SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F/A
AMENDMENT TO APPLICATION OR REPORT
Filed Pursuant to Section 12, 13, or 15(d) of the
SECURITIES EXCHANGE ACT
SAND TECHNOLOGY INC.
(Formerly Sand Technology Systems International Inc.)
(Exact name of registrant as specified in its charter)
AMENDMENT NO. 2
The undersigned registrant hereby amends the following item of its Annual
Report on Form 20-F for the fiscal year ended July 31, 2001 as set forth in the
attached pages hereto:
Part III. Item 18 Financial Statements
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
SAND TECHNOLOGY, INC.
/s/Arthur G. Ritchie
-------------------------------------
February 1, 2002 Arthur G. Ritchie
Chairman of the Board
President and Chief Executive Officer
Item 18. Financial Statements
The Consolidated Financial Statements of the Company are included in this
Annual Report on Form 20-F beginning on page 45.
CONSOLIDATED FINANCIAL STATEMENTS OF
SAND TECHNOLOGY INC.
JULY 31, 2001, 2000 AND 1999
45
Deloitte & Touche LLP
Assurance and Advisory Services
1 Place Ville-Marie
Suite 3000
Montreal QC H3B 4T9
Canada
Tel.: (514) 393-7115
Fax: (514) 390-4109
www.deloitte.ca [DELOITTE & TOUCHE LOGO]
AUDITORS' REPORT
To the Board of Directors of
Sand Technology Inc.
We have audited the consolidated balance sheets of Sand Technology Inc. as at
July 31, 2001 and 2000 and the consolidated statements of operations,
shareholders' equity and cash flows for each of the three years ended July 31,
2001, 2000 and 1999. These financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
With respect to the consolidated financial statements for the year ended July
31, 2001, we conducted our audit in accordance with Canadian generally accepted
auditing standards and auditing standards generally accepted in the United
States of America. With respect to the consolidated financial statements for
each of the years in the two-year period ended July 31, 2001 we conducted our
audits in accordance with Canadian generally accepted auditing standards. These
standards require that we plan and perform an audit to obtain reasonable
assurance whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Corporation as at July 31, 2001
and 2000 and the results of its operations and its cash flows for each of the
three years ended July 31, 2001, 2000 and 1999 in accordance with Canadian
generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
October 29, 2001
COMMENTS BY AUDITORS FOR U.S. READERS ON CANADA - U.S. REPORTING DIFFERENCES
In the United States of America, reporting standards for auditors require the
addition of an explanatory paragraph (following the opinion paragraph) outlining
changes in accounting principles that have been implemented in the financial
statements. Although we conducted our audit in accordance with both Canadian
generally accepted auditing standards and United states generally accepted
auditing standards our report to the Directors dated October 29, 2001 is
expressed in accordance with Canadian reporting standards which do not require a
reference to such a change in accounting principles in the auditors report when
the change is properly accounted for and adequately disclosed in the financial
statements. In fiscal 2001, the Corporation implemented the recommendations of
CICA Handbook section 3465, Accounting for Income Taxes. The impact of this
change in accounting policy is as set out in Note 1 to the consolidated
financial statements.
/s/ DELOITTE & TOUCHE LLP
October 29, 2001
- ----------
DELOITTE
TOUCHE
TOCHMATSU
- ----------
46
SAND TECHNOLOGY INC.
