM      13. DEFAULTS, DIVIDENDS ARREARAGES AND DELINQUENCIES**

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

| - | pay                dividends or make other restricted payments or                investments; |
|---|-----------------------------------------------------------------------------------------------|

| - | incur                additional indebtedness and issue preferred                stock; |
|---|----------------------------------------------------------------------------------------|

| - | create                liens on assets; and |
|---|--------------------------------------------|

| - | merge,                consolidate, or sell all or substantially all of our                assets. |
|---|---------------------------------------------------------------------------------------------------|

**ITEM      15. CONTROLS AND PROCEDURES**

**ITEM      16. [RESERVED]**

**ITEM      16A.  AUDIT COMMITTEE FINANCIAL EXPERT**

**ITEM      16B. CODE OF ETHICS**

----

| **Deloitte                & Touche LLP fees** | **2006**                                         | **2005**  |
|---------------------------------------------------|--------------------------------------------------|-----------|
|                                              |                                             | $         | $ |
| Audit                fees                         | 1,023,950                                        | 969,252   |
| Tax                fees                           |                                             |      |
|                                              | Preparation                of income tax returns | -         | - |
|                                              | Consulting                services               | -         | - |
| All                other fees                     | 106,756                                          | 73,500    |
|                                              |                                             | 1,130,706 | 1,042,752 |
|                                              |                                             |      |   |

**Audit      fees**

**Tax      fees**

**Other      fees**

**ITEM      16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT      COMMITTEES**

**ITEM      16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED      PURCHASERS**

**PART      III**

**ITEM      17.                                FINANCIAL      STATEMENTS**

**ITEM      18.                                FINANCIAL      STATEMENTS**

----

**Report        of Independent Registered Chartered Accountants**

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

----

**CONSOLIDATED        BALANCE SHEETS**

|                                                                                                           |   |   |            |   |                                      |   |        |                                      |   |   | December                    1,  |   |
|----------------------------------------------------------------------------------------------------------------|--------|--------|-----------------|--------|-------------------------------------------|--------|-------------|-------------------------------------------|--------|--------|---------------------------------|--------|
| As                    at                                                                                       |   |   |            |   | December                    31, 2006 |   |        | December                    31, 2005 |   |   | 2005(note                    1) |   |
| (in                    thousands of Canadian dollars)                                                          |   | 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 |   |

**Approved        by the Board**

|   |  **Lionel                Hurtubise ** |  **Serge                Fortin**                       |
|--------|-------------------------------------------------|------------------------------------------------------------------|
|   |  Director                             |  President                and Chief Executive Officer  |

----

**CONSOLIDATED        STATEMENTS OF OPERATIONS**

|                                                                                      |   |   |                                 |     |                          |                                 |        |                                    |                                 |   | Pre-fresh                    start (note                    1) |                                 |
|-------------------------------------------------------------------------------------------|--------|--------|--------------------------------------|----------|-------------------------------|--------------------------------------|-------------|-----------------------------------------|--------------------------------------|--------|----------------------------------------------------------------|--------------------------------------|
|                                                                                      |   |   |                                 |     | Year                    ended |                                 |        | One month                    ended |                                 |   | Elevenmonths                    ended                          |                                 |   | Year                    ended |   |
| (in                    thousands of Canadian                    dollars,                  |   |   | December                    31, 2006 |     |                          | December                    31, 2005 |        |                                    | November                    30, 2005 |   |                                                           | December                    31, 2004 |   |
| except                    per share and share                    information)             |   | 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 |   |

----

**CONSOLIDATED        STATEMENTS OF DEFICIT**

|                                                                                           |   |   |   |   |                                 |   |     |                                 |   |   | Pre-fresh                    start (note                    1) |   |
|------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------------------------------------|--------|----------|--------------------------------------|--------|--------|----------------------------------------------------------------|--------|
|                                                                                           |   |   |   |   | Year                    ended        |   |     | Onemonth                    ended    |   |   | Elevenmonths                    ended                          |   |   | Year                    ended |   |
| (in                    thousands of Canadian                    dollars)                       |   |   |   |   | December                    31, 2006 |   |     | December                    31, 2005 |   |   | November                    30, 2005                           |   |   | 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 | ) |

----

**CONSOLIDATED        STATEMENTS OF CASH FLOWS**

|                                                                                                       |   |   |   |   |                                 |     |    |                                    |   |   | Pre-fresh                    start (note                    1) |   |
|------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------------------------------------|----------|---------|-----------------------------------------|--------|--------|----------------------------------------------------------------|--------|
|                                                                                                       |   |   |   |   | Year                    ended        |     |    | One month                    ended |   |   | Elevenmonths                    ended                          |   |   | Year                    ended |   |
| (in                    thousands of Canadian                    dollars)                                   |   |   |   |   | December                    31, 2006 |     |    | December                    31, 2005    |   |   | November                    30, 2005                           |   |   | 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 |   |

