SR TELECOM INC. Consolidated Balance Sheets As at September 30th, 2005 and December 31st, 2004 (in thousands of dollars) 2005 2004 (unaudited) (audited) Assets Current assets Cash and cash equivalents 4,479 4,549 Short-term restricted cash 2,117 1,394 Accounts receivable, net 49,264 47,500 Income taxes receivable 1,765 911 Inventory 34,728 59,556 Prepaid expenses and deposits 7,433 3,504 -------------------------- 99,786 117,414 Investment tax credits 13,150 13,150 Long-term accounts receivable, net 1,757 5,644 Long-term restricted cash - 493 Property, plant and equipment, net 78,683 85,442 Intangible assets, net 3,818 4,494 Other assets, net 2,577 987 -------------------------- 199,771 227,624 -------------------------- -------------------------- Liabilities Current liabilities Accounts payable and accrued liabilities 41,745 55,682 Customer advances 1,624 1,932 Current portion of lease liability 7,435 5,043 Current portion of long-term debt 1,447 106,680 -------------------------- 52,251 169,337 Long-term credit facility 40,205 - Long-term lease liability - 3,577 Long-term liability 1,759 1,810 Long-term debt 33,882 260 Convertible redeemable secured debentures 39,040 - -------------------------- 167,137 174,984 Shareholders' equity Capital stock 219,653 219,653 Warrants 13,029 13,029 Equity component of convertible redeemable secured debenture 37,851 - Contributed surplus 1,203 519 Deficit (239,102) (180,561) -------------------------- 32,634 52,640 199,771 227,624 -------------------------- -------------------------- Consolidated Statements of Earnings (in thousands of dollars, except for per share amounts) For the Three Months ended September 30th, 2005 2004 Amended (unaudited) (unaudited) ----------------------------------------------------------- Wireless Tele- Wireless Tele- Tele- communi- Tele- communi- communi- cations communi- cations cations Service Conso- cations Service Conso- Products Provider lidated Products Provider lidated Revenue Equipment 31,568 - 31,568 27,593 - 27,593 Services 1,912 - 1,912 4,124 - 4,124 Telecommuni- cations - 4,776 4,776 - 4,660 4,660 ----------------------------------------------------------- Total revenue 33,480 4,776 38,256 31,717 4,660 36,377 Cost of revenue Equipment 21,692 - 21,692 17,754 - 17,754 Services 851 - 851 3,077 - 3,077 ----------------------------------------------------------- Total cost of revenue 22,543 - 22,543 20,831 - 20,831 Gross profit 10,937 4,776 15,713 10,886 4,660 15,546 Agent commissions 1,145 - 1,145 1,804 - 1,804 Selling, general and administrative expenses 11,162 5,595 16,757 10,184 4,646 14,830 Research and development expenses, net 3,215 - 3,215 6,175 - 6,175 Restructuring, asset impairment and other charges 2,307 - 2,307 3,096 - 3,096 ----------------------------------------------------------- Operating (loss) earnings (6,892) (819) (7,711) (10,373) 14 (10,359) Finance charges, net (8,163) (822) (8,985) (1,465) (638) (2,103) Gain on sale of long-term investment - - - 3,444 - 3,444 Gain on settlement of claim - - - 4,583 - 4,583 Gain (loss) on foreign exchange 793 1,633 2,426 (1,327) 2,118 791 ----------------------------------------------------------- (Loss) earnings before income taxes (14,262) (8) (14,270) (5,138) 1,494 (3,644) Income tax recovery (expense) 172 - 172 (339) - (339) ----------------------------------------------------------- Net (loss) income (14,090) (8) (14,098) (5,477) 1,494 (3,983) ----------------------------------------------------------- ----------------------------------------------------------- Weighted average number of common shares outstanding (in thousands) 17,610 17,610 Net loss per share, basic and diluted (0.80) (0.23) Consolidated Statements of Earnings (in thousands of dollars, except for per share amounts) For the Nine Months ended September 30th, 2005 2004 Amended (unaudited) (unaudited) ----------------------------------------------------------- Wireless Tele- Wireless Tele- Tele- communi- Tele- communi- communi- cations communi- cations cations Service Conso- cations Service Conso- Products Provider lidated Products Provider lidated Revenue Equipment 50,989 - 50,989 70,284 - 70,284 Services 8,223 - 8,223 14,592 - 14,592 Telecommuni- cations - 14,629 14,629 - 14,306 14,306 ----------------------------------------------------------- Total revenue 59,212 14,629 73,841 84,876 14,306 99,182 Cost of revenue Equipment 37,789 - 37,789 44,335 - 44,335 Services 4,533 - 4,533 8,726 - 8,726 ----------------------------------------------------------- Total cost of revenue 42,322 - 42,322 53,061 - 53,061 Gross profit 16,890 14,629 31,519 31,815 14,306 46,121 Agent commissions 2,056 - 2,056 4,481 - 4,481 Selling, general and administrative expenses 30,619 16,358 46,977 35,516 14,272 49,788 Research and development Expenses, net 9,736 - 9,736 20,983 - 20,983 Restructuring, asset impairment and other charges 18,855 - 18,855 15,815 - 15,815 ----------------------------------------------------------- Operating (loss) earnings (44,376) (1,729) (46,105) (44,980) 34 (44,946) Finance charges, net (11,412) (2,267) (13,679) (3,731) (2,130) (5,861) Gain on sale of long-term investment - - - 3,444 - 3,444 Gain on settlement of claim - - - 4,583 - 4,583 Gain (loss) on foreign exchange 