CONSOLIDATED BALANCE SHEETS
AS AT JULY 31, 2001 AND 2000
(IN CANADIAN DOLLARS)
============================================================================================
2001 2000
- --------------------------------------------------------------------------------------------
$ $
ASSETS
Current assets
Cash 543,529 664,918
Investments 17,945,178 1,722,194
Accounts receivable 8,415,870 4,351,788
Inventories 44,783 43,100
Prepaid expenses 391,488 114,543
Loan bearing interest at 8% 100,000 100,000
- --------------------------------------------------------------------------------------------
27,440,848 6,996,543
Capital assets (Note 3) 1,506,303 140,104
Acquired technology (Note 4) 985,133 1,934,114
- --------------------------------------------------------------------------------------------
29,932,284 9,070,761
============================================================================================
LIABILITIES
Current liabilities
Accounts payable and accrued liabilities 3,401,650 1,622,739
Deferred revenue 1,835,260 382,036
Current portion of balance of purchase price (Note 5) - 517,300
- --------------------------------------------------------------------------------------------
5,236,910 2,522,075
- --------------------------------------------------------------------------------------------
Commitments (Note 8)
SHAREHOLDERS' EQUITY
Common stock (Note 6)
Authorized
An unlimited number of Class "A" common shares,
without par value
Issued and outstanding
13,153,427 common shares (9,627,145 in 2000) 39,125,112 12,455,748
Deficit (14,429,738) (5,907,062)
- --------------------------------------------------------------------------------------------
24,695,374 6,548,686
- --------------------------------------------------------------------------------------------
29,932,284 9,070,761
============================================================================================
See notes to the consolidated financial statements.
47
SAND TECHNOLOGY INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JULY 31, 2001, 2000 AND 1999
(IN CANADIAN DOLLARS)
========================================================================================================
2001 2000 1999
- --------------------------------------------------------------------------------------------------------
$ $ $
NET SALES 11,258,528 6,895,016 2,091,067
Cost of sales and product support (3,498,847) (2,343,191) (345,265)
Research and development costs (3,347,988) (3,790,025) (3,871,534)
Selling, general and
administrative expenses (13,307,854) (7,836,833) (4,458,200)
Net interest and profits on sale of
investments 617,903 84,568 436,113
- --------------------------------------------------------------------------------------------------------
Loss from operations (8,278,258) (6,990,465) (6,147,819)
Profit on sale of affiliated company (Note 2) - 3,792,296 -
Equity earnings of affiliated company (Note 2) - 283,510 1,170,499
Foreign exchange gain (loss) (244,418) 47,752 16,356
- --------------------------------------------------------------------------------------------------------
Loss before income taxes (8,522,676) (2,866,907) (4,960,964)
Income taxes (Note 7) - - -
- --------------------------------------------------------------------------------------------------------
NET LOSS (8,522,676) (2,866,907) (4,960,964)
========================================================================================================
Loss per share (0.706) (0.321) (0.582)
========================================================================================================
Weighted average number of
shares outstanding 12,079,359 8,919,211 8,522,873
========================================================================================================
See notes to the consolidated financial statements.
48
SAND TECHNOLOGY INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED JULY 31, 2001, 2000 AND 1999
(IN CANADIAN DOLLARS)
==================================================================================================================
Retained
Exchange Common stock earnings
rate Shares Amount (deficit)
-----------------------------------------------------------------------------
US$ $ $
BALANCE, JULY 31, 1998 0.66 8,520,206 8,725,920 1,920,809
Net loss - - (4,960,964)
Exercise of stock options 0.69 8,000 55,415 -
- -------------------------------------------------------------------------------------------------------------------
BALANCE, JULY 31, 1999 0.66 8,528,206 8,781,335 (3,040,155)
Net loss - - (2,866,907)
Exercise of stock options 0.68 520,000 335,130 -
Private placement 0.68 315,789 1,885,723 -
Balance of purchase price
exchanged for shares 263,150 1,453,560 -
- -------------------------------------------------------------------------------------------------------------------
BALANCE, JULY 31, 2000 0.68 9,627,145 12,455,748 (5,907,062)
Net loss - - (8,522,676)
Exercise of stock options 0.66 40,000 77,608 -
Common share equity line 0.66 586,282 2,264,483 -
Private placement 0.66 2,900,000 24,327,273 -
- -------------------------------------------------------------------------------------------------------------------
BALANCE, JULY 31, 2001 0.65 13,153,427 39,125,112 (14,429,738)
===================================================================================================================
See notes to the consolidated financial statements.
