<Page>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13A-16 OR 15D-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the Month Ended December 31, 2008 Commission File Number 0-14884
SAND TECHNOLOGY INC.
(Translation of registrant's name in English)
215 REDFERN, SUITE 410
WESTMOUNT, QUEBEC, CANADA H3Z 3L5
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports
under cover Form 20-F or Form 40-F.
Form 20-F X Form 40-F
-----
Indicate by check mark if the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(1):
-------
Indicate by check mark if the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(7):
-------
Indicate by check mark whether by furnishing the information contained in this
Form, the registrant is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes No X
----- -----
If "Yes" is marked, indicated below the file number assigned to the registrant
in connection with Rule 12g3-2(b): 82-N/A.
<Page>
Sand Technology Inc. (the "Company") incorporates this Form 6-K Report
by reference into the Prospectus contained in the Company's
Registration Statement on Form F-3 (333-51014).
This Form 6-K dated November 25, 2008 contains the following documents as
printed:
- - 2008 Annual Report
- - Notice of Annual Meeting of Shareholders
- - Management Proxy Circular
- - Form of Proxy (English)
2
<Page>
[SAND TECHNOLOGY(TM) LOGO]
SAND Technology Inc.
2008 Annual Report
<Page>
CONTENTS
SAND TECHNOLOGY INC.
<Table>
LETTER TO SHAREHOLDERS..................................................................... 1
FINANCIAL HIGHLIGHTS....................................................................... 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...... 4
MANAGEMENT'S REPORTS....................................................................... 41
AUDITORS' REPORTS.......................................................................... 45
CONSOLIDATED BALANCE SHEETS................................................................ 47
CONSOLIDATED STATEMENTS OF OPERATIONS...................................................... 48
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIENCY........................................ 49
CONSOLIDATED STATEMENTS OF CASH FLOWS...................................................... 50
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS............................................. 51
DIRECTORS AND OFFICERS..................................................................... 77
SHAREHOLDERS' INFORMATION.................................................................. 78
</Table>
SAND Technology, N-Vector, Sandonline and Nucleus are registered trademarks, and
SAND/DNA, SAND/DNA Access, SAND DNA Analytics, SAND Dynamic Nearline Access,
SAND Dynamic Nearline Analytics, SAND Dynamic Nearline Architecture, SAND
Analytic Server, SAND Searchable Archive and all related SAND - and
Nucleus-based marks and designs are trademarks of Sand Technology Inc. All other
trademarks are the property of their respective owners. All other product and
service names mentioned are the trademarks of their respective companies.
CERTAIN STATEMENTS CONTAINED IN THIS ANNUAL REPORT ARE "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF THE UNITED STATES SECURITIES ACT OF 1933, OF
THE UNITED STATES SECURITIES EXCHANGE ACT OF 1934 AND OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995. THE FORWARD-LOOKING STATEMENTS ARE INTENDED TO BE
SUBJECT TO THE SAFE HARBOUR PROTECTION PROVIDED BY THESE ACTS. WE HAVE BASED
THESE FORWARD-LOOKING STATEMENTS ON OUR CURRENT EXPECTATIONS AND PROJECTIONS
ABOUT FUTURE RESULTS, LEVELS OF ACTIVITY, EVENTS, TRENDS OR PLANS. SUCH
FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES AND ARE SUBJECT TO KNOWN AND
UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE THE ACTUAL
RESULTS, PERFORMANCE OR ACHIEVEMENTS OF SAND TO BE MATERIALLY DIFFERENT FROM ANY
FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH
FORWARD-LOOKING STATEMENTS. IN SOME CASES, YOU CAN IDENTIFY FORWARD-LOOKING
STATEMENTS BY TERMINOLOGY SUCH AS "GUIDANCE," "MAY," "WILL," "SHOULD," "COULD,"
"WOULD," "EXPECT," "PLAN," "ANTICIPATE," "BELIEVE," "ESTIMATE," "CONTINUE," OR
THE NEGATIVE OF SUCH TERMS OR OTHER SIMILAR EXPRESSIONS. ALL FORWARD-LOOKING
STATEMENTS INCLUDED IN THIS DISCUSSION ARE BASED ON CURRENT EXPECTATIONS AND ON
INFORMATION AVAILABLE TO THE CORPORATION ON NOVEMBER 18, 2008. FOR A MORE
DETAILED DISCUSSION OF THESE RISKS AND UNCERTAINTIES AND OTHER BUSINESS RISKS,
SEE "RISK FACTORS THAT MAY AFFECT FUTURE RESULTS" UNDER THE HEADING
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" IN THIS ANNUAL REPORT AND THE CORPORATION'S REPORTS TO THE
SECURITIES AND EXCHANGE COMMISSION (FILED ON EDGAR AT www.sec.gov) AND THE
CANADIAN SECURITIES AUTHORITIES (FILED ON SEDAR AT www.sedar.com). READERS ARE
CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH
SPEAK ONLY AS OF THE DATE MADE. EXCEPT AS REQUIRED BY APPLICABLE LAWS, WE
UNDERTAKE NO OBLIGATION TO PUBLICLY RELEASE THE RESULT OF ANY REVISION OF THESE
FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE
THEY ARE MADE OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS.
<Page>
INTENTIONALLY LEFT BLANK
<Page>
LETTER TO SHAREHOLDERS
To my fellow shareholders:
Sales and revenue continued to grow during the financial year ended July 31,
2008 but not at the rate we were expecting, and we have yet to achieve
profitability.
We now focus our resources around intelligent information management and
consultative best practices leveraging the latest developments in our SAND/DNA
Access and SAND/DNA Analytics platform.
Packaged around our solution offerings is the concept of Nearline 2.0, the
logical evolution of older data warehouse and information lifecycle approaches
that have struggled to maintain acceptable performance levels in the face of
ever-increasing data volumes. Nearline 2.0 embraces the dynamism of a software
and services approach to fully leverage the potential of large enterprise data
architecture.
During fiscal 2008, we made available release 5.1 of SAND/DNA Analytics which is
designed to provide superior analytic capabilities and performance for
multiterabyte databases. All the data, down to the most detailed level, is
available for querying immediately after it is loaded permitting quick and easy
access by users employing standard business intelligence tools or methods.
SAND/DNA Access is the lead product in our sales opportunities and customer
interest. During fiscal 2008, we made available release 2.4 of SAND/DNA Access
which included new features such as data encryption, metadata transformation
rules, enhanced analytical capability and performance for nearline queries. This
is a breakthrough product and technology and has particular impact on the
current information technology environment where volumes of corporate data are
growing at an exponential rate.
Looking at fiscal 2009, our focus will be on growing license revenue while
striving to achieve profitability. Our cost structure has been aligned to allow
maximum shareholder returns whenever revenues increase. We have laid the
groundwork with a solid operational base and we continue to work diligently to
develop market awareness for our products.
However, as we enter 2009, like everyone, we are concerned with the volatile and
uncertain times we must contend with as a result of the current world-wide
financial crisis. We are maintaining a prudent attitude as to the future knowing
full well that our operating results will depend on many factors including the
vagaries of general economic conditions.
SAND employees worked very hard throughout the year and deserve our
congratulations. I would also like to thank our customers and partners for their
tremendous support during these difficult times.
/s/ Arthur G. Ritchie
Arthur G. Ritchie
Chairman, President and Chief Executive Officer
November 18, 2008
1
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FINANCIAL HIGHLIGHTS
The audited consolidated financial statements of the Corporation for fiscal year
2008 and the notes relating to them (the "Financial Statements") are presented
in accordance with Canadian generally accepted accounting principles ("Canadian
GAAP"). The monetary figures throughout this Annual Report are presented
consistent with Canadian GAAP except where otherwise indicated.
The following data expressed in Canadian dollars are derived from the Financial
Statements that have been audited by our auditors Raymond Chabot Grant Thornton,
L.L.P., for the fiscal years ended July 31, 2008, July 31, 2007 and July 31,
2006. The information set forth below is not necessarily indicative of the
results of future operations and should be read in conjunction with, and is
qualified in its entirety by, the Financial Statements appearing elsewhere in
this Annual Report.
(Dollars in Thousands (000's) except for Per Share Data and Rates of Exchange)
FISCAL YEAR ENDED
<Table>
<Caption>
7/31/08 7/31/07 7/31/06
CA CA CA
Rates of exchange
At period end -- US$ .......................... $ 1.02 $ 1.07 $ 1.13
Average for the period ........................ $ 1.01 $ 1.13 $ 1.15
Results of Operations
Net Sales ..................................... $ 6,998 $ 6,729 $ 5,477
Research and Development Costs ................ $ (1,972) $ (2,215) $ (2,442)
Selling, General and Administrative Expenses .. $ (4,412) $ (5,100) $ (5,221)
Amortization .................................. $ (187) $ (201) $ (248)
Cost of Sales and Product Support ............. $ (1,470) $ (1,667) $ (1,554)
Operating income (loss) ....................... $ (1,043) $ (2,454) $ (3,988)
Other Income (expense) .......................... $ (229) $ (72) $ 61
Net Income (Loss) ............................... $ (1,272) $ (2,526) $ (3,927)
Financial Position
Working Capital (a) ........................... $ 85 $ 238 $ 1,852
Total Assets .................................. $ 2,803 $ 2,357 $ 3,445
Total Liabilities ............................. $ 4,063 $ 3,239 $ 2,508
Shareholders' Equity (deficiency) ............. $ (1,260) $ (882) $ 937
Earnings (Loss) per Share ....................... $ (0.09) $ (0.19) $ (0.31)
Weighted Average Numbers of Shares
outstanding during each period (000's)......... 14,318 13,094 12,818
</Table>
2
<Page>
FINANCIAL HIGHLIGHTS
The same data, presented in conformity with US GAAP, is shown on below.