----

**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**

*Canada Business Corporations Act*
*Comunicacion y        Telefonia Rural S.A*

**Fresh        start accounting and basis of presentation**

----

|                                                                             |   | Prior                    to the adoption                    of fresh                    start                    accounting November                      30, 2005 |     | Fresh                    start adjustments |    | Notes   | After                    adjustmentsDecember                    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 |   |

**Summary        of adjustments**

| (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**

| **2.  ** | **Going                      concern                      uncertainty** |
|--------------------|-------------------------------------------------------------------------|

----

| **3.  ** | **Significant                  accounting policies** |
|--------------------|------------------------------------------------------|

**(a)          **
**Adoption        of new accounting policies**

**Consolidation        of Variable Interest Entities**

*Consolidation of Variable Interest Entities*

**Financial        Instruments – Disclosure and Presentation**

* Financial Instruments        - Disclosure and Presentation*

**Non-Monetary        Transactions**

*Non-Monetary Transactions*

**Stock-Based        Compensation and Other Stock-Based Payments**

*Stock-Based Compensation and Other Stock-Based        Payments*

**(b)  **
**Cash        and cash equivalents**

----

| **(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. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |    |
|--------|--------------|
|   | 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.  |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **(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. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| Ø   | Comprehensive                  income and its components |
|--------------------|----------------------------------------------------------|

| Ø   | Accumulated                  other comprehensive income and its                  components |
|--------------------|---------------------------------------------------------------------------------------------|

| **4.  ** | **Accounts                  receivable, net** |
|--------------------|-----------------------------------------------|

|                                                                      |   | December                    31, 2006 |   |   | December                    31, 2005 |   |   | December                    1, 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 |   |

|                                                                  |   | 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 |   |

----

| **5.  ** | **Long-term                  accounts receivable, net** |
|--------------------|---------------------------------------------------------|

| **6.  ** | **Inventory** |
|--------------------|---------------|

|                                                       |   | December                  31, 2006 |    |   | December                  31, 2005 |   |   | December                  1, 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 |   |

| **7.  ** | **Property,                    plant and equipment** |
|--------------------|------------------------------------------------------|

|                                                          | December                    31,                    2006 |                                                                                        | December                    31,                    2005 |                                      | December                    1,                    2005                                      |
|---------------------------------------------------------------|---------------------------------------------------------|---------------------------------------------------------------------------------------------|---------------------------------------------------------|-------------------------------------------|---------------------------------------------------------------------------------------------|
|                                                          |   Cost                                        | Accumulateddepreciation/amortization                                                        |  Net                    bookvalue                  |   Cost                          | Accumulateddepreciation/amortization                                                        |  Net                    bookvalue |   Cost | Accumulateddepreciation/ amortization |  Net                    book 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 |

----

| **8.  ** | **Restricted                  cash and short term                  investments** |
|--------------------|----------------------------------------------------------------------------------|

|                                                                                                          |   | December                    31, 2006 |    |   | December                    31, 2005 |   |   | December                    1, 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 |   |

| **9.  ** | **Intangible                  assets, net** |
|--------------------|---------------------------------------------|

|                                      | December                    31,                    2006 |                                                                         | December                    31,                    2005 |                                | December                    1,                    2005                       |
|-------------------------------------------|---------------------------------------------------------|------------------------------------------------------------------------------|---------------------------------------------------------|-------------------------------------|------------------------------------------------------------------------------|
|                                      |   Cost                                        | Accumulated                    depreciation/                    amortization |  Net                    bookvalue                  |   Cost                    | Accumulated                    depreciation/                    amortization |  Net                    bookvalue |   Cost | Accumulated                    depreciation/amortization |  Net                    book 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 |

| **10.  ** | **Other                  assets, net** |
|---------------------|----------------------------------------|

|                                | December                    31,                    2006 |                                                | December                    31,                    2005 |                                | December                    1,                    2005 |
|-------------------------------------|---------------------------------------------------------|-----------------------------------------------------|---------------------------------------------------------|-------------------------------------|--------------------------------------------------------|
|                                |   Cost                                        | Accumulateddepreciation/amortization                |  Net                    bookvalue                  |   Cost                    | Accumulateddepreciation/amortization                   |  Net                    bookvalue |   Cost | Accumulateddepreciation/amortization |  Net                    book value |
|                                | $                                                       | $                                                   | $                                                       | $                                   | $                                                      | $ | $ | $ | $ |
|                                |                                                    |                                                |                                                    |                                |                                                   |   |   |   |   |   |   |
| Deferred                    charges |      3,384                     |         622 |      2,762                     |      2,493 |         213    |      2,280 |      2,467 |           - |      2,467 |