49
SAND TECHNOLOGY INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JULY 31, 2001, 2000 AND 1999
(IN CANADIAN DOLLARS)
==================================================================================================================
2001 2000 1999
- ------------------------------------------------------------------------------------------------------------------
$ $ $
OPERATING ACTIVITIES
Net loss (8,522,676) (2,866,907) (4,960,964)
Items not affecting cash
Depreciation of equipment 211,418 94,704 109,814
Amortization of acquired technology 948,981 948,981 174,198
Equity earnings of affiliated company (Note 2) - (283,510) (1,170,499)
Profit on sale of affiliated company - (3,792,296) -
Changes in non-cash operating
working capital items (Note 12) (2,563,799) (2,269,251) 516,351
- ------------------------------------------------------------------------------------------------------------------
(9,926,076) (8,168,279) (5,331,100)
- ------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Net (increase) decrease in short-term investments (16,222,984) (836,754) 3,634,391
Proceeds on sale of affiliated company - 7,295,476 -
Dividend from affiliated company (Note 2) - - 1,600,000
Purchase of equipment (1,577,617) (53,352) (81,283)
- ------------------------------------------------------------------------------------------------------------------
(17,800,601) 6,405,370 5,153,108
- ------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Issue of common shares 26,669,364 2,220,853 55,415
Deferred revenue 1,453,224 382,036 -
Repayment of balance of purchase price (517,300) (299,140) -
- ------------------------------------------------------------------------------------------------------------------
27,605,288 2,303,749 55,415
- ------------------------------------------------------------------------------------------------------------------
Net cash inflow (outflow) (121,389) 540,840 (122,577)
Cash, beginning of year 664,918 124,078 246,655
- ------------------------------------------------------------------------------------------------------------------
CASH, END OF YEAR 543,529 664,918 124,078
=================================================================================================================
There were no interest or income taxes paid during the three-year period ended
July 31 2001.
See notes to the consolidated financial statements.
50
SAND TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2001, 2000 AND 1999
(IN CANADIAN DOLLARS)
- -------------------------------------------------------------------------------
On December 17, 1999, the shareholders of Sand Technology Systems International
Inc. approved a special resolution to change the name of the Corporation to Sand
Technology Inc. The Corporation is involved in research and development to bring
to market its Nucleus Exploration series of products, including the Nucleus
Exploration Mart/Warehouse and the Nucleus Prototype Mart/Warehouse. The
Corporation is considered to have only one business segment.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SIGNIFICANT ACCOUNTING POLICIES
The Corporation follows Canadian generally accepted accounting
principles in the preparation of its financial statements. This requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements, and the
reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Corporation and its wholly-owned subsidiaries, Sand Technology Corp.,
Sand Technology (U.K.) Ltd., STSI Licensing, LLC, Laepherous Limited and
Sand Technology Deutschland GmbH. All significant intercompany
transactions and balances have been eliminated.
REVENUE RECOGNITION
The Corporation's revenue is earned from licences of off-the-shelf
software which does not require customization. This revenue is
recognized once remaining obligations under the sales agreements are
considered insignificant.
Revenue from product support contracts is recognized over the life of
the contract. Incremental costs directly attributable to the acquisition
of product support contracts are deferred and expensed in the period the
related revenue is recognized.
Revenue from education, consulting, and other services is recognized at
the time such services are rendered.
SHORT-TERM INVESTMENTS
Short-term investments are recorded at the lower of cost and market
value. Market value at July 31, 2001 is $17,946,473 (2000 - $1,739,015).
INVENTORIES
Inventories include finished products which are valued at the lower of
average cost and net realizable value.
51
SAND TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2001, 2000 AND 1999
(IN CANADIAN DOLLARS)
- -------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENT
The investment in the affiliated company was accounted for by the equity
method whereby the share of earnings or losses attributable to the
period following the date of acquisition was included in operations. All
significant unrealized intercompany profits have been eliminated.