(Dollars in Thousands (000's) except for Per Share Data and Rates of Exchange)
<Table>
<Caption>
FISCAL YEAR ENDED
-----------------------------------
7/31/08 7/31/07 7/31/06
-----------------------------------
CA CA CA
Rates of exchange
At period end -- US$ ......................... $ 1.02 $ 1.07 $ 1.13
Average for the period ....................... $ 1.01 $ 1.13 $ 1.15
Results of Operations
Net Sales .................................... $ 6,998 $ 6,729 $ 5,477
Research and Development Costs ............... $ (1,972) $ (2,215) $ (2,442)
Selling, General and Administrative Expenses . $ (4,698) $ (5,498) $ (5,419)
Amortization ................................. $ (187) $ (201) $ (248)
Cost of Sales and Product Support ............ $ (1,470) $ (1,667) $ (1,554)
Operating income (loss) ...................... $ (1,329) $ (2,852) $ (4,186)
Other Income (expense) ......................... $ (229) $ (72) $ 61
Net Income (Loss) .............................. $ (1,558) $ (2,924) $ (4,125)
Financial Position
Working Capital (a) .......................... $ 85 $ 238 $ 1,852
Total Assets ................................. $ 2,803 $ 2,357 $ 3,445
Total Liabilities ............................ $ 5,387 $ 3,550 $ 2,508
Shareholders' Equity (deficiency) ............ $ (2,584) $ (1,193) $ 937
Earnings (Loss) per Share ...................... $ (0.11) $ (0.22) $ (0.32)
Weighted Average Numbers of Shares
outstanding during each period (000's)........ 14,318 13,094 12,818
</Table>
(a) Working capital has been calculated by netting current assets and current
liabilities, excluding deferred revenue and deferred credits which are
non-cash items.
3
<Page>
MANAGEMENT'S DISCUSSION & ANALYSIS
THE FOLLOWING DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED FINANCIAL
STATEMENTS AND RELATED NOTES TO THEM FOR EACH OF THE YEARS IN THE THREE-YEAR
PERIOD ENDED JULY 31, 2008 OF SAND TECHNOLOGY INC. ("SAND") OR THE
"CORPORATION"), AND THE INFORMATION INCLUDED IN THE ANNUAL REPORT OF THE
CORPORATION. CERTAIN STATEMENTS CONTAINED IN THIS DISCUSSION ARE
"FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE UNITED STATES SECURITIES
ACT OF 1933, OF THE UNITED STATES SECURITIES EXCHANGE ACT OF 1934 AND THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND FOLLOWING THE QUEBEC
SECURITIES ACT. THE FORWARD-LOOKING STATEMENTS ARE INTENDED TO BE SUBJECT TO THE
SAFE HARBOUR PROTECTION PROVIDED BY THESE ACTS. WE HAVE BASED THESE
FORWARD-LOOKING STATEMENTS ON OUR CURRENT EXPECTATIONS AND PROJECTIONS ABOUT
FUTURE RESULTS, LEVELS OF ACTIVITY, EVENTS, TRENDS OR PLANS. SUCH FORWARD-
LOOKING STATEMENTS ARE NOT GUARANTEES AND ARE SUBJECT TO KNOWN AND UNKNOWN
RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE THE ACTUAL RESULTS,
PERFORMANCE OR ACHIEVEMENTS OF SAND TO BE MATERIALLY DIFFERENT FROM ANY FUTURE
RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH
FORWARD-LOOKING STATEMENTS. IN SOME CASES, YOU CAN IDENTIFY FORWARD-LOOKING
STATEMENTS BY TERMINOLOGY SUCH AS "GUIDANCE," "MAY," "WILL," "SHOULD," "COULD,"
"WOULD," "EXPECT," "PLAN," "ANTICIPATE," "BELIEVE," "ESTIMATE," "CONTINUE," OR
THE NEGATIVE OF SUCH TERMS OR OTHER SIMILAR EXPRESSIONS. ALL FORWARD-LOOKING
STATEMENTS INCLUDED IN THIS DISCUSSION ARE BASED ON CURRENT EXPECTATIONS AND ON
INFORMATION AVAILABLE TO THE CORPORATION ON NOVEMBER 18, 2008. FOR A MORE
DETAILED DISCUSSION OF THESE RISKS AND UNCERTAINTIES AND OTHER BUSINESS RISKS,
SEE "RISK FACTORS THAT MAY AFFECT FUTURE RESULTS" BELOW AND THE CORPORATION'S
REPORTS TO THE SECURITIES AND EXCHANGE COMMISSION (FILED ON EDGAR AT
www.sec.gov) AND THE CANADIAN SECURITIES AUTHORITIES (FILED ON SEDAR AT
www.sedar.com). READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE
FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE MADE. EXCEPT AS
REQUIRED BY APPLICABLE LAWS, WE UNDERTAKE NO OBLIGATION TO PUBLICLY RELEASE THE
RESULT OF ANY REVISION OF THESE FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR
CIRCUMSTANCES AFTER THE DATE THEY ARE MADE OR TO REFLECT THE OCCURRENCE OF
UNANTICIPATED EVENTS.
ALL FIGURES GIVEN IN THIS DISCUSSION ARE IN CANADIAN DOLLARS AND ARE
PRESENTED IN CONFORMITY WITH CANADIAN GAAP. THESE DIFFER IN SOME RESPECTS FROM
GAAP IN THE U.S. NOTE 16 TO THE FINANCIAL STATEMENTS, REPORTS THE DIFFERENCES
BETWEEN CANADIAN GAAP AND U.S. GAAP. "FISCAL 2006", "FISCAL 2007" AND "FISCAL
2008" MEAN THE FISCAL YEARS OF THE CORPORATION ENDED JULY 31, 2006, JULY 31,
2007 AND JULY 31, 2008, RESPECTIVELY.
4
<Page>
MANAGEMENT'S DISCUSSION & ANALYSIS
A. PROFILE & STRATEGY
CORPORATION PROFILE AND BUSINESS SEGMENTS
CORPORATION OVERVIEW
a) CORPORATION HISTORY
SAND was incorporated on December 10, 1982 under the Canada Business
Corporations Act and carried on business under the name Sand Technology
Systems (Canada) Inc. until 1988. From 1988 until 1999, we used the name
Sand Technology Systems International Inc. On January 1, 2000, we changed
our name to Sand Technology Inc.
Until 1999, an important part of our business was the sale and service of
mainframe peripheral products manufactured by Hitachi, Ltd. of Japan,
through Hitachi Data Systems Inc. ("HDS Canada"). HDS Canada marketed a
broad range of information processing solutions, including enterprise
servers, storage subsystems, peripheral products and professional services.
SAND was the legal and beneficial owner of 40% of the issued and
outstanding shares of HDS Canada; Hitachi Data Systems Corporation ("HDSC")
of Santa Clara, California was the legal and beneficial owner of the
remaining 60%. In August 1999, SAND sold its interest in HDS Canada to HDSC
and withdrew from the mainframe computer market and the peripheral hardware
market.
We then fully shifted our focus to the design, development, marketing and
support of software products, collectively known as the SAND/DNA Product
Suite, that enable users to retrieve usable business information from large
amounts of data and to providing specialized systems integration services
related to those products.
Initially, SAND offered products mainly as part of a systems integration
model. At the end of the 2002 fiscal year, we consolidated the systems
integration portion of our business which had been growing in importance
and subsequently re-branded it with the name ClarityBlue. ClarityBlue
concentrated on developing a strong competitive practice utilizing the
SAND/DNA Analytics precursor product as an engine for its Customer Analytic
offering, and was able to attract high profile customers particularly in
the Telecommunications and Financial Services markets in the United
Kingdom. ClarityBlue was sold on July 31, 2003 to a group of investors
which included members of the senior management of ClarityBlue.
SAND now focuses its resources around intelligent information management
and consultative "best practices" leveraging the latest developments in our
SAND/DNA Access and SAND/DNA Analytics platforms.
Packaged around our solution offerings is the concept of Nearline 2.0, the
logical evolution of older data warehouse and information lifecycle
approaches that have struggled to maintain acceptable performance levels in
the face of ever-increasing data volumes. Whereas older archiving solutions
based their viability on the declining prices of hardware and storage and
rigid "Nearline 1 .0" solutions were mainly designed to work with
transactional systems, Nearline 2.0 embraces the dynamism of a software and
services approach to fully leverage the potential of large enterprise data
architectures.
5
<Page>
MANAGEMENT'S DISCUSSION & ANALYSIS
b) OUR SOLUTIONS
- OVERALL
SAND/DNA is based on our patented tokenized database engine. It can best be
viewed as an enterprise platform technology that enables organizations to
maximize the business value of corporate information by supporting better
business decisions through intuitive interactive data access and keeping
more data available for analysis. Our products permit more timely and
accurate decisions across the extended enterprise making "business
intelligence" a key component of operational excellence.
Our software product solutions are designed to provide an efficient and
cost-effective way for business users to make fast easy inquiries of large
databases without the intervention of Information Technology professionals,
and to store that data with orders of magnitude greater and more
efficiently than what is generally possible using more traditional database
products.
- SAND/DNA ACCESS - ADVANCED DATA MANAGEMENT
In 2004, we introduced a second patent protected product, the SAND
Searchable Archive now known as SAND/DNA Access. This product builds on
SAND's strength in advanced data management to
a) create a highly compressed database for storing data that is not of
immediate need to an organization but that will be required over time
for either historic analysis or regulatory or compliance purposes;
b) help manage the data explosion in industry by maintaining rapid access
to huge volumes of "nearline 2.0" data; and
c) during fiscal 2008, we made available release 2.4 of SAND/DNA Access,
which included the following new features: data encryption, metadata
transformation rules, enhanced analytical capability and performance
for nearline queries (including faster aggregation, HAVING clause,
aggregation of DISTINCT values, CASE expressions, and random sampling
of result sets.)
SAND/DNA Access is substantially smaller than a traditional relational
database but can be searched directly by business users using standard
"business intelligence" tools. This is a breakthrough product and
technology and has particular impact on the current information technology
environment where volumes of corporate data are growing at an exponential
rate.
SAND/DNA Access works with data from any corporate database and over time
is suitable for version customization to support particular third party
vendors' products. During 2006, a SAND/DNA Access product received its
initial certification with the release of SAND/DNA for SAP BI.
6
<Page>
MANAGEMENT'S DISCUSSION & ANALYSIS
- SAND/DNA ANALYTICS - CONVERTING DATA INTO KEY DECISIONS
The SAND/DNA Analytics product, which incorporates SAND's patent-protected
Nucleus database engine and other Nucleus derived products, facilitates the
use of data mining, query, reporting and other classes of on-line
analytical applications, thereby enabling more effective management of
customer relationships, supply chains and other critical business
processes.