461 866 1,327 (676) (130) (806) ----------------------------------------------------------- Loss before income taxes (55,327) (3,130) (58,457) (41,360) (2,226) (43,586) Income tax expense (84) - (84) (637) (25) (662) ----------------------------------------------------------- Net loss (55,411) (3,130) (58,541) (41,997) (2,251) (44,248) ----------------------------------------------------------- ----------------------------------------------------------- Weighted average number of common shares outstanding (in thousands) 17,610 16,320 Net loss per share, basic and diluted (3.32) (2.71) Consolidated Statements of Deficit For the Nine Months ended September 30th, (in thousands of dollars) 2005 2004 Amended (unaudited) (unaudited) Deficit, beginning of period as previously reported (180,561) (90,941) Cumulative effect of adoption of new accounting policy (note 3) - (272) -------------------------- Deficit, beginning of period as restated (180,561) (91,213) Net loss (58,541) (44,248) Share issue costs - (3,214) -------------------------- Deficit, end of period (239,102) (138,675) -------------------------- -------------------------- Consolidated Statements of Cash Flows For the Three Months ended September 30th, (in thousands of dollars) 2005 2004 Amended (unaudited) (unaudited) Cash flows used in operating activities Net loss (14,098) (3,983) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 3,159 3,131 Loss on disposal of property, plant and equipment 379 2 Asset write-down 110 717 Non-cash financing charges 4,717 - Gain on sale of long-term investment - (3,444) Gain on settlement of claim - (4,583) Stock-based compensation 545 73 Future income taxes - (134) Changes in operating assets and liabilities: Increase in long-term accounts receivable - (1,674) (Increase) decrease in non-cash working capital items (21,779) 3,714 Unrealized foreign exchange (1,759) (1,901) ------------ ---------- Net cash used in operating activities (28,726) (8,082) ------------ ---------- Cash flows from (used in) financing activities Increase in long-term credit facility 28,807 - Increase in long-term debt 174 - Repayment of long-term lease liability - (1,357) Increase in other assets (538) - ------------ ---------- Net cash from (used in) financing activities 28,443 (1,357) ------------ ---------- Cash flows (used in) from investing activities (Increase) decrease in restricted cash (72) 230 Purchase of property, plant and equipment (1,140) (1,476) Proceeds on sale of property, plant and equipment 826 417 Purchase of short-term investments - (3,340) Proceeds on sale of short-term investments - 7,935 Proceeds on sale of long-term investments - 3,444 ------------ ---------- Net cash (used in) from investing activities (386) 7,210 ------------ ---------- Decrease in cash and cash equivalents (669) (2,229) Cash and cash equivalents, beginning of period 5,148 10,561 ------------ ---------- Cash and cash equivalents, end of period 4,479 8,332 ------------ ---------- ------------ ---------- Supplemental Information Cash paid for: Interest 1,563 4,030 Income taxes 6 4 Consolidated Statements of Cash Flows For the Nine Months ended September 30th, (in thousands of dollars) 2005 2004 Amended (unaudited) (unaudited) Cash flows used in operating activities Net loss (58,541) (44,248) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 8,972 9,512 Restructuring, asset impairment and other charges (note 5) 16,548 2,134 Loss (gain) on disposal of property, plant and equipment 315 (81) Asset write-down 240 - Non-cash financing charges 8,779 - Gain on sale of long-term investment - (3,444) Gain on settlement of claim - (4,583) Stock-based compensation 684 185 Future income taxes - 301 Changes in operating assets and liabilities: Increase in long-term accounts receivable - (103) (Increase) decrease in non-cash working capital items (8,803) 5,919 Unrealized foreign exchange (1,354) (859) ------------ ---------- Net cash used in operating activities (33,160) (35,267) ------------ ---------- Cash flows from financing activities Issuance of long-term credit facility 41,193 - Issuance of long-term debt 324 - Repayment of bank indebtedness - (3,000) Repayment of long-term lease liability (1,314) (4,208) Repayment of long-term debt - (5,367) Proceeds from issue of shares and warrants, net of share issue costs - 46,787 Increase in other assets (5,296) - ------------ ---------- Net cash from financing activities 34,907 34,212 ------------ ---------- Cash flows (used in) from investing activities (Increase) decrease in restricted cash (723) 1,777 Purchase of property, plant and equipment (2,252) (3,871) Proceeds on sale of property, plant and equipment 1,158 648 Purchase of short-term investments - (44,553) Proceeds on sale of short-term investments - 43,508 Proceeds on sale of long-term investments - 3,444 ------------ ---------- Net cash (used in) from investing activities (1,817) 953 ------------ ---------- Decrease in cash and cash equivalents (70) (102) Cash and cash equivalents, beginning of period 4,549 8,434 ------------ ---------- Cash and cash equivalents, end of period 4,479 8,332 ------------ ---------- ------------ ---------- Supplemental Information Cash paid for: Interest 2,967 8,454 Income taxes 47 112