CAPITAL ASSETS
Capital assets are recorded at cost and are amortized over their
estimated useful lives at the following rates:
Furniture and equipment 5 year straight-line
Computer equipment 3 year straight-line
Leasehold improvements lesser of straight-line over
term of lease and useful life
ACQUIRED TECHNOLOGY
The Corporation records its acquired technology at cost and depreciates
such assets over their estimated useful lives using the straight-line
method at an annual rate of 20%.
DEFERRED REVENUE
Deferred revenue represent unearned income associated with support
agreements, software license revenue where significant vendor
obligations remain.
INCOME TAXES
In fiscal 2001, the Corporation implemented the recommendations of CICA
Handbook section 3465, Accounting for Income Taxes. Under the new
recommendations, the liability method of tax allocation is used in
accounting for income taxes. Under this method, future tax benefits and
obligations are determined based on differences between the financial
reporting and tax bases of assets and liabilities, and measured using
the substantially enacted tax rates and laws that will be in effect when
differences are expected to reverse. Future tax assets, if any, are
recognized only to the extent that, in the opinion of management, it is
more likely than not that the future income tax assets will be realized.
Prior to the adoption of the new recommendations, income tax expense
would have been determined using the deferral method of tax allocation.
There is no material impact on the financial statements resulting from
this change either in the current year or in the prior years presented.
52
SAND TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2001, 2000 AND 1999
(IN CANADIAN DOLLARS)
- -------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FOREIGN EXCHANGE TRANSLATION
Revenues and expenses denominated in foreign currencies are translated
into Canadian dollars at rates prevailing on the transaction dates.
Monetary assets and liabilities are translated at year-end rates.
Non-monetary assets and liabilities are translated at historical
exchange rates.
The accounts of the subsidiaries included in the consolidated financial
statements are translated into Canadian dollars using the temporal
method. Under this method, monetary items are translated at exchange
rates in effect at the balance sheet dates; non-monetary items are
translated at historical exchange rates. Revenues and expenses are
translated at average exchange rates for the year, with the exception of
depreciation of assets which is translated at the same historical
exchange rates as the related assets. Translation losses and gains are
included in operations.
EARNINGS PER SHARE
Per share computations are based on the weighted average number of
shares outstanding during the year.
RESEARCH AND DEVELOPMENT COSTS
Research costs are charged to operations in the period in which they are
incurred. Development costs are expensed as incurred unless a project
meets the criteria under Canadian generally accepted accounting
principles for deferral and amortization. The Corporation has not
deferred any such development costs to date. Related tax credits are
recorded as a reduction of research and development expenses in the
period the funds are received.
2. INVESTMENT IN AFFILIATED COMPANY
HITACHI DATA SYSTEMS INC.
On August 20, 1999, the Corporation sold its 40% investment in Hitachi
Data Systems Inc. to Hitachi Data Systems Corporation of Santa Clara for
$7,295,476 in cash.
The Corporation's equity in Hitachi Data Systems Inc. for fiscal 1999 is
based on the March 31, 1999 audited financial statements, adjusted for
the results of operations for the four-month period ended July 31, 1999.