Our SAND/DNA Analytics product incorporates a number of advanced
technologies. Its development has required substantial investment in
research and development:
a) During fiscal 2002, important advancements were made in the ability to
quickly and efficiently load even larger volumes of data into the
SAND/DNA Analytics product and in the ability of the SAND/DNA
Analytics product to support an even wider variety of applications by
more efficient interfacing with industry-standard applications and
data extraction tools.
b) During fiscal 2004, we made available Release 3.2 of our
high-performance SAND Analytic Server. Release 3.2 augmented the
proven scalability and query speed of previous versions of the Nucleus
data management technology on which it is based by significantly
enhancing the speed of loading and updating data for analysis as well
as adding further support for open industry-standard business
intelligence tools through more flexible open database connectivity.
c) During fiscal 2005, a significant update to Version 4 (currently
Release 4.2) incorporating many features to allow high-performance
scalability for multiple users and huge amounts of data was released.
d) During fiscal 2008, SAND made available release 5.1 of SAND/DNA
Analytics which was designed to provide superior analytic capabilities
and performance for extremely large (multi-terabyte) databases by
enabling implementation of a distributed architecture. Features
included support for federated databases, virtual tables, UNION
operators in nested table expressions, unstructured freetext searches,
advanced statistical aggregate functions and triganomic math
functions, snapshots, and Eastern European language and hexidecimal
characters.
- SAND/DNA PLATFORM - EMPOWERING THE USERS
We have developed a unique data storage and manipulation architecture now
known as the SAND/DNA platform, which allows user-driven queries on large
amounts of data to be performed efficiently and cost-effectively. This
patented breakthrough in the storage and integration of data, and in the
speed and flexibility at which data can be analyzed by business users,
represents the "next step" in the drive to empower managers across an
organization by providing them with the data they need when and how they
need it to perform business operations more effectively at a lower cost.
7
<Page>
MANAGEMENT'S DISCUSSION & ANALYSIS
c) KEY BUSINESS SEGMENTS AND USES OF OUR SOFTWARE SOLUTIONS
We have two key geographic segments - North America and Europe. The
following table summarizes the percentage of our total revenue generated in
the fiscal years 2008, 2007 and 2006 for each of our geographic segments.
<Table>
<Caption>
- ---------------------------------------------------
2008 2007 2006
- ---------------------------------------------------
NORTH AMERICA 34% 29% 30%
EUROPE 66% 71% 70%
- ---------------------------------------------------
</Table>
Our customers in North America and Europe use SAND's solutions for:
a) Analytical and operational purposes, including, market segmentation
CRM analytics, Web analytics, Business Performance Management and
strategic planning, and
b) Regulatory and compliance applications, including efficient storage
and retrieval of large amounts of historic data.
In particular, the SAND/DNA Analytics Product Suite already being used to
provide fast measurable business benefits in the retail, finance,
healthcare, transportation, telecommunication, manufacturing, government
and insurance sectors. Customers, often at the recommendation of systems
integrators or platform partners, are using our products in support of
strategic corporate initiatives including e-business, customer relationship
management, reporting, supply chain management, risk analysis and
management, product trend and profitability analysis, fraud detection,
emerging markets, information lifecycle management, competitive analysis
and quality control. Increasingly as organizations shift the competitive
landscape from operations to intelligence, these information-intensive
decisions are not standalone, but a core part of an integrated information
management infrastructure.
d) BUSINESS LOCATIONS
- Our corporate headquarters are located in Montreal, Canada, where we
also have development and sales resources. We have offices in
Kenilworth, New Jersey and San Mateo and Pasadena, California, through
Sand Technology Corporation to provide for the development, sales,
marketing and distribution of the SAND/DNA Product Suite in the United
States.
- Our offices in the United Kingdom are located in Camberley, southwest
of London where we operate through Sand Technology Limited.
- Our offices in Germany are located in Hamburg where we operate through
Sand Technology Deutschland GmbH.
8
<Page>
MANAGEMENT'S DISCUSSION & ANALYSIS
e) KEY PARTNERS
Among others, we have alliances or commercial relationships with the
following companies,
<Table>
<Caption>
- ------------------------------------------------------------------------------------
SUN CAP
SAP IBM MICROSYSTEMS TOTAL TEC ACCENTURE GEMINI HP
- ------------------------------------------------------------------------------------
INFORTE POSTIV OPEN TEXT ATOS ORACLE FREESAT
ORIGIN
- ------------------------------------------------------------------------------------
</Table>
SAND is an approved vendor on the United States General Services
Administration (GSA) Supply Schedule.
In addition, we now have marketing, sales and technical arrangements in
place with a number of recognized systems integration partners who have
trained personnel in the marketing and deployment of our products.
OVERALL PERFORMANCE
We are maintaining a prudent attitude as to the future despite the current
general economic showdown. We have a diversified base in that 66% of our
revenues in fiscal 2008 were from outside North America, which helps insulate us
from the "slowdown" currently being experienced in the United States economy.
Also, a portion of our revenues are from maintenance revenues, which are a
recurring source of income recorded as defined revenue and recognized on a
straight-line basis over the contract period. We will closely continue to
monitor our cash needs. The financial environment does not appear to be
conducive to raising additional capital. We do not plan on spending any
significant amounts on capital assets.
a) FINANCIAL CONDITION
During fiscal 2008, the financial condition of the Corporation remained
steady given its cash position at the end of fiscal 2007. Total assets
increased by 19% mostly due to the increase in the cash balance and the
unbilled receivable balance. There was a reduction in capital assets due to
amortization of those assets and other assets have been fully amortized.
Total liabilities increased by 25% mostly due to the increase in the loan
by a shareholder and the issuance of convertible debentures by way of a
private placement. The additional financing obtained, through the
shareholder as well as the convertible debentures, was expected in order to
fund operations.
The following is a summary of the features of the convertible debentures,
i. Each unit consists of one 8% Secured Convertible Debenture due
December 31, 2017, redeemable at the option of the Corporation if
the bid price of the common shares has been above $1.50 for sixty
consecutive trading days, and convertible into Class A common
shares at $0.45 per share and one thousand share purchase
warrants of the Corporation.
9
<Page>
Management's Discussion & Analysis
ii. Each warrant entitles its holder to purchase one additional
common share ("Warrant Share") of the Corporation at a price of
$0.70 per Warrant Share at any time until the earlier of the
close of business on the day which is thirty-six months from
April 18, 2008 or the sixtieth consecutive trading day in which
the bid price of the common shares has been above $1.50.
iii. Interest is calculated at the rate of 8% per annum, payable in
kind, i.e. in common shares at a rate of $0.45 per share. The
interest is due on each Conversion Date (date when that principal
amount is being converted) subsequent to January 1, 2009, and on
the Maturity Date.
iv. The financing is secured by a first rank hypothec on all of the
Corporation's property and assets, movable and immovable,
corporeal and incorporeal, present and future, of ever kind and
nature for the principal amount and accrued interest. The
proceeds from the private placement are being used to increase
marketing and advertising capital needs and expansion.
b) RESULTS OF OPERATIONS
Compared to fiscal 2007, in fiscal 2008, there was a reduction in our net
loss of 50%. A combination of factors resulted in this positive impact.
First, there was an increase in revenue of 4% from fiscal 2007 as we
obtained new customers as well as increased our sales to existing
customers. We were expecting a greater increase in revenue; however these
sales appear to have been postponed due to the delay caused by certain
systems integrators in releasing the next version of their products as well
as issues being encountered by these same products. In North America, there
was an increase in revenue of 24% and a reduction in net loss of 38%
compared to fiscal 2007. In Europe, there was a slight decrease in revenue
of 4% and a reduction in net earnings of 14%.
Second, there was a reduction in operating expenses of 12% from fiscal 2007
as there was a further focus on cost control.
c) CASH FLOWS
Compared to fiscal 2007, in fiscal 2008 there was an increase in the cash
position as at July 31, 2008. This was mainly due to the additional funding
provided by a major shareholder as well as the proceeds from the issuance
of convertible debentures by way of a private placement. There was a
reduction in the use of cash for operations of 48% mainly due to the
reduction in net losses from fiscal 2007. As well, there was a reduction in
the amount of prepaid expenses and accounts receivable. There was a
reduction in the use of cash for investing of 57%, as only a small amount
of computer equipment was purchased during the year. There was an increase
in the cash flows from financing of 55% due to the increase in the loan
from a major shareholder and the issuance of convertible debentures.
10
<Page>
MANAGEMENT'S DISCUSSION & ANALYSIS
SELECTED ANNUAL INFORMATION
The following table provides the summary of the selected annual information for
2008, 2007 and 2006.
<Table>
<Caption>
2008 2007 2006
----------------------------------------------
Revenue
Revenue $ 6,998,472 $ 6,728,540 $ 5,477,485
Year-over-year growth 4% 23% -10%
- -------------------------------------------------------------------------------------------------
Profitability
Net Loss $ (1,271,950) $ (2,526,524) $ (3,926,921)
Basic and diluted loss per share $ (0.09) $ (0.19) $ (0.31)
Year-over-year decrease (increase) in net loss 50% 36% 47%
Gross profit margin (1) 79% 75% 72%
- -------------------------------------------------------------------------------------------------
Balance Sheet
Total assets $ 2,803,032 $ 2,357,148 $ 3,445,121
Total long-term financial liabilities $ 356,575 $ 107,569 $ 136,906
- -------------------------------------------------------------------------------------------------
Cash generation
Cash used in operating activities $(1 ,035,992) $ (2,008,248) $ (4,119,250)
</Table>
(1) The gross profit margin was calculated as revenue less cost of sales and
product support
a) REVENUE
Compared to fiscal 2007 and fiscal 2006, the increase in revenue in fiscal
2008 is mainly due to the increase in new customers as a result of the
increased awareness of SAND/DNA products and the increase in sales to
existing customers. The increase in fiscal 2008 is not larger than we
expected due to the delays incurred by certain third party software vendors
in releasing the next version of their products as well as issues being
encountered by these same products.
b) PROFITABILITY
Compared to fiscal 2007 and fiscal 2006, the decrease in net loss in fiscal
2008 is mainly due to the increase in revenue and the reduction in
operating expenses. This decrease also impacted the basic and diluted
earnings per share calculation; there was a decrease in the loss per share
of 54% from fiscal 2007 to fiscal 2008. There was also an improvement in
the gross margin percentage which increased from fiscal 2006 to fiscal 2008
by an average of 5.02% per year.
c) BALANCE SHEET
Compared to fiscal 2007 and fiscal 2006, the decrease in total assets is
mainly due to the reduction in the cash and cash equivalents balance as
well as balances in capital assets and other assets due to amortization.
The total long-term liability represents the debt component of the
convertible debentures.
11
<Page>
MANAGEMENT'S DISCUSSION & ANALYSIS
d) CASH GENERATION
Compared to fiscal 2007 and fiscal 2006, the decrease in the use of cash in
operating activities is mainly due to the decrease in net loss.