----

| **11.  ** | **Accounts                  payable and accrued                  liabilities** |
|---------------------|--------------------------------------------------------------------------------|

|                                                                       |   | December                    31, 2006 |   |   | December                    31, 2005 |   |   | December                    1, 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 |   |

| **12.  ** | **Long-term                  debt** |
|---------------------|-------------------------------------|

|                                                                                                               |   | December                    31, 2006 | December                    31, 2005 | December                    1, 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. |
|-----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

*pari passu*

----

| (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). |
|------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **13.  ** | **Credit                  facility** |
|---------------------|--------------------------------------|

| **14.  ** | **Convertible                  redeemable secured                  debentures** |
|---------------------|---------------------------------------------------------------------------------|

*pari passu*

----

| **15.  ** | **Convertible                  term loan** |
|---------------------|--------------------------------------------|

| **16.  ** | **Lease                  liability** |
|---------------------|--------------------------------------|

----

| **17.  ** | **Capital                  stock and warrants** |
|---------------------|-------------------------------------------------|

|                                                                                                                  |   | Issued                    and                    outstanding |        | Capital                    stock |
|-----------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------|-------------|----------------------------------|
|                                                                                                                  |   | common                    shares                             |        |                             |
|                                                                                                                  |   |                                                         |        |                             | $ |
| 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. |
|-----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Warrants**

|                                                                                |   | December                    31, 2006                     |    |   | December                    31, 2005                     |   |      | December                    1,2005                       |   |
|-------------------------------------------------------------------------------------|--------|----------------------------------------------------------|---------|--------|----------------------------------------------------------|--------|-----------|----------------------------------------------------------|--------|
|                                                                                |   | Number                    of                    warrants |    |   | Number                    of                    warrants |   |      | Number                    of                    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 |   |

**Stock-Based        Compensation Plan**

|                                                      |                                                                                 |                                                                                                                                                 |                                                                                                             |                                                                                                                                                 |                                                                            |                                                                                                                                           | Pre-fresh                    start (note                    1)                  |                                                                            |
|-----------------------------------------------------------|--------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------|---------------------------------------------------------------------------------|
|                                                      | Year                    endedDecember                    31,                    2006 | One                    month                    endedDecember                    31,                    2005                                         | Eleven                    months                    endedNovember                    30,                    2005 | Year                    endedDecember                    31,                    2004                                                                 |
|                                                      |  Number                    of options                                           | Weighted                       average                    exercise                       price     |  Number                    of options                                                                       | Weighted                    average                       exercise                       price     |  Number                    of options                                      | Weighted                    average                       exercise                       price    |  Number                    of options                                      | Weighted                    average                    exerciseprice            |
|                                                      |                                                                                 | $                                                                                                                                                    |                                                                                                             |                                                                                                                                                 | $                                                                               |                                                                                                                                           |                                                                            | $                                                                               |   |   | $ |
| 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 |

----

|  Range                    of exercise                    prices |  Optionsoutstanding                                                                                     | Weighted                    average                    remainingcontractual                    life |  Weighted                    average                    exercise                    prices                                    |  Optionsexercisable                                                                                                                                | Weightedaverageexerciseprices                                                                                                                           |
|----------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------|
| $                                                                    |                                                                                                         |                                                                                                | $                                                                                                                                  |                                                                                                                                                    | $                                                                                                                                                       |
|                                                                 |                                                                                                         |                                                                                                |                                                                                                                               |                                                                                                                                                    |                                                                                                                                                    |
| 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                                                                                                                                                   |

** **

|                                                                                |   |   | $      |   |
|-------------------------------------------------------------------------------------|--------|--------|--------|--------|
|                                                                                |   |   |   |   |
| 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  |   |

----

|                                                                  |   |                            |       |   | One                    month    |   |   | Eleven                    months |   |   |                            |   |
|-----------------------------------------------------------------------|--------|---------------------------------|------------|--------|---------------------------------|--------|--------|----------------------------------|--------|--------|---------------------------------|--------|
|                                                                  |   | Year                    ended   |       |   | ended                           |   |   | 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**

| **18.  ** | **Research                  and development expenses,                  net** |
|---------------------|------------------------------------------------------------------------------|

| **19.  ** | **Gain                  on sale of long-term                  investment** |
|---------------------|----------------------------------------------------------------------------|