The audited financial statements of Hitachi Data Systems Inc., the
results of operations for the 20-day period ended August 20 1999 and the
four-month period ended July 31, 1999, and the carrying value of the
related investment, accounted for under the equity method, are
summarized below:
53
SAND TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2001, 2000 AND 1999
(IN CANADIAN DOLLARS)
- -------------------------------------------------------------------------------
2. INVESTMENT IN AFFILIATED COMPANY (CONTINUED)
March 31,
1999
------------
$
Financial position
Current assets 17,309,867
Current liabilities 12,120,456
- -----------------------------------------------------------------------------------------------
Working capital 5,189,411
Other assets 6,476,403
- -----------------------------------------------------------------------------------------------
11,665,814
Other liabilities 4,291,312
- -----------------------------------------------------------------------------------------------
Equity 7,374,502
===============================================================================================
Results of operations
Revenue 51,130,495
Operating expenses and income taxes 48,506,953
- -----------------------------------------------------------------------------------------------
Net earnings 2,623,542
===============================================================================================
Dividends paid 4,000,000
20-day period 4-month period
ended ended
August 20, July 31,
1999 1999
-----------------------------------------
$ $
Results of operations
Revenue 4,372,657 14,619,371
Operating expenses and
income taxes 3,663,882 13,944,698
- ----------------------------------------------------------------------------------------
Net earnings 708,775 674,673
========================================================================================
July 31, July 31,
2000 1999
------------------------------
$ $
Equity earnings for the year 283,510 1,170,499
================================================================================
Carrying value of
investment as at July 31 - 3,219,670
================================================================================
54
SAND TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2001, 2000 AND 1999
(IN CANADIAN DOLLARS)
- -------------------------------------------------------------------------------
3. CAPITAL ASSETS
2001 2000
---------------------------------------------------- -----------
Accumulated Net Book Net Book
Cost Depreciation Value Value
--------- ------------ ---------- -----------
$ $ $ $
Furniture and equipment 977,833 418,024 559,809 121,876
Computer equipment 587,454 216,843 370,611 18,228
Leasehold improvements 612,399 36,516 575,883 -
- ------------------------------------------------------------------------------------------------------------------
2,177,686 671,383 1,506,303 140,104
==================================================================================================================
4. ACQUIRED TECHNOLOGY
2001 2000
---------------------------------------------------- -----------
Accumulated Net Book Net Book
Cost Depreciation Value Value
--------- ------------ ---------- -----------
$ $ $ $
Product source codes 2,993,042 2,007,909 985,133 1,934,114
==================================================================================================================
5. BALANCE OF PURCHASE PRICE
The balance of purchase price resulted from the acquisition of the
Nucleus rights. This balance of purchase price was non-interest bearing,
repayable with annual principal repayments from 2000 to 2004 and
reimbursable under certain conditions.
On July 31, 2000 the agreement was modified and the Corporation
committed to settle the balance of purchase price as follows:
- cash in the amount of US$ 350,038 (Can$ 517,300) payable by
November 15, 2000; and
- 263,150 shares of common stock issued as of July 31, 2000.
55
SAND TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2001, 2000 AND 1999
(IN CANADIAN DOLLARS)
- -------------------------------------------------------------------------------
6. COMMON STOCK
During the year ended July 31, 1999, 8,000 common shares were issued
under the Stock Option Plan for proceeds of $55,415.
During the year ended July 31, 2000, 440,000 common shares were issued
under the Share Option Plan for proceeds of $159,698, 16,000 common
shares were issued under the 1996 Stock Incentive Plan for proceeds of
$112,693 and 64,000 common shares were issued under the 1996 Stock
Option Plan for proceeds of $62,740.
On June 1, 2000, the Corporation completed a private placement involving
the issuance of 315,789 common shares for net cash proceeds of
$1,885,723. Under the terms of the agreement, the shares were sold for a
purchase price of US$4.75 per share. The Corporation also issued
65,217 warrants which may be exercised from time to time during the
period beginning June 1, 2000 and ending on May 31, 2003 at an exercise
price of US$10.00 per share.
On July 31, 2000, the Corporation agreed to satisfy $1,453,560 of its
obligation resulting from the acquisition of the Nucleus rights by
issuing 263,150 shares of common stock (Note 5).
On June 1, 2000, the Corporation entered into a Common Share Purchase
Agreement ("CSPA") allowing the Corporation to access up to
US$30,000,000 through a common share equity line. Pursuant to the CSPA,
the Corporation may, at its option, issue and sell to the purchaser up
to US$30,000,000 of the Corporation's common shares over a period of
12 months at a discount of 10% from the average daily price of the
common stock. The Corporation also issued 364,556 warrants which may be
exercised from time to time over the period of 12 months at an exercise
price of US$5.6781 per share.
During the year, the Corporation issued 586,282 common shares through
its common share equity line for net cash proceeds of $2,264,483.