STRATEGY AND MARKETS
VISION AND STRATEGY
Our long term direction for our high performance analytical and intelligent
information management products has always been to ensure that these products
become a recognized platform for advanced analytical applications and managing
large data volumes through strategic systems integration assignments and our
direct sales force.
However, recently (for the fiscal year 2009 and beyond) SAND has fine-tuned its
vision and strategy. There will be a focus on selling the SAND/DNA product suite
as part of "Nearline 2.0" software solutions and best practices. SAND's vision
is "to be the dominant leader in delivering its products and best practices to
customers around the world, in order to provide them with all the data they need
when and how they need it."
In order to carry out SAND's vision, a four-pillar strategy to grow the
operations will be used:
i. The first pillar of this strategy will be to focus on
implementing a best practices and service offering approach to
delivering the solutions.
ii. The second pillar of this strategy will be focus on being the
preferred partner of choice with systems integrators and
application vendors delivering the solutions.
iii. The third pillar of this strategy will be to focus on
implementing a TEAM SAND approach to delivering the solutions
worldwide.
iv. The fourth pillar of this strategy will be to focus on
implementing a continuous improvement approach to our internal
operations.
DEVELOPMENTS IN FISCAL 2008
Version 5 of SAND/DNA Analytics was brought into production in 2007 and version
5.1 in 2008. SAND/DNA Analytics data repository does not require indexing or
specialized schemas. All the data, down to the most detailed level, is available
for querying immediately after it is loaded permitting quick and easy access by
business users employing industry-standard Business Intelligence tools or
methods. SAND/DNA Access is the lead product in our sales opportunities and
customer interest. In fiscal 2008, we made available release 2.4 of SAND/DNA
Access which included the following new features: data encryption, metadata
transformation rules, enhanced analytical capability and performance for
nearline queries (including faster aggregation, HAVING clause, aggregation of
DISTINCT values, CASE expressions, and random sampling of result sets.)
12
<Page>
MANAGEMENT'S DISCUSSION & ANALYSIS
During fiscal 2008, SAND introduced several additional product components based
on the SAND/DNA Product Suite:
i. SAND/DNA Compress provides data compression for organizations who need
to reduce the storage footprint for their data. It can be easily
upgraded to SAND/DNA Enhance to restructure and enrich the data for
analytic use, or to the full SAND/DNA Access product to allow direct
querying of compressed data without the need to decompress it first.
ii. SAND/DNA Enhance uses column-based data architecture and compression
technology. SAND/DNA Enhance restructures (denormalizes) and stores
massive volumes of log data so that it is easily usable for analysis,
while enriching it with appropriate information for maximum analytic
power.
Other than government regulations of general application, no government body has
specific authority to regulate the business of the Corporation.
13
<Page>
MANAGEMENT'S DISCUSSION & ANALYSIS
B. KEY RESOURCES
CASH AND FINANCING
LIQUIDITY AND CAPITAL RESOURCES
The Corporation used $1 ,035,992 to finance operating activities during the
fiscal year ended July 31, 2008, including $922,467 in operating losses and an
increase in $113,525 in non-cash operating working capital. This result compares
with the cash used in the fiscal year ended July 31, 2007 of $2,008,248 to
finance operating activities including $2,293,250 in operating losses offset by
a decrease in $285,002 in non-cash operating working capital. Unbilled
receivable, higher accounts payable and lower deferred revenue accounted for the
changes in the non-cash working capital.
Accounts receivable was $1,573,867 as at July 31, 2008 compared to $1,582,957 as
at July 31, 2007.
Accounts payable and accrued liabilities were $1,327, 575 as at July 31, 2008
compared to $1,076,116 at July 31, 2007. The increase is mainly due to the
accrual for sales taxes in the United Kingdom due to the higher sales during
fiscal 2008 and payroll related accruals in Germany.
At July 31, 2008, there was a positive working capital of $85,442 compared to a
positive working capital of $238,372 as at July 31, 2007. Working capital has
been calculated by netting current assets and current liabilities, excluding
deferred revenue and deferred credits which are non-cash items. The decrease in
working capital is mainly due to the increase in the loan payable to a
shareholder.
During the year ended July 31, 2008, the President and Chief Executive Officer
of the Corporation advanced an additional $517,557 to the Corporation.
On April 18th 2008, the Corporation issued secured convertible debentures
("Convertible Debentures") on a private placement basis and received proceeds of
$1,009,819 (US$1,002,600) for a total of 1,114 units. Each unit consists of one
8% Secured Convertible Debenture due December 31st, 2017, redeemable and
convertible at the option of the Corporation if the bid price of the stock has
been above $1.50 for sixty consecutive trading days and convertible at the
option of the holder into class "A" common shares at $0.45 per share, and one
thousand share purchase warrants of the Corporation. Each warrant entitles its
holder to purchase one additional common share (warrant share) of the
Corporation at a price of $0.70 per warrant share at any time until the earlier
of the close of business on the day which is thirty-six months from April 18th
2008 or the sixtieth consecutive trading day in which the bid price of the
common shares has been above $1.50. Interest is calculated at the rate of 8% per
annum, payable in kind, i.e. in common shares at a rate of $0.45 per share. The
interest is due on each Conversion Date (date when that principal amount is
being converted) subsequent to January 1st, 2009, and on the Maturity Date. The
financing is secured by a first rank hypothec on all of the Corporation's
property and assets, movable and immovable, corporeal and incorporeal, present
and future, of ever kind and nature for the principal amount and accrued
interest. The proceeds from the private placement are being used to increase
marketing and advertising capital needs and expansion.
14
<Page>
MANAGEMENT'S DISCUSSION & ANALYSIS
Capital expenditures for the fiscal year ended July 31, 2008 were $17,315,
compared to $40,730 for the fiscal year ended July 31, 2007. The expenditures
were mostly related to computer equipment. The Corporation does not anticipate
large increases in capital expenditures in the coming fiscal year.
The following table provides a summary of the contractual commitments for the
next five years (there are no contractual commitments after 2011).
<Table>
<Caption>
$
-------
2009 283,260
2010 244,314
2011 162,876
-------
690,450
=======
</Table>
Our cash as at July 31, 2008 were $775,443 compared to our cash and investments
at July 31, 2007 of $330,711. The increase is mainly due to issue of convertible
debentures for cash proceeds of $1,009,819 and additional funding of $517,557 by
a major shareholder during the fiscal year. The additional funds compensated the
cash usage from operating activities of $1,035,992. Going forward, the cash
required to sustain the business operations will have to come from revenue
growth and future financing. The cost structure will remain stable as SAND has
basically reached its optimal level with respect to headcount and its related
expenses. Given the current global financial crisis it will be very difficult to
raise additional funds through private placements or the market except through
an increase in loans from a major shareholder. Another impact of the current
global financial situation is that potentially customers will want longer
payment terms.
The Corporation believes that its current cash and cash equivalents may not be
sufficient to meet its anticipated cash needs for ongoing operating expenses and
working capital expenditures. If cash generated from operations becomes
insufficient to satisfy its liquidity requirements, the Corporation may seek to
sell additional equity or debt securities. If additional funds are raised
through the issuance of debt securities, holders of these securities could have
certain rights, preferences and privileges senior to holders of its common
shares and the terms of this debt could restrict the Corporation's operations.
The sale of additional equity or convertible debt securities could result in
additional dilution to the Corporation's existing shareholders. The Corporation
cannot be certain that additional financing will be available in amounts or on
terms acceptable to it, if at all. If the Corporation is unable to obtain
additional financing, it may be required to reduce the scope of its operations,
which could harm its business, financial condition and operating results.
TRANSACTIONS WITH RELATED PARTIES
There are two types of loans that are due to a major shareholder who is also the
President and the Chief Executive Officer.
i. During the fiscal year 2008, the Corporation obtained an additional
loan from a significant shareholder who is also the President and
Chief Executive Officer. Under the loan agreement, the maximum of
$400,000 of funds is available. An amount of $165,000 was used and is
repayable within 30 days of the receipt of a written demand from the
shareholder. The loan bears interest at 15% and is payable on the last
business day of each calendar month.
15
<Page>
MANAGEMENT'S DISCUSSION & ANALYSIS
ii. Based on another agreement formalized in 2007, during the fiscal year
2008, the Corporation obtained an additional loan of $352,557 from a
significant shareholder who is also the President and Chief Executive
Officer. The loan is repayable within 90 days of the receipt of a
written demand from the shareholder. The loan bears interest at 15%.
The loan originated from amounts owed by the Company to the
shareholder by virtue of his employment contracts (amounts owed from
services rendered, prior to 2002 $429,461, in 2006 $320,683 and in
2008 $352,557).
iii. In conjunction with the ratification of the loan agreement formalized
in 2007, the Corporation also issued 103,061 warrants, each warrant
entitling to purchase one class "A" common share of the Corporation at
a price of US$0.44 per share and is valid for the term of the
agreement. The residual valuation method was used to allocate the
proceeds between the liability component and the equity component. The
value of the liability component was determined to be the face value
of the debt because there is no maturity date and by difference, the
value of the equity instrument was determined to be nil.
The proceeds from the loan are being used to cover general expenses incurred by
SAND.
OUTSTANDING SHARE DATA
We are authorized to issue an unlimited number of Class A common shares without
par value of which 14,318,189 are outstanding as at November 18, 2008. We are
also authorized to issue an unlimited number of Class B shares without par
value. No Class B shares have been issued.
We have granted rights to purchase 359,000 Class A common shares to holders of
options pursuant to our stock option plans. We have also granted rights to
purchase a total of 1,967,061 Class A common shares made up of 750,000 to
holders of share purchase warrants pursuant to a private placement with two
shareholders, 103,061 to holders of share purchase warrants pursuant to a
shareholder loan agreement and 1,114,000 to holders of shares pursuant to a
convertible debenture agreement. 407,500 Class A common shares have been awarded
to regular full-time employees under the provisions of the Share Award Plan.
A maximum of 2,228,000 Class A common shares may be issued upon the conversion
of debenture units.
16
<Page>
MANAGEMENT'S DISCUSSION & ANALYSIS
C. PERFORMANCE ANALYSIS
RESULTS OF OPERATIONS IN 2008, 2007 AND 2006
I. REVENUE - TOTAL AND VARIATION
The following table provides a summary of the revenue growth for fiscal years
2008, 2007 and 2006.