----

| **20.  ** | **Finance                  charges, net** |
|---------------------|-------------------------------------------|

|                                                                                        |   |                                 |   |   |                                 |   |   | 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 |   |
|                                                                                        |   |                                 |   |   |                                 |   |   |                                                           | $      |   |   |   | $ |   |
|                                                                                        |   |                                 |   |   |                                 |   |   |                                                           |   |   |   |   |   |   |
| 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 |   |

| **21.  ** | **Income                  taxes** |
|---------------------|-----------------------------------|

|                                                                                             |   |                                 |    |   |                                 |   |   | 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 |   |
|                                                                                             |   |                                 | $       |   |                                 |   | $      |                                                           |   |   | $ |   |   |   | $ |   |
|                                                                                             |   |                                 |    |   |                                 |   |   |                                                           |   |   |   |   |   |   |   |   |
| 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 | ) |

----

|                                                                                         |   | As                    at            |     |   | As                    at            |   |    | As                    at           |   |
|----------------------------------------------------------------------------------------------|--------|-------------------------------------|----------|--------|-------------------------------------|--------|---------|------------------------------------|--------|
|                                                                                         |   | December                    31,2006 |     |   | December                    31,2005 |   |    | December                    1,2005 |   |
|                                                                                         |   |                                | $        |   |                                |   | $       |                               |   |   | $ |   |
|                                                                                         |   |                                |     |   |                                |   |    |                               |   |   |   |   |
| 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 | ) |
|                                                                                         |   |                                | -        |   |                                |   | -       |                               |   |   | - |   |

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

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

----

|                                                             |   |                                 |   |   |                                    |   |   | Pre-fresh                    start (note                    1) |   |
|------------------------------------------------------------------|--------|--------------------------------------|--------|--------|-----------------------------------------|--------|--------|----------------------------------------------------------------|--------|
|                                                             |   | Year                    ended        |   |   | One month                    ended |   |   | Elevenmonths                    ended                          |   |   | Year                    ended |   |
|                                                             |   | December                    31, 2006 |   |   | December                    31, 2005    |   |   | November                    30, 2005                           |   |   | December                    31, 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**

----

|                                                                    |   | Severance                    and termination |   |   | Asset                    impairment                    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**

|                                                                    |   | Severance                    and termination |   |   | Asset                    impairment                    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 |   |

----

**2004        Restructuring, asset impairment and other charges**

|                                                                    |   | Severance                    and termination |   |   | Asset                    impairment                    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** |
|---------------------|----------------------------------------------|

----

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

|                                                                                        |   |                            |   |   |                            |   |   | Pre-fresh                    start (note                    1) |   |
|---------------------------------------------------------------------------------------------|--------|---------------------------------|--------|--------|---------------------------------|--------|--------|----------------------------------------------------------------|--------|
|                                                                                        |   |                            |   |   | One                             |   |   | Eleven                                                         |   |   |   |   |
|                                                                                        |   | Year                    ended   |   |   | month                    ended  |   |   | 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 |   |

|                                                                                      |   |                            |   |   |                            |   |   |                           |   |
|-------------------------------------------------------------------------------------------|--------|---------------------------------|--------|--------|---------------------------------|--------|--------|--------------------------------|--------|
|                                                                                      |   | 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**

|       | WirelessTelecommunications                    Products                                                                                                                                                  | Telecommunications                    ServiceProvider                                                                                                                                        | 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                            |

| **(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). |

| **(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, 2006 |   |   | December                    31, 2005 |   |   | November                    30, 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** |
|---------------------|----------------|

*Solectron        Arbitration:*

*Future        Communications Company (“FCC”) Litigation*

*Employee        Related Litigation*

*Tax        matters*

*General*

| **(e)**   | **Registration                  Rights** |
|---------------------|------------------------------------------|

----

| **25.  ** | **Statements                  of cash flows** |
|---------------------|-----------------------------------------------|