In November 2000, the Corporation completed a private placement
involving the issuance of 2,900,000 common shares for net cash proceeds
of $24,327,273. Under the terms of the agreement, the shares were sold
for a purchase price of US$6.00 per share. The Corporation also issued
312,000 warrants which may be exercised from time to time during the
period beginning November 22, 2000 and ending on November 22, 2001 at an
exercise price of US$6.00 per share.
During the year, ended July 31, 2001, 40,000 common shares were issued
under the 1996 Stock Incentive Plan for proceeds of $77,608.
56
SAND TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2001, 2000 AND 1999
(IN CANADIAN DOLLARS)
- -------------------------------------------------------------------------------
6. COMMON STOCK (CONT'D)
Under the Corporation's Share Option Plan, 1996 Stock Incentive Plan and
1996 Stock Option Plan, exercise of the options granted is generally
restricted to a maximum of 20% of the options granted per annum
beginning one year after each grant date and expiring 10 years after. A
maximum of 1,896,000 common shares is reserved for issuance under each
of these plans. The Corporation has the following outstanding options as
at July 31, 2001 and 2000:
------- ---------------------------- ---------- ----------- ---------- ----------
Price
range Outstanding
Options per share 2001 2000
Granted Plan Granted US$
------- ---------------------------- ---------- ----------- ---------- ----------
1996 1996 Stock Option Plan 440,000 0.69 to 252,000 296,000
3.38
1996 1996 Stock Incentive Plan 400,000 5.00 36,000 36,000
1997 1996 Stock Option Plan 80,000 5.56 80,000 80,000
1998 1996 Stock Option Plan 62,500 4.00 to 52,500 52,500
5.50
1998 1996 Stock Incentive Plan 187,500 3.75 to 65,500 66,500
8.38
1999 1996 Stock Option Plan 142,000 5.75 to 79,500 79,500
7.00
1999 1996 Stock Incentive Plan 107,000 5.00 to 85,250 92,250
7.56
2000 1996 Stock Option Plan 172,000 5.00 to 159,000 166,500
6.313
2000 1996 Stock Incentive Plan 99,250 3.63 to 71,750 92,750
8.63
2001 1996 Stock Option Plan 153,250 5.00 to 153,250 -
6.81
2001 1996 Stock Incentive Plan 362,500 5.00 356,500 -
------- ---------------------------- ---------- ----------- ---------- ----------
At July 31, 2001, there were 534,850 exercisable options outstanding to
purchase common shares at prices ranging from US$0.69 to $8.38 per
share.
57
SAND TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2001, 2000 AND 1999
(IN CANADIAN DOLLARS)
- -------------------------------------------------------------------------------
7. INCOME TAXES
The Corporation and its subsidiaries have non-capital losses carried
forward for income tax purposes amounting to approximately $15,359,000
which may be utilized to reduce taxable income of future years and which
expire as follows:
$
2005 12,000
2006 210,000
2008 3,265,000
2011 87,000
2012 496,000
2013 1,856,000
2014 3,377,000
2015 3,451,000
2016 3,800,000
The Corporation has research and experimental development expenses
estimated at $5,933,000 for federal tax purposes and $7,516,000 for
provincial tax purposes which can be carried forward indefinitely
against its taxable income.
The Corporation also has non-refundable investment tax credits amounting
to $1,734,000, which it can apply against its future federal income tax
payable. This can be carried forward over the next ten years.
No recognition has been given in the financial statements with regard to
the potential future tax benefits resulting from the availability of any
of these items.
8. COMMITMENTS
LEASE COMMITMENTS
Minimum lease payments for office premises under non-cancellable
operating leases for the next five years are as follows: $
2002 590,899
2003 548,342
2004 421,855
2005 385,937
2006 385,937
--------------------------------------
2,332,970
======================================
58
SAND TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2001, 2000 AND 1999
(IN CANADIAN DOLLARS)
- -------------------------------------------------------------------------------
9. RELATED PARTY TRANSACTION
One of the Corporation's directors was also the president of Nucleus
International Corporation, the Company from which the Corporation
acquired the Nucleus rights.