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------------
Revenue - Total and Variation 2008 2007 2006
- ---------------------------------------------------------------------------------------------------
Revenue
Revenue $ 6,998,472 $ 6,728,540 $ 5,477,485
Variation year-over-year increase (decrease) in revenue 4% 23% (10)%
- ---------------------------------------------------------------------------------------------------
</Table>
Our sales in fiscal 2008 were $6,998,472, an increase of 4% from sales of
$6,728,540 in fiscal 2007. Our sales in fiscal 2007 were $6,728,540, an increase
of 23% from sales of $5,477,485 in fiscal 2006. Our sales in fiscal 2006 were
$5,477,485, a decrease of 10% from sales of $6,096,033 in fiscal 2005.
Compared to fiscal 2007, the increase in our revenues for fiscal 2008 is mainly
due to an increase in license upgrades from our existing customers. Overall
revenue growth has been slowed due to a longer than expected sales cycle.
II. REVENUE - SEGMENT AND VARIATION
The Corporation has two geographical segments. Both North American and European
segments market SAND/DNA Product Suite. The following table provides a summary
of the revenue growth by geographical segments for fiscal years 2008, 2007 and
2006.
<Table>
<Caption>
---------------------------------------------------------------------------------
North America Europe
- ---------------------------------------------------------------------------------------------------------------------------------
Revenue - Segment and Variation 2008 2007 2006 2008 2007 2006
- ---------------------------------------------------------------------------------------------------------------------------------
Revenue
Revenue $ 2,410,048 $ 1,941,034 $ 1,634,977 $ 4,588,424 $ 4,787,506 $ 3,842,508
Variation year-over-year increase (decrease)
in revenue 24% 19% (44)% (4)% 25% 20%
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
a) NORTH AMERICA
Our sales in North America were in fiscal 2008 $2,410,048, an increase of 24%
from sales of $1,941 ,034 in fiscal 2007. Our sales in fiscal 2007 in North
America were $1,941 ,034, an increase of 19% from sales of $1,634,977 in fiscal
2006. Our sales in fiscal 2006 in North America were $1,634,977, a decrease of
44% from sales of $2,899,252 in fiscal 2005.
Compared to fiscal 2007, the increase in North American sales in fiscal 2008 is
due to the increase in license sales to new customers as well as an increase in
license upgrades to existing customers. In addition, we signed on two new major
customers.
17
<Page>
MANAGEMENT'S DISCUSSION & ANALYSIS
b) EUROPE
In Europe, sales in fiscal 2008 were $4,588,424 a decrease of 4% from sales of
$4,787,506 in fiscal 2007; sales in fiscal 2007 were $4,787,506, an increase of
25% from sales of $3,842,508 in fiscal 2006; sales in fiscal 2006 were
$3,842,508, an increase of 20% from sales of $3,196,781 in fiscal 2005.
Compared to fiscal 2007, the decrease in European sales in fiscal 2008 was due
to the unexpected delay by some key customers to implement our software
solutions. The focus in fiscal 2008 was to build up relationships with customers
in order to up sell expanded software solutions in the future. In the United
Kingdom, we sold software licenses and services to one new major customer and
up-sold to our existing customers. In Germany, we sold software licenses and
services to one new major customer and up-sold to our existing customers.
III. OPERATING EXPENSES
The following table provides a summary of the operating expenses for the fiscal
years 2008, 2007 and 2006.
<Table>
<Caption>
---------------------------------------------------------------------
As a % of As a % of As a % of
2008 2007 2006
2008 2007 2006 revenue revenue revenue
- -------------------------------------------------------------------------------------------------------------------------------
Cost of sales and product support 1,470,215 1,666,331 1,554,313 21% 25% 28%
Variation year-over-year increase (decrease) in cost
of sales and product support (12)% 7% (11)%
- -------------------------------------------------------------------------------------------------------------------------------
Research and development, net 1,971,813 2,215,146 2,441,950 28% 33% 45%
Variation year-over-year increase (decrease) in
research and development (11)% (9)% (25)%
- -------------------------------------------------------------------------------------------------------------------------------
Amortization of capital assets and other assets 187,517 201,274 248,455 3% 3% 5%
- -------------------------------------------------------------------------------------------------------------------------------
Selling, general and administrative expenses 4,411,736 5,100,057 5,220,443 63% 76% 95%
Variation year-over-year increase (decrease) in
selling, general and administrative expenses (13)% (2)% (37)%
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
a) COST OF SALES AND PRODUCT SUPPORT
Cost of sales and product support consists mainly of costs related to providing
support services and the costs related to the sale of third-party software,
including certain license fees and royalties.
Our cost of sales in fiscal 2008 was $1,470,215 a decrease of 12% from cost of
sales of $1,666,331 in fiscal 2007. Our cost of sales in fiscal 2007 was
$1,666,331 an increase of 7% from cost of sales of $1,554,313 in fiscal 2006.
Our cost of sales in fiscal 2006 was $1,554,313 a decrease of 11% from cost of
sales of $1,754,138 in 2005.
Compared to fiscal 2007, the decrease in cost of sales in fiscal 2008 is due to
the reduction in travel and related expenses, and the re-allocation of some of
the payroll costs into the selling, general and administration.
18
<Page>
MANAGEMENT'S DISCUSSION & ANALYSIS
b) RESEARCH AND DEVELOPMENT
Research and development expenses consist mainly of salaries and other
personnel-related costs of technical and engineering personnel associated with
our research and product development activities, including the enhancement and
localization of existing products, quality assurance, and testing.
Our research and development expenses in fiscal 2008 were $1,971,813 a decrease
of 11% from $2,215,146 in fiscal 2007. Our research and development expenses in
fiscal 2007 were $2,215,146 a decrease of 9% from $2,441,950 in fiscal 2006. Our
research and development expenses in fiscal 2006 were $2,441,950 a decrease of
25% from $3,272,102 in 2005.
Compared to fiscal 2007, the decrease in research and development expenses in
fiscal 2008 is due to the maturity of SAND/DNA Analytics and SAND/DNA Access
products. The expenditure in fiscal 2008 reflects the research and development
required to maintain product and technical leadership.
c) AMORTIZATION OF CAPITAL ASSETS AND OTHER ASSETS
Amortization of capital assets and other assets consists of the depreciation of
furniture and equipment, computer equipment and leasehold improvements and
contract costs over their estimated useful lives.
Our amortization in fiscal 2008 was $187,517 a decrease of 7% from amortization
of $201,274 in fiscal 2007. Our amortization in fiscal 2007 was $201,274 a
decrease of 19% from amortization of $248,455 in fiscal 2006. Our amortization
in fiscal 2006 was $248,455 a decrease of 10% from amortization of $277,276 in
fiscal 2005.
Compared to fiscal 2007, the decrease in amortization in fiscal 2008 is due to
the amortization of the capital assets. In 2008, the contract costs have been
fully amoritzed and the furniture and equipment is almost fully amortized.
During fiscal 2008, there were acquisitions of $17,315 for computer equipment
mostly related to research and development.
d) SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (SG&A)
Selling, general and administrative expenses include salaries, commissions and
other personnel- related costs, the impact of foreign exchange gains and losses,
travel expenses, advertising programs and other promotional activities
associated with the selling and marketing of our products.
Our SG&A expenses in fiscal 2008 were $4,411,736 a decrease of 13% from SG&A
expenses of $5,100,057 in fiscal 2007. Our SG&A expenses in fiscal 2007 were
$5,100,057 a decrease of 2% from SG&A expenses of $5,220,443 in fiscal 2006. Our
SG&A expenses in fiscal 2006 were $5,220,443 a decrease of 37% from SG&A
expenses of $8,317,831 in fiscal 2005.
Compared to fiscal 2007, the decrease in SG&A expenses in fiscal 2008 is due to
the reduction in headcount to more optimal levels, spending more selectively on
marketing events and activities, and savings on travel and entertainment. These
reductions were part of the cost control measures initiated at the end of fiscal
2005.
19
<Page>
MANAGEMENT'S DISCUSSION & ANALYSIS
IV. NET LOSSES - TOTAL AND VARIATION
The following table provides a summary of the net losses for fiscal years 2008,
2007 and 2006.
<Table>
<Caption>
- --------------------------------------------------------------------------------------------
Net Loss - Total and Variation 2008 2007 2006
- --------------------------------------------------------------------------------------------
Net loss
Net loss $ (1,271,950) $ (2,526,524) $ (3,926,921)
Variation year-over-year decrease in net loss 50% 36% 47%
- --------------------------------------------------------------------------------------------
</Table>
Our net losses in fiscal 2008 were $1,271,950, a decrease of 50% from net losses
of $2,526,524 in fiscal 2007. Our net losses in fiscal 2007 were $2,526,524, a
decrease of 36% from net losses of $3,926,921 in fiscal 2006. Our net losses in
fiscal 2006 were $3,926,921, a decrease of 47% from net losses of $7,363,054 in
fiscal 2005.
Compared to fiscal 2007, the decrease in our net loss for fiscal 2008 is mainly
due to an increase in our sales and a significant reduction in our operating
costs. These results reflect the nature of the business and distribution model
of SAND and its movement towards profitability. Any sustained shortfall in our
revenues relative to our expectations would negatively impact our operating
results.
V. NET LOSSES - SEGMENT AND VARIATION
The following table provides a summary of net losses by geographical segments
fir fiscal years 2008, 2007 and 2006.
<Table>
<Caption>
---------------------------------------------------------------------------------
North America Europe
- ---------------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) - Segment and Variation 2008 2007 2006 2008 2007 2006
- ---------------------------------------------------------------------------------------------------------------------------------
Profitability
Net earnings (loss) $ (2,352,852) $ (3,789,146) $ (3,924,363) $ 1,080,902 $ 1,262,622 $ (2,558)
Variation year-over-year decrease (increase)
in net earnings (loss) 38% 3% 34% 14% 49460% (100)%
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
a) NORTH AMERICA
In North America, net losses in fiscal 2008 were $2,352,852, a decrease of 38%
from net losses of $3,789,146 in fiscal 2007. Our net losses in fiscal 2007 were
$3,789,146, a decrease of 3% from net losses of $3,924,363 in fiscal 2006. Our
net losses in fiscal 2006 were $3,924,363, a decrease of 34% from net losses of
$5,965,661 in fiscal 2005.
Compared to fiscal 2007, the decrease in our net loss for fiscal 2008 of 38% is
mainly due to the increase in revenues of 24%. These results reflect the sales
to two new major customers and larger up-sell to two existing customers.
b) EUROPE
In Europe, net earnings in fiscal 2008 were $1,080,902, a decrease of 14% from
net earnings of $1,262,622 in fiscal 2007. Our net earnings in fiscal 2007 were
$1,262,622, from net losses of $2,558 in fiscal 2006. Our net losses in fiscal
2006 were $2,558, from net losses of $1,397,393 in fiscal 2005.