**Non-cash        working capital items**

|                                                                                                  |   |                                 |   |   |                                    |   |   | Pre-fresh                    start (note                    1) |   |
|-------------------------------------------------------------------------------------------------------|--------|--------------------------------------|--------|--------|-----------------------------------------|--------|--------|----------------------------------------------------------------|--------|
|                                                                                                  |   | Year                    ended        |   |   | One month                    ended |   |   | Elevenmonths                    ended                          |   |   | Year                    ended |   |
|                                                                                                  |   | December                    31, 2006 |   |   | December                    31, 2005    |   |   | November                    30, 2005                           |   |   | December                    31, 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 |   |

|                                                                                                    |   |                                   |   |   |                                      |   |   | Pre-fresh                      start (note                      1) |   |
|---------------------------------------------------------------------------------------------------------|--------|----------------------------------------|--------|--------|-------------------------------------------|--------|--------|--------------------------------------------------------------------|--------|
|                                                                                                    |   | Year                      ended        |   |   | One month                      ended |   |   | Elevenmonths                      ended                            |   |   | Yearended |   |
|                                                                                                    |   | December                      31, 2006 |   |   | December                      31, 2005    |   |   | November                      30, 2005                             |   |   | December                      31, 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                                                                                         | Elevenmonths                    ended                                                                                           |  Year                    ended |
|                                                                      |   | December                    31, 2006                                                                                            | December                    31, 2005                                                                                            | November                    30, 2005                                                                                       | December                    31, 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                                             |                      - |

| **27.  ** | **Derivative                  financial instruments** |
|---------------------|-------------------------------------------------------|

| **28.  ** | **Employee                  benefit plan** |
|---------------------|--------------------------------------------|

| **29.  ** | **Business                  segments and                  concentrations** |
|---------------------|----------------------------------------------------------------------------|

----

|   | WirelessTelecommunications                  Products |   |  Telecommunications Service                  Provider |   |  Inter-SegmentEliminations |   |   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                                                                             |

----

|                                                            |   | 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***

|      | 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%                                               |

|      | 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%                                               |

|   | 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%                                               |

|     | Revenue                                                           | %                    of                    revenue |
|----------|-------------------------------------------------------------------|----------------------------------------------------|
|     | $                                                                 |                                               |
|     |                                                              |                                               |
| Canada   |           8,026 | 8%                                                 |
| Thailand |          10,576      | 11%                                                |
| Chile    |          18,622      | 19%                                                |
| Others   |          61,850      | 62%                                                |
| Total    |          99,074      | 100%                                               |

----

|                                                               | 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%                                               |

|                                                                    | 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%                                               |

|                                                                    | 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%                                               |

|   | As                    at                                                                                        | As                    at                                                                        | As                    at                                                                        |
|--------|-----------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------|
|   | December                    31, 2006                                                                            | December                    31, 2005                                                            | December                    1, 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** |
|---------------------|--------------------------------------------|

**Interest        rate risk**

**Currency              risk**

|                                                            | As                    at                                                                              | As                    at                                                                   | As                    at                                                                              |
|-----------------------------------------------------------------|-------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------|
|                                                            | December                    31, 2006                                                                  | December                    31, 2005                                                       | December                    1, 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**

**Fair        value**

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

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

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

----

|                                                                                                             |                                                        |                                                        |   |                                             |                                             |                                                        |                                                        |   | December                    31,                    2006                     |
|------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------|-------------------------------------------------------------|--------|--------------------------------------------------|--------------------------------------------------|-------------------------------------------------------------|-------------------------------------------------------------|--------|-----------------------------------------------------------------------------|
|                                                                                                             |                                                        |                                                        |   |                                             |                                             |                                                        |                                                        |   | Carryingamount                                                              |  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 |

| **31.  ** | **Reconciliation                  of amounts reported in accordance with Canadian GAAP to United                  States GAAP                  and other supplementary United States GAAP                  disclosures** |
|---------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**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 | ) |

----

**Statement        of comprehensive loss**

**Reconciliation        of reported amounts on consolidated balance sheets**

|                                                                                                                                                     |   | CanadianGAAP |     |   | Adjustments(b) |   |     | All                    other Adjustments |   |   | USGAAP  |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------|----------|--------|----------------|--------|----------|------------------------------------------|--------|--------|---------|--------|
|                                                                                                                                                     |   |         | $        |   |           |   | $        |                                     |   |   | $       |   |   |   | $ |   |
|                                                                                                                                                     |   |         |     |   |           |   |     |                                     |   |   |    |   |   |   |   |   |
| **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 | ) |

|                                                                                                                                                     |   | CanadianGAAP |     |   | Adjustments(b) |   |     | All                    other Adjustments |   |   | USGAAP  |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------|----------|--------|----------------|--------|----------|------------------------------------------|--------|--------|---------|--------|
|                                                                                                                                                     |   | $       |     |   |           | $      |     |                                     |   | $      |    |   |   | $ |   |
|                                                                                                                                                     |   |         |     |   |           |   |     |                                     |   |   |    |   |   |   |   |
| **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 | ) |