The Corporation believes that the related party transaction described
above was on terms as fair to the Corporation as could have been
obtained from unaffiliated third parties
10. SEGMENTED INFORMATION
The Corporation is considered to have only one business segment.
The Corporation has two geographic reportable segments commencing with
the 1999 fiscal year. Both the North American and European segments
distribute a full range of Nucleus Exploration series of products,
including the Nucleus Exploration Mart/Warehouse and the Nucleus
Prototype Mart/Warehouse. The accounting policies of the segments are
the same as described in the summary of significant accounting policies.
The Company evaluates segment performance based on income before taxes.
Sales for each segment are based on the location of the third party
customer. All intercompany transactions between segments have been
eliminated.
---------------------------------------------------------------------------
North America Europe
---------------------------------------------------------------------------
2001
Net sales 3,313,856 7,944,672
Income (loss) before taxes (8,930,339) 407,663
Identifiable assets 21,869,267 8,063,017
---------------------------------------------------------------------------
2000
Net sales 2,265,340 4,629,676
Income (loss) before taxes (3,352,230) 485,323
Identifiable assets 5,639,068 3,431,693
---------------------------------------------------------------------------
59
SAND TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2001, 2000 AND 1999
(IN CANADIAN DOLLARS)
- -------------------------------------------------------------------------------
11. FINANCIAL INSTRUMENTS
FAIR VALUE
At July 31, 2001, the estimated fair market value of cash, accounts
receivable, loan and accounts payable and accrued liabilities is equal
to the book value, given the short-term nature of these items.
Short-term investments are recorded at the lower of cost and market
value.
The fair value of long-term liabilities is not significantly different
than the book value.
The Corporation does not hold or issue financial instruments for trading
purposes.
CREDIT RISK
Credit risk concentration with respect to trade receivables is limited
due to the Corporation's large client base.
12. CHANGES IN NON-CASH OPERATING
WORKING CAPITAL ITEMS
2001 2000 1999
-------------------------------------------------------
$ $ $
Accounts receivable (4,064,082) (3,536,093) 31,532
Due from affiliated company - 4,537 182,574
Inventories (1,683) 4,042 181,046
Prepaid expenses (276,945) (102,396) 120,823
Accounts payable and
accrued liabilities 1,778,911 1,360,659 376
- ---------------------------------------------------------------------------------------------------
Changes in non-cash operating
working capital items (2,563,799) (2,269,251) 516,351
===================================================================================================
60
SAND TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2001, 2000 AND 1999
(IN CANADIAN DOLLARS)
- -------------------------------------------------------------------------------
13. SUBSEQUENT EVENT
On October 10, 2001, the Corporation announced an open market share
repurchase program under which it may repurchase, up to a maximum of
659,160 of its outstanding Class A Common Shares from October 15, 2001
to October 15, 2002.
14. COMPARATIVE FIGURES
Certain figures for prior years have been reclassified in order to
conform to the presentation adopted in the current year.
15. RECONCILIATION OF CANADIAN AND UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
The Corporation does not have material differences between Canadian and
U.S. generally accepted accounting principles.
COMPREHENSIVE INCOME
The Corporation has adopted SFAS 130, "Reporting Comprehensive Income".
There are no material differences between the Corporation's net loss as
reported and its comprehensive income as defined by SFAS 130.
Accordingly, a separate statement of comprehensive income has not been
presented.
STOCK-BASED COMPENSATION
The Corporation accounts for its stock compensation using the intrinsic
value method prescribed by the Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees. U.S. GAAP requires
companies that follow this method make pro forma disclosures of net
income and earnings per share, as if the fair value based methodology
prescribed by FAS No. 123, Accounting for Stock Based Compensation, had
been applied.