Compared to fiscal 2007, the decrease in net earnings by 14% is mainly due to
the decrease in revenues by 4%. This result was due to the delay in sales of
software licenses and services to customers.
20
<Page>
MANAGEMENT'S DISCUSSION & ANALYSIS
SUMMARY OF QUARTERLY RESULTS
The following tables set forth certain unaudited statements of operations data
for each of the eight quarters preceding the 2008 fiscal year and including the
2008 fiscal year that, in management's opinion, have been prepared on a basis
consistent with the audited consolidated financial statements contained
elsewhere in the Annual Report and include the adjustments necessary for a fair
presentation of the information set forth. These operating results are not
necessarily indicative of results for any future period. You should not rely on
them to predict our future performance.
<Table>
<Caption>
-----------------------------------------------------------
2008
-----------------------------------------------------------
Q4 Q3 Q2 Q1
- -------------------------------------------------------------------------------------------------------------------------
Revenue
Revenue $ 1,888,042 $ 1,905,984 $ 1,419,521 $ 1,784,925
Quarter-over-quarter revenue growth (reduction) (1)% 34% (20)% (3)%
- -------------------------------------------------------------------------------------------------------------------------
Cost of sales and product support 336,960 333,900 387,191 412,164
Gross margin 82% 82% 73% 77%
- -------------------------------------------------------------------------------------------------------------------------
Total Research and development, amortiztion of capital
assets, and selling, general and administrative expenses and
net interest income or expense $ 2,035,210 $ 1,563,643 $ 1,523,673 $ 1,677,681
- -------------------------------------------------------------------------------------------------------------------------
Profitability
Net earnings (loss) $ (484,128) $ 8,441 $ (491,343) $ (304,920)
Basic and diluted earnings (loss) per share $ (0.03) $ 0.00 $ (0.03) $ (0.02)
Quarter-over-quarter decrease (increase) in net earnings
(loss) (5835)% 102% (61)% 32%
Net margin (26)% 0% (35)% (17)%
- -------------------------------------------------------------------------------------------------------------------------
Weighted average number of shares outstanding 14,318,189 14,318,189 14,318,189 14,318,189
- -------------------------------------------------------------------------------------------------------------------------
<Caption>
-----------------------------------------------------------
2007
-----------------------------------------------------------
Q4 Q3 Q2 Q1
- -------------------------------------------------------------------------------------------------------------------------
Revenue
Revenue $ 1,837,068 $ 1,559,407 $ 1,861,658 $ 1,470,407
Quarter-over-quarter revenue growth (reduction) 18% (16)% 27% 28%
- -------------------------------------------------------------------------------------------------------------------------
Cost of sales and product support $ 368,019 $ 398,322 $ 466,315 $ 433,675
Gross margin 80% 74% 75% 71%
- -------------------------------------------------------------------------------------------------------------------------
Total Research and development, amortiztion of capital
assets, and selling, general and administrative expenses and
net interest income or expense $ 1,916,506 $ 1,914,525 $ 1,884,438 $ 1,873,264
- -------------------------------------------------------------------------------------------------------------------------
Profitability
Net earnings (loss) $ (447,457) $ (753,440) $ (489,095) $ (836,532)
Basic and diluted earnings (loss) per share $ (0.03) $ (0.06) $ (0.04) $ (0.06)
Quarter-over-quarter decrease (increase) in net earnings
(loss) 41% (54)% 42% 30%
Net margin (24)% (48)% (26)% (57)%
- -------------------------------------------------------------------------------------------------------------------------
Weighted average number of shares outstanding 13,094,288 12,818,189 12,818,189 12,818,189
- -------------------------------------------------------------------------------------------------------------------------
</Table>
Sales of the Corporation's products and services are not subject to seasonal
variations.
Historically, the Corporation's operating results have fluctuated on a quarterly
basis. The Corporation's revenues and operating results may vary significantly
from quarter-to-quarter because of a number of factors, many of which are
outside the Corporation's control. These factors include the timing of product
sales, which may result in large sales in any one-quarter due to the relatively
unpredictability in the number and timing of software sales and services, length
of the sales cycle, delays with the customers, etc. As a result,
period-to-period comparisons may not be meaningful with respect to the past
operations of the Corporation nor are they necessarily indicative of the future
operations of the Corporation.
Gross profit margin for the Corporation could also vary depending on the mix of
sales in the period. Due to the higher margin available on software license
sales, the proportion of software licenses sales in a period could impact the
gross profit margins in the period.
There was a slight decrease in revenue by 1% from the third quarter to the
fourth quarter of fiscal 2008. The cost of sales and product support remained
stable and so did the gross profit margin. The increase in research and
development expenses, amortization of capital assets and selling, general and
administrative expense from $1,563,643 in the third quarter of fiscal 2008 to
$2,035,210 in the fourth quarter of fiscal 2008 is mainly due to the research
and development tax credit that was received in the third quarter of fiscal 2008
and appropriate year end accruals that were made in the fourth quarter of fiscal
2008. Thus, there was a net loss in the fourth quarter of fiscal 2008, of
$484,128 compared to a net income in the third quarter of fiscal 2008 of $8,441.
21
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MANAGEMENT'S DISCUSSION & ANALYSIS
CRITICAL ACCOUNTING POLICIES
We periodically review our financial reporting and disclosure practices and
accounting policies to ensure that our financial reporting and disclosure system
provides accurate and transparent information relative to the current economic
and business environment. As part of the process, we have reviewed our
selection, application and communication of critical accounting policies and
financial disclosures. We note that we have determined that our critical
accounting policies relating to our core ongoing business activities are mainly
those that relate to revenue recognition. Other significant accounting policies
are described in Note 2 to our consolidated financial statements. Recent and
future accounting pronouncements are described and discussed in Notes 3 and 16
of our consolidated financial statements.
REVENUE RECOGNITION
SOURCES OF REVENUE
In the fiscal year ended July 31, 2008, our revenue was mainly derived from the
licensing of our products, the provision of related services, including
installation, training and maintenance support. We recognize revenue from our
license agreements when all the following conditions are met:
We have an executed license agreement with the customer;
We have delivered the software product to the customer;
The amount of the fees to be paid by the customer is fixed and determinable; and
Collection of these fees is deemed probable.
Often, software license agreements are multiple-element arrangements since they
include related maintenance and implementation fees. In those cases, where
implementation and maintenance fees are significant components, the entire
arrangement fee is allocated to each element based on the relative fair values
of license, maintenance and implementation.
a) PRODUCT REVENUE
Currently, product revenue consists of the following:
i. Fixed License Fee - one-time license fee in exchange for a license
with a perpetual term or a time-limited term or for a fixed number
of copies. We typically recognize the license fees in the period
during which the contract is executed and delivered, provided that
we have vendor-specific objective evidence of fair value and all
revenue recognition criteria are met.
ii. Reseller Arrangements - the reseller generally pays a non-
refundable licensing fee for our software. We recognize revenue
associated with a non-refundable license fee when we have met our
revenue recognition criteria.
During fiscal 2008, there were no revenues for solution sales as opposed to the
software and services models. For all contracts we make a determination as to
whether the service element is essential to the functionality of the other
elements of the arrangement. We also make a determination, including the
contractual commitment to refund or pay penalties, related to the
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MANAGEMENT'S DISCUSSION & ANALYSIS
successful delivery under each agreement. Where the service element is essential
or where the arrangement involves significant customization or modification of
the software, recognition of revenue is based on using the percentage of
completion method based on inputs or on outputs as dictated by the specific
contracts. For those contracts, there will likely be an increase in the time
between when the contract is signed and when we record the revenue.
SAND reports the revenue on a gross basis only if it acts as the principal in
the transaction and assumes the risks and rewards of ownership, such as the risk
of loss for collection, delivery, and returns. In cases where these conditions
are not met, we record the revenue based on the net amount retained.
Our customers have traditionally been and continue to be reluctant to make large
commitments in up-front license fees, especially in a tight capital budget
allocation process that our customers generally face internally. Therefore, our
revenues from license and maintenance arrangements have been and are expected to
be lower until our customers begin to increase their levels of capital
expenditures. The lack of a sufficient quantity of customer transactions may
make it difficult for us to allocate specific revenue amounts to license sales
of new products. As a result, we will be using the residual method to record
revenues for such new product sales. Under this method, for arrangements where
we have undelivered elements, which are typically services and maintenance, we
will record the remaining value of the contract as license revenue after
allocating full value to the undelivered elements.
b) SERVICE REVENUE
i. Implementation and Customer Service Fees
Revenue from implementation and customer services include fees for
implementation of our product offerings, consulting and training
services. We currently rely, and expect to continue to rely, upon a
combination of our own resources and third-party consulting
organizations to deliver these services to our customers. Customers
are charged a fee based on time and expenses. Depending on the
circumstances of specific contracts, revenues from implementation and
customer service fees are recognized as the services are performed or
as contractual milestones and acceptance criteria are met.
ii. Maintenance Fees
We receive revenue from maintaining and servicing our products for
customers. The maintenance fee is typically equal to a specified
percentage of the customer's license fee. If associated with the
fixed-fee license model, the maintenance revenues received will be
recorded as deferred revenue and recognized on a straight-line basis
over the contract period.
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MANAGEMENT'S DISCUSSION & ANALYSIS
CHANGES IN ACCOUNTING POLICIES
ADOPTION OF NEW ACCOUNTING POLICIES
The Corporation adopted the following new Handbook sections issued by the
Canadian Institute of Chartered Accountants (CICA) which were effective for the
interim periods beginning on or after August 1, 2007.
FINANCIAL INSTRUMENTS - RECOGNITION AND MEASUREMENT
The CICA issued CICA Handbook section 3855, FINANCIAL INSTRUMENTS - RECOGNITION
AND MEASUREMENT. The section is effective for annual and interim periods
beginning on or after October 1, 2006. It 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 and investments that
are classified as held-to-maturity, ii) all financial liabilities be measured at
fair value when they are derivatives or classified as held for trading purposes
(other financial liabilities are measured at their carrying value), and iii) all
derivative financial instruments be measured at fair value, even when they are
part of a hedging relationship.
The transitional provision of this section requires that the Corporation
re-measure the financial assets and liabilities as appropriate at the beginning
of its fiscal year. Any adjustment of the previous carrying amount is recognized
as an adjustment of the balance of retained earnings or deficit at the beginning
of the fiscal year of initial application or as an adjustment of the opening
balance of a separate component of accumulated other comprehensive income, as
appropriate. The financial statements of the prior fiscal years are not
restated.