----

**Additional        disclosures required under US GAAP are as follows:**

***(a)  ***
***Consolidated        statement of changes in shareholders’ equity in accordance with US        GAAP:***

|                                                                                                                                                                                                                                                                                    |   | Common                    stock |                   |   | Warrants  |               |   | Additionalpaid-in                    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. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ***(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. |
|-----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ***(h)*** | ***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. |
|-----------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 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 |
|--------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------|--------|------------------------------|--------|--------|--------|--------------------------------------------------------------------|
|                                                                                       |   |                                                               |   |                         |   |   |   |  Number                    of options                         | Weighted-average                    grant date                    fair                    value |
|                                                                                       |   |                                                               |   |                         |   |   |   |                                                               |   |
| Nonvested                    stock options at the                    beginning of the year |   |           30,750 | $7.23  |
| Nonvested                    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)      |

|   | 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 valuemeasurements;                                                  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. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **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. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **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.  |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |
|--------|--------|
|   |   |
|--------|--------|

----

**Condensed        Consolidated Balance Sheet**

|                                                                                                        |   | Pro                    forma                                                    |     |
|-------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------|----------|
|                                                                                                        |   | as                    atDecember                    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  | ) |

----

**ITEM        19. EXHIBITS**

***EXHIBITS***

| **Exhibit****Number** |                  **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|-----------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 1.1                   | Certificate                  and Articles of Incorporation (incorporated by reference to Exhibit                  3.1 of                  SR Telecom’s Registration Statement on Form F-4, File No.                  333-107620).                                                                                                                                                                                                                                                                                                                                               |
| 1.2                   | By-Laws                  2003-1, General By-Laws (incorporated by reference to Exhibit 3.2                  of SR                  Telecom’s Registration Statement on Form F-4, File No.                  333-107620).                                                                                                                                                                                                                                                                                                                                                              |
| 2.1                   | Trust                  Indenture dated April 22, 1998 between SR Telecom Inc. and Montreal                  Trust                  Company (incorporated by reference to Exhibit 4 of SR Telecom’s                  Registration Statement on Form F-4, File No.                  333-107620).                                                                                                                                                                                                                                                                                       |
| 2.2                   | Form                  of Warrant issued July 18, 2003 and August 27, 2003 under a Private                  Placement (issued prior to the Common Share 10 for 1 consolidation                  on                  September 3, 2003.) (incorporated by reference to our Annual Report                  on Form 20-F filed on April 23,2004)                                                                                                                                                                                                                                          |
| 4.1                   | Agreement                  and Plan of Merger dated as of March 27, 2003 between SR Telecom                  Inc., Netro Corporation and Norway Acquisition Corporation (incorporated                  by reference to Exhibit 2.1 of SR Telecom’s Registration Statement on Form                  F-4, File No. 333-107620).                                                                                                                                                                                                                                                   |
| 4.2                   | Amendment                  No.1 to Agreement and Plan of Merger dated May 5, 2003 between                  SR Telecom Inc., Netro Corporation and Norway Acquisition Corporation                  (incorporated by reference to Exhibit 2.2 of SR Telecom’s Registration                  Statement on Form F-4, File No. 333-107620).                                                                                                                                                                                                                                          |
| 4.3                   | Amendment                  No. 2 to Agreement and Plan of Merger dated July 17, 2003                  between SR Telecom Inc., Netro Corporation and Norway Acquisition                  Corporation (incorporated by reference to Exhibit 2.3 of SR Telecom’s                  Registration Statement on Form F-4/A, File                  No. 333-107620).                                                                                                                                                                                                |
| 4.4                   | Amendment                  No. 3 to Agreement and Plan of Merger dated August 5, 2003                  between SR Telecom Inc., Netro Corporation and Norway Acquisition                  Corporation (incorporated by reference to Exhibit 2.4 of SR Telecom’s                  Registration Statement on Form F-4/A, File                  No. 333-107620).                                                                                                                                                                                               |
| 4.5                   | Formal                  Loan Agreement dated July 3, 2001 between SR Telecom Inc. and Pierre                  St-Arnaud (incorporated by reference to Exhibit 10.17 of SR Telecom’s                  Registration Statement on Form F-4, File No.                  333-107620).                                                                                                                                                                                                                                                                                                      |
| 4.6                   | Formal                  Loan Agreement dated June 13, 2002 between SR Telecom Inc. and                  Pierre                  St-Arnaud (incorporated by reference to Exhibit 10.18 of SR Telecom’s                  Registration Statement on Form F-4, File No.                  333-107620).                                                                                                                                                                                                                                                                                    |