The Corporation's Share Option Plan, 1996 Stock Option Plan and 1996
Stock Incentive Plan govern the granting of options to purchase common
shares of the corporation to eligible full-time employees, directors and
officers of the corporation. The purpose of the plans is to advance the
interests of the corporation and its shareholders by providing to the
grantees a performance incentive for the continued and improved service
with the corporation. Options are granted at a price not less than the
closing price of the corporation's shares on the last trading day
immediately before the grant. Options granted generally expire in ten
years from the date of grant and vest at a rate of 20% per annum on the
anniversary date of the grant.
61
SAND TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2001, 2000 AND 1999
(IN CANADIAN DOLLARS)
- -------------------------------------------------------------------------------
15. RECONCILIATION OF CANADIAN AND UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
The following table presents net earnings and earnings per share in
accordance with U.S. GAAP on a pro forma basis giving effect to the pro
forma compensation expense relating to stock options granted to
employees, in accordance with FAS 123.
----------------------------------------- --------------- --------------- ---------------
July 31, 2001 July 31, 2000 July 31, 1999
$ $ $
----------------------------------------- --------------- --------------- ---------------
Net (loss) reported (8,522,676) (2,866,907) (4,960,964)
----------------------------------------- --------------- --------------- ---------------
Pro forma compensation benefit
(expense) (875,375) 165,293 (315,265)
----------------------------------------- --------------- --------------- ---------------
Pro forma net (loss) (9,398,051) (2,701,614) (5,276,229)
----------------------------------------- --------------- --------------- ---------------
Pro forma basic (loss) per share (0.778) (0.303) (0.619)
----------------------------------------- --------------- --------------- ---------------
The Corporation recognized compensation benefit of $165,293 in 2000. The
benefit resulted from the reversal of previously recorded stock
compensation expense on the forfeiture of unexercised options. The 2000
benefit is reconciled as follows: (1) stock compensation expense
$451,711 for employee based stock option plans in accordance with FAS
123 and (2) reversal of previously recorded stock compensation expense
on the forfeiture of unexercised option of $617,004.
FAS 123 requires that pro forma compensation expense be recognized over
the vesting period based on the fair value of options granted to
employees. The pro forma compensation expense presented above has been
estimated using the Black Scholes option pricing model. In order to
perform the calculation the following weighted average assumptions were
made for fiscal years 2001, 2000 and 1999:
----------------------------------------- --------------- --------------- ---------------
July 31, 2001 July 31, 2000 July 31, 1999
$ $ $
----------------------------------------- --------------- --------------- ---------------
Risk-free interest rate 4.93% 5.90% 5.68%
----------------------------------------- --------------- --------------- ---------------
Dividend yield 0% 0% 0%
----------------------------------------- --------------- --------------- ---------------
Volatility factor of the expected
market price of the Corporation's
common stock 81% 97% 94%
----------------------------------------- --------------- --------------- ---------------
Term to maturity 7 years 7 years 7 years
----------------------------------------- --------------- --------------- ---------------
FAS 123 requires that pro forma compensation expense be reported for
options granted in fiscal years beginning after December 15, 1994, which
in the case of the corporation is the year ended July 31, 1996. Since
the compensation expense is recognized over the vesting period, the pro
forma compensation expense presented above is not indicative of the pro
forma compensation expense that will be reported in future years if the
corporation continues to grant options to employees.
62
SAND TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2001, 2000 AND 1999
(IN CANADIAN DOLLARS)
- -------------------------------------------------------------------------------
15. RECONCILIATION OF CANADIAN AND UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
NEW STANDARDS
In October 2001, the FASB issued SFAS No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets" which resolves significant
implementation issues related to FASB Statement No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of, and supersedes the accounting and reporting provisions of
APB Opinion No. 30, Reporting the Results of Operations - Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions, for the
disposal of a business segment. SFAS 144 is effective for fiscal years
beginning after December 15, 2001, and interim periods within those
fiscal years, with early application encouraged. The impact of adoption
of SFAS 144 on Sand's financial position and results of operations is
not expected to be material.
63