The adoption of these recommendations resulted in the accounting choices as
described below for the Corporation's financial assets and liabilities.
Cash is classified as HELD-FOR-TRADING FINANCIAL ASSETS. It is measured at
fair value and changes in fair value are recognized in net earnings. This
change had no impact on the Corporation's consolidated financial
statements.
Trade accounts receivable and unbilled receivable are classified as LOANS
AND RECEIVABLE. They are measured at amortized cost, which is generally the
initially recognized amount, less any allowance for doubtful accounts. This
change had no impact on the Corporation's consolidated financial
statements.
Accounts payable and accrued liabilities, deferred revenue and due to
shareholder are classified as OTHER FINANCIAL LIABILITIES. They are
measured at amortized cost using the effective interest rate method. This
change had no impact on the Corporation's consolidated financial
statements.
Convertible debentures are classified as OTHER FINANCIAL LIABILITIES. They
are measured at amortized cost using the effective interest rate method.
Financing costs are recognized in net income.
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MANAGEMENT'S DISCUSSION & ANALYSIS
FINANCIAL INSTRUMENTS - DISCLOSURE AND PRESENTATION
The CICA issued revisions to CICA Handbook Section 3860 and issued the new CICA
Handbook Section 3861, FINANCIAL INSTRUMENTS - DISCLOSURE AND PRESENTATION. The
revisions change the accounting for certain financial instruments that have
liability and equity characteristics. These revisions come into effect for years
beginning on or after October 1, 2006. See Note 8 and 9 to the consolidated
financial statements for the impact on the disclosure and presentation of the
financial statements due to the convertible debentures that were issued during
the year.
INTEREST DISCOUNT OR PREMIUM IN THE CASH FLOW STATEMENT
In July 2007, the Emerging Issues Committee of the CICA issued revisions to the
EIC-47 "Interest discount or premium in the cash flow statement". EIC-47
clarifies the presentation in the cash flow statements of transactions involving
acquisition of a financial asset or issuance of a financial liability, at a
discount or premium, when the asset or liability is accounted for on an
amortized basis. This abstract is to be applied for interim and annual periods
ending on or after September 30, 2007.
The adoption of EIC-47 required the Corporation to separately disclose the
interest accrued on the debt component of the convertible debentures on the
consolidated cash flow statement (see Note 8 to the consolidated financial
statements for the impact on the Corporation's consolidated financial
statements, of the convertible debentures that were issued during the year).
CONVERTIBLE AND OTHER DEBT INSTRUMENTS WITH EMBEDDED DERIVATIVES
In March 2007, the Emerging Issues Committee of the CICA issued EIC-164
"Convertible and other debt instruments with embedded derivatives". EIC-164
discusses the accounting for convertible and other debt instruments with
embedded derivatives in accordance with CICA Handbook Section 3855, FINANCIAL
INSTRUMENTS - RECOGNITION AND MEASUREMENT. This Abstract replaced EIC-158,
"Accounting for Convertible Instruments", for entities that have adopted CICA
Handbook Section 3855.
The adoption of EIC-164 required the Corporation to separately account for the
debt and equity components of the convertible debentures on the consolidated
balance sheet (see Note 8 and 9 to the consolidated financial statements for the
impact on the Corporation's consolidated financial statements, of the
convertible debentures that were issued during the year).
ACCOUNTING POLICY CHOICE FOR TRANSACTION COSTS
In June 2007, the Emerging Issues Committee of the CICA issued EIC-166
"Accounting policy choice for transaction costs". EIC-166 provides guidance on
the choice of accounting policy for transaction costs when a financial asset is
acquired or a financial liability is incurred. EIC-166 states that one of the
following accounting policies should be adopted, i) recognize all transaction
costs in net income or ii) add transaction costs that are directly attributable
to the acquisition or issue of a financial asset or financial liability to the
amount determined in accordance with Section 3855. The accounting policy should
be adopted for all similar financial instruments but a different accounting
policy choice might be made for financial instruments that are not similar. The
Corporation implemented the EIC-166.
Based on the adoption of this abstract, the Corporation has decided to recognize
all transaction costs in net income for other financial liabilities.
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MANAGEMENT'S DISCUSSION & ANALYSIS
COMPREHENSIVE INCOME AND EQUITY
The CICA issued CICA Handbook section 1530, COMPREHENSIVE INCOME. The section is
effective for annual and interim periods beginning on or after October 1, 2006.
It describes how to report and disclose comprehensive income, which is comprised
of the Corporation's net income and other comprehensive income. Other
comprehensive income includes unrealized exchange gains and losses on
translation of self-sustaining foreign operations and changes in the fair market
value of derivative instruments designated as cash flow hedges, net of
applicable taxes.
The CICA also made changes to CICA Handbook section 3250, SURPLUS, and reissued
it as section 3251, EQUITY. The section is also effective for years beginning on
or after October 1, 2006 and established standards in how to report and disclose
equity. The Corporation implemented these sections.
The adoption of these sections has no financial impact on the Corporation's
consolidated financial statements.
ACCOUNTING CHANGES
The CICA issued revisions to section 1506 of the CICA Handbook, ACCOUNTING
CHANGES. The revisions established criteria for changing accounting policies,
together with the accounting treatment and disclosure of changes in accounting
policies and estimates, and correction of errors. Furthermore, the new standard
requires the communication of the new primary sources of generally accepted
accounting principles (GAAP) that are issued but not yet effective or not yet
adopted by the Corporation. The revisions are effective for annual and interim
periods statements relating to years beginning on or after January 1, 2007. The
Corporation implemented this section.
Aside from adopting the above accounting policies, the adoption of the section
above has no impact on the Corporation's consolidated financial statements.
FINANCIAL INSTRUMENTS AND OTHER INSTRUMENTS
In April 2008, the Corporation issued convertible debentures by way of a private
placement to raise money that is being used to increase marketing and
advertising capital needs and expansion. Other than the convertible debentures,
the Corporation does not hold or use any financial instruments for speculative
trading purposes, long-term investment or hedging activities. (See Section B of
the 2008 fiscal MD&A for more details on the convertible debentures issued
during the year.)
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MANAGEMENT'S DISCUSSION & ANALYSIS
D. OUTLOOK
The Corporation is maintaining a prudent attitude as to the future. Based on the
last two years, revenues have been increasing, operating costs have been
decreasing and thus net losses have been significantly decreasing. Currently, we
are starting to see larger additional revenues from existing customers due to
the relationships that were developed with them over the years. As well, we are
starting to see sales from new customers based on the reference "existing"
customers.
Sales - The Corporation will continue to focus its attention on growing
successfully through direct sales, partnerships with key systems integrators and
application vendors and alliances with proven indirect channels. The focus will
be on delivering "nearline" software solutions and best practices. The focus
will be on converting established relationships into sales.
Cost of sales and product support - The Corporation will continue to focus on
research and development efforts that are key to responding to current changing
technology. The Corporation will continue to maintain the headcount as at July
31, 2008, as it appears to be at an adequate level under current circumstances.
Other operating expenses - The Corporation will continue to maintain the current
headcount, as it appears to be at an adequate level under current circumstances.
It will also focus on controlling expenses by being cost-conscious; it will
spend based on a sound business case model, train sales personnel to become more
productive and generate revenue in local and international markets, and
implement enhanced systems to closely monitor results.
Cash and financing - The Corporation will continue to closely monitor its cash
needs. The Corporation does not plan on spending any significant amounts on
capital assets. Given the current global financial crisis, customers may delay
payments to us and suppliers may put more pressure on us to pay earlier. As
well, the financial environment does not appear to be conducive to raising
additional capital.
In summary, future operating results will depend on many factors, including the
demand for our products, the level of product and price competition, our success
in selling our products, namely the SAND/DNA Analytics products and the SAND/DNA
Access products, and establishing our direct sales force and distribution
channels, the state of the market for our products and general economic
conditions.
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MANAGEMENT'S DISCUSSION & ANALYSIS
E. RISKS
I. RISK FACTORS THAT COULD AFFECT FUTURE RESULTS:
In addition to the other information in this discussion and analysis of
financial conditions and results of operations, the following factors should be
considered in evaluating SAND and our business. The risks and uncertainties
described below are not the only ones facing us. Additional risks and
uncertainties of which we are not presently aware or that we currently consider
immaterial, may also impair our business, our operating results and financial
condition.
II. RISKS SPECIFIC TO THE CORPORATION:
The following risks are specific to SAND's operations as a whole.
a) FINANCIAL RISKS
1. HISTORY OF LOSSES - WE HAVE A HISTORY OF LOSSES AND MAY INCUR FUTURE
LOSSES.
RISK: We have incurred the following net losses between 2004 and 2008,
<Table>
<Caption>
---------------------------
2004 $ (7,129,930)
---------------------------
2005 $ (7,363,054)
2006 $ (3,926,921)
2007 $ (2,526,524)
2008 $ (1,271,950)
---------------------------
</Table>
Because we have not been profitable, we have had to fund our losses through
raising additional capital by way of a private placement of convertible
debentures and a loan from a major shareholder.
FACTORS:
i. Our losses could continue for the future years as we continue to
develop market awareness and acceptance of our products, expand the
scope of our operations, respond to competitive developments,
continue to attract, retain and motivate qualified personnel, and
continue to commercialize products incorporating advanced
technologies.
ii. Our ability to achieve and maintain profitability and positive
cash flow is dependant upon our success in locating sufficient
customers who will purchase our products and use our services, and
our capacity to generate sufficient revenues.
IMPACT:
i. If our revenue grows more slowly than anticipated or if our
operating expenses are higher than expected, we may not be able to
achieve, sustain or increase profitability, in which case our
financial condition will suffer. We cannot assure you that we will
be successful in addressing these risks, and the failure to do so
would have a material adverse effect on our business, operating
results and financial condition.
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MANAGEMENT'S DISCUSSION & ANALYSIS
2. INSUFFICIENT CAPITAL - WE MAY NEED TO RAISE ADDITIONAL CAPITAL IN THE
FUTURE TO FUND OUR OPERATIONS
RISK: We need to raise additional capital to fund our operating expenses.
Our ability to obtain financing will depend, among other things, on the
Corporation's development efforts, business plan, operating performance and
the condition of the capital markets at the time we seek financing. There
can be no assurance that additional financing will be available on
favourable terms when required, or at all. In the event we raise additional
funds through the issuance of equity, equity-linked or debt securities,
those securities may have rights, preferences or privileges senior to the
rights of the Class A Common Shares, and shareholders may experience
dilution.