| 4.7                   | Formal                  Loan Agreement dated July 3, 2001 between SR Telecom Inc. and Pierre                  St-Arnaud (incorporated by reference to Exhibit 10.19 of SR Telecom’s                  Registration Statement on Form F-4, File No.                  333-107620).                                                                                                                                                                                                                                                                                                 |
| 4.8                   | Lease                  between North San Jose Interests and Netro Corporation dated April                  20,                  2001 (incorporated by reference to Exhibit 10.8 of the Annual Report                  of Netro Corporation on Form 10K for the year ended December 31,                  2001).                                                                                                                                                                                                                                                                        |
| 4.9                   | Restated                  1998 Key Employee Stock Option Plan dated February 12, 2003, in                  effect as of April 19, 2001. (incorporated by reference to our                  Annual                  Report on Form 20-F filed on April 23, 2004)                                                                                                                                                                                                                                                                                                                       |
| 4.10                  | Restated                  Directors’ Share Compensation Plan dated February 12, 2003.                  (incorporated by reference to our Annual Report on Form 20-F filed                  on                  April 23, 2004)                                                                                                                                                                                                                                                                                                                                                  |
| 4.11                  | Employment                  Agreement for Pierre St-Arnaud dated June 22, 2000. (incorporated by                  reference to our Annual Report on Form 20-F filed on April 23,                  2004)                                                                                                                                                                                                                                                                                                                                                                               |
| 4.12                  | Employment                  Agreement for Pierre St-Arnaud dated February 14, 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 4.13                  | Employment                  Agreement for David L. Adams dated February 14, 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 4.14                  | Employment                  Agreement for Benoit Pinsonnault dated February 18,                  2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 4.15                  | Employment                  Agreement for Charles Immendorf dated April 28, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 4.16                  | Employment                  Agreement for Pierre St-Arnaud dated March 2, 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 4.17                  | Employment                  Agreement for David L. Adams dated March 2, 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 4.18                  | Employment                  Agreement for Benoit Pinsonnault dated February 28,                  2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 4.19                  | Principles                  of Restructuring dated April 18, 2005 between SR Telecom Inc.,                  DDJ Capital                  Management, LLC, Guardian Capital LP, Greywolf Capital Management                  LP,                  Catalyst Fund General Partner I Inc, and Polar Securities                  Inc.                                                                                                                                                                                                                                                           |
| 4.20                  | Deed                  of Hypothec bearing a formal date of May 12, 2005 between SR                  Telecom Inc. and BNY Trust Company of Canada.                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.21                  | Bond                  Pledge Agreement dated May 19, 2005 between SR Telecom Inc., BNY                  Trust Company of Canada and the lenders named therein.                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 4.22                  | Security                  Agreement dated May 19, 2005 between SR Telecom Inc. and BNY                  Trust Company of Canada.                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 4.23                  | Credit                  Agreement dated May 19, 2005 between SR Telecom Inc., BNY Trust                  Company of Canada and the lenders named therein                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 4.24                  | Supplemental                  Indenture dated August 22, 2005 between SR Telecom Inc., and                  Computershare Trust Company of Canada and Montreal Trust company                  amending                  the terms of the 8.15% Debentures.                                                                                                                                                                                                                                                                                                                       |
| 4.25                  | US Registration                  Rights Agreement dated August 22, 2005 between SR Telecom Inc.                  and the 10% Convertible Debenture holders specified                  therein.                                                                                                                                                                                                                                                                                                                                                                              |
| 4.26                  | Canadian                  Registration Rights Agreement dated August 22, 2005 between SR                  Telecom Inc. and DDJ Capital Management, LLC.                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 4.27                  | Consulting                  Agreement dated October 1, 2005 with David                  Gibbons.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 4.28                  | Agreement                  with Blue Tree Advisors dated November 14, 2005 providing for the                  services of William E. Aziz as Interim Chief Executive                  Officer.                                                                                                                                                                                                                                                                                                                                                                                        |