FACTORS:
i. In order to help ensure that we would have sufficient capital to
take advantage of our core business opportunities, we have taken
significant actions to reduce our operating expenses. However, most
of our operating expenses, such as employee compensation and lease
payments for facilities and equipment, are relatively stable, and
these expense levels are based in part on our expectations
regarding future revenues.
ii. As a result, any sustained shortfall in our revenues relative to
our expectations would negatively impact our financial results. We
then may not have sufficient capital to fund our operations.
IMPACT:
i. Such outcome could adversely impact our ability to respond to
competitive pressures or could prevent us from conducting all or a
portion of our planned operations. We may need to undertake
additional measures to reduce our operating expenses in the future.
ii. Our consolidated financial statements have been prepared on the
basis of the going concern assumption, meaning that it is
reasonably assumed that the Corporation will be able to realize its
assets and discharge its liabilities in the normal course of
operations. In light of operating losses suffered in the current
and past years, the Corporation's ability to realize its assets and
discharge its liabilities depends on the continued financial
support of its shareholders and creditors and its ability to obtain
additional financing. We cannot assure you that we will be
successful in addressing these risks, and the failure to do so
would have a material adverse effect on our business, operating
results and financial condition.
iii. The carrying amounts of assets, liabilities, revenues and expenses
presented in the financial statements and the balance sheet
classification have not been adjusted as it would be required if
the going concern assumption were not appropriate.
3. QUARTERLY FLUCTUATIONS - FLUCTUATIONS IN OUR REVENUES AND OPERATING
RESULTS MAY AFFECT OUR CASH RESOURCES AND RESULT IN WIDE FLUCTUATIONS
IN THE MARKET PRICE OF OUR SHARE.
RISK: Our quarterly and operating results are difficult to predict and have
fluctuated in the past, and may fluctuate in the future.
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MANAGEMENT'S DISCUSSION & ANALYSIS
FACTORS:
i. Our quarterly results are affected by a number of factors, many of
which are outside our control. In particular, we depend on
customers to demand our technology which may be dependant on their
systems integrators' roadmap for the enterprise-wide implementation
of business intelligence. In other circumstances, we depend on
customers to adopt our technology which may be delayed due to
internal plans and budgets.
IMPACT:
i. As a result, we may not be able to accurately predict our necessary
cash expenditures during each quarter or obtain timely financing to
cover any shortfalls.
ii. We also believe that period-to-period comparisons of our operating
results are not meaningful and that one should not rely on any such
comparisons as an indication of our future performance. It is
possible that our operating results in some quarters will be below
market expectations. This may cause the market price of our commons
shares to decline. When the market price of a company's share drops
significantly, shareholders often institute securities class action
lawsuits against that company. A lawsuit against us could cause us
to incur substantial costs and could divert management's attention
from our business.
b) OPERATIONAL RISKS
1. SALES CYCLE - OUR PRODUCT SALES CYCLE IS LENGTHY
RISK: The purchase of our products often requires significant,
executive-level investment and system design decisions by our customers.
Sales take a long time to conclude because we must provide a significant
level of education about the use and benefits of our products.
FACTORS:
i. We believe that many companies are not yet fully aware of the
benefits of enterprise- wide business intelligence solutions, nor
have such companies yet deployed business intelligence solutions on
an enterprise-wide basis.
ii. Accordingly, the sales cycle associated with the purchase of our
SAND/DNA Analytics products and our SAND/DNA Access products is
typically three to twelve months in length. During this period, a
potential sale is subject to a number of significant risks over
which we have little or no control, including customers' budgeting
constraints and internal acceptance review procedures including, in
some instances, approval by the board of directors of the customer.
IMPACT:
i. Based in part upon, among other things, our lengthy sales cycle,
the timing of sales is difficult to predict and our earnings and
operating results could vary significantly from quarter to quarter
during our current fiscal year. As a result of the long sales
cycle, it may take us a substantial amount of time to generate
revenue from our sales effort.
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MANAGEMENT'S DISCUSSION & ANALYSIS
2. MANAGING GROWTH - IF WE FAIL TO MANAGE OUR FUTURE GROWTH EFFECTIVELY,
WE MAY NOT BE ABLE TO MARKET AND SELL OUR PRODUCTS AND SERVICES
SUCCESSFULLY
RISK: Our future operating results depend to a large extent on our
management's ability to plan and direct our growth successfully, including
training our sales personnel to become productive and generate revenue,
forecasting revenue, controlling expenses, addressing new markets and
maintaining our research and development efforts.
FACTORS:
i. We are moving to secure and maintain effective partnerships with
SYSTEMS INTEGRATORS AND APPLICATION VENDORS which may take some
time to mature into predictable revenue producers.
ii. Competition for qualified SALES PERSONNEL is strong. Many of our
competitors have substantially greater resources than we to hiring
qualified sales personnel. In addition, turnover among our sales
force tends to slow sales efforts until replacement personnel are
recruited and trained.
iii. Our success in maintaining our INDIRECT CHANNELS, including value-
added resellers, resellers and distributors is important to our
ability to achieve revenue growth and improved operating margins on
product sales.
IMPACT:
i. Our prospects with SYSTEMS INTEGRATORS AND APPLICATION VENDORS are
difficult to predict and may change rapidly. You should consider
the risks, expenses and difficulties that we may encounter or incur
as a company now operating in a rapidly evolving market. Our
business strategy may not be successful, and we may not
successfully address these risks.
ii. We may not be able to attract and retain the SALES AND MARKETING
PERSONNEL we desire, even after spending significant resources to
do so, and the failure to do so could have a material adverse
effect on our business, operating results and financial condition.
iii. Despite the fact that we continue to invest resources to develop
our INDIRECT CHANNELS, we may not be able to continue to attract
and retain additional companies in our indirect channels that will
be able to market our products effectively and will be qualified to
provide timely and cost-effective customer support and services. In
addition, our agreements with companies in our indirect channels do
not restrict such companies from distributing competing products,
and in many cases, these agreements may be terminated by either
party without cause. We may not be able to successfully expand our
sales through indirect channels, and failure to do so could have a
material adverse effect on our business, operating results and
financial condition.
C) RISKS WHICH MAY AFFECT THE VALUE OF OUR SECURITIES
1. VOLATILITY IN SHARE PRICE - THE PRICE OF OUR CLASS A COMMON SHARES ON
THE OTC BULLETIN BOARD MAY BE VOLATILE AND COULD FLUCTUATE
SUBSTANTIALLY.
RISK: Our Class A common shares are currently listed on the OTC Bulletin
Board ("OTCBB") under the symbol SNDTF.OB. Our share price, which has
ranged from a low of US$0.31 to a
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MANAGEMENT'S DISCUSSION & ANALYSIS
high of US$0.83 during the past twelve months, could continue to be subject
to wide fluctuations.
FACTORS:
i. The volume of trading in our Class A common shares on the OTCBB has
not been substantial. As a result, even small dispositions or
acquisitions of our Class A common shares in the public market
could cause the market price to fall or increase substantially.
ii. Our share price could also be subject to wide fluctuations in
response to broad market and industry factors, actual or
anticipated variations in quarterly operating results, volatile
economic conditions, new products offered by us or our competitors,
changes in financial estimates by securities analysts and other
events or factors that may be beyond our control.
IMPACT:
i. When the market price of a company's share drops significantly,
shareholders often institute securities class action lawsuits
against that company. A lawsuit against us could cause us to incur
substantial costs and could divert management's attention from our
business.
2. SALES OF SHARES - FUTURE SALES OF OUR COMMON SHARES IN THE PUBLIC
MARKET COULD ADVERSELY AFFECT OUR SHARE PRICE.
RISK: We are authorized to issue an unlimited number of Class A common
shares, of which 14,318,189 shares are outstanding as of November 20, 2008,
and we have reserved an additional 937,000 Class A common shares for future
issuance. We have granted rights to purchase 1,144,000 Class A common
shares to directors, officers, employees and consultants upon the exercise
of options at prices ranging from US$0.69 to US$6.28 per share. In
addition, we have reserved another 652,500 Class A Common Shares for future
issuance at an exercise price of $0.001 per share.
IMPACT:
i. The issuance of these authorized or reserved shares could
substantially dilute the equity interest of our existing
shareholders and could result in a significant decrease to the
market price of our Class A common shares.
ii. The issuance of shares under the exercise of options could also
dilute the equity interest of our existing shareholders and could
result in a significant decrease to the market price of our Class A
Common Shares.
3. CONCENTRATED OWNERSHIP - EXISTING SHAREHOLDERS CONTINUE TO EXERCISE
EFFECTIVE CONTROL OVER US.
RISK: Our senior management and directors, together with entities
affiliated with those individuals, beneficially own approximately 34.5% of
our Class A common shares. Arthur G. Ritchie, our Chairman of the Board,
President and Chief Executive Officer and a director of SAND, beneficially
owns approximately 25.1% of SAND's Class A common shares. The Estate of
Jerome Shattner (Jerome Shattner was the late Executive Vice President of
the
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MANAGEMENT'S DISCUSSION & ANALYSIS
Corporation), beneficially owns 7.3% of our Class A common shares, while
George Wicker, a director of SAND, beneficially owns 1.9% of our Class A
common shares. Other senior management or directors own approximately 0.2%
of our Class A common shares.
IMPACT:
i. These shareholders may, as a practical matter, continue to be able
to control the election of a majority of the directors of SAND and
the determination of many corporate actions. This concentration of
ownership could have the effect of delaying or preventing a change
in control of SAND.
4. CLASS B SHARES - OUR ABILITY TO ISSUE CLASS B SHARES COULD MAKE IT
MORE DIFFICULT FOR A THIRD PARTY TO ACQUIRE US TO THE DETRIMENT OF
HOLDERS OF CLASS A COMMON SHARES.
RISK: Our articles of incorporation provide for an unlimited number of
Class B shares which, if ever they are issued, may make it difficult for a
third party to acquire control of us, even if a change in control would be
beneficial to our shareholders.
IMPACT:
i. Our board has the authority to attach special rights, including voting
or dividend rights, to the Class B shares. However, the voting
rights of a Class B share cannot exceed those of a Class A common
share. Class B shareholders who possess these rights could make it
more difficult for a third party to acquire our Corporation.
III. RISKS COMMON TO THE INDUSTRY:
The following risks are common to companies of the same profile as SAND and in
the similar industry as the one that SAND operates in,
a) TECHNOLOGY RISKS
1. ADOPTION RISK - WE DEPEND ON ENTERPRISES TO ADOPT ENTERPRISE-WIDE
IMPLEMENTATION