| 4.29                  | Share                  Purchase Agreement dated January 23, 2006 between the Company and BIV                  Capital Partners, L.P.                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 4.30                  | Share                  Purchase Agreement dated January 23, 2006 between the Company and                  GMAM Investment Funds Trust II.                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 4.31                  | Share                  Purchase Agreement dated January 23, 2006 between the Company and DDJ                  Canadian High Yield Fund.                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 4.32                  | Share                  Purchase Agreement dated January 23, 2006 between the Company and The                  October Fund, Limited Partnership.                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 4.33                  | Share                  Purchase Agreement dated January 23, 2006 between the Company and                  Greywolf Capital Management L.P.                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 4.34                  | Share                  Purchase Agreement dated January 23, 2006 between the Company and                  Guardian Capital LP                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 4.35                  | Share                  Purchase Agreement dated January 23, 2006 between the Company and                  Catalyst Fund General Partner I Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 4.36                  | Share                  Purchase Agreement dated January 23, 2006 between the Company and                  North Pole Capital Master Fund                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 4.37                  | Share                  Purchase Agreement dated January 23, 2006 between the Company and                  Morgan Stanley & Co. Incorporated                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 4.38                  | Canadian                  amended and restated Registration Rights agreement dated December                  15, 2006                  between the Company and BIV Capital Partners, L.P., GMAM Investment                  Funds Trust II, DDJ Canadian High Yield Fund and The October Fund,                  Limited                  Partnership.                                                                                                                                                                                                                                 |
| 4.39                  | US                  amended and restated Registration Rights agreement dated December                  15, 2006                  between the Company and BIV Capital Partners, L.P., GMAM Investment                  Funds Trust II, DDJ Canadian High Yield Fund, DDJ October Fund,                  Onshore                  Feeder Limited Partnership, October 05 Investment Sub 2006 Ltd.,                  The                  October Fund, Limited Partnership, Greywolf Capital Management L.P.                  and Morgan Stanley & Co. Incorporated. |
| 4.40                  | First                  Supplemental Indenture made as of February 1, 2006 between the                  Company, Computershare Trust Company of Canada and Manufacturers                  and                  Traders Trust Company, amending the terms of the Trust Indenture                  between                  the Company and such parties dated August 22, 2005 governing the                  Convertible Debentures of the Company.                                                                                                                                |
| 4.41                  | Second                  Supplemental Indenture dated February 1, 2006 between the Company,                  Computershare Trust Company of Canada and Manufacturers and Traders                  Trust                  Company, amending the terms of the Trust Indenture between the                  Company and                  such parties dated as of August 22, 2005 governing the Convertible                  Debentures of the Company.                                                                                                                              |
| 4.42                  | Eighth                  amendment dated December 7, 2006 to the Credit Agreement dated                  May 19,                  2005 between SR Telecom and BNY Trust Company and the lenders named                  therein, providing for the convertible term loan in the amount                  of $20                  million.                                                                                                                                                                                                                                                     |
| 4.43                  | Manufacturing                  Agreement dated March 17, 2006, between SR Telecom Inc. and Positron                  Technologies Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 4.44                  | Supplemental                  Deed of Hypothec dated June 28, 2007 in favour of BNY Trust Company,                  as                  *fondé de pouvoir* on behalf of the Lenders under the Amended and                  Restated Credit Agreement, providing for an additional $ 100,000,000                  hypothec.                                                                                                                                                                                                                                                            |
| 4.45                  | Supplemental                  Bond Pledge Agreement dated June 28, 2007 in favour of the Lenders                  under                  the Amended and Restated Credit Agreement.                                                                                                                                                                                                                                                                                                                                                                                                        |
| 4.46                  | Amended                  and Restated Credit Agreement dated as of June 27, 2007 between                  the                  Company, BNY Trust Company as Administrative Agent and Collateral                  Agent                  and the Lenders named therein, providing for an additional credit                  facility                  in the amount of $45,000,000 (in addition to the already existing                  US                  $39,625,000 facility and the $ 20,000,000 convertible                  facility).                                             |
| 4.47                  | Manufacturing                  Agreement dated May 3, 2007, between the Company and Microelectronics                  Technology Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 4.48                  | Manufacturing                  Agreement dated November 15, 2006, between the Company and Triton                  Electronique Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 8                     | List                  of subsidiaries.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 11.1                  | Code                  of Business Conduct                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 12.1*                 | Certification                  of Interim Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a)                  of                  the Exchange Act.                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 12.2*                 | Certification                  of Interim Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a)                  of                  the Exchange Act.                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 13.1*                 | Certification                  of Interim Chief Executive Officer pursuant to Rule 13a-14(b)/15d-14(b)                  of                  the Exchange Act.                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 13.2*                 | Certification                  of Interim Chief Financial Officer pursuant to Rule 13a-14(b)/15d-14(b)                  of                  the Exchange Act.                                                                                                                                                                                                                                                                                                                                                                                                                              |
|                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| *                     | Filed                  herewith                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |

----

**SIGNATURE**

|   |   | SR                Telecom Inc.                                                          |   |
|--------|--------|----------------------------------------------------------------------------------------------|--------|
|   | By:    | /s/ *Marc                Girard*                                                        |   |
|   |   | Name:                Marc Girard                                                             |   |
|   |   | Title:                Senior Vice-President and                Chief Financial Officer  |
|   |   |                                                                                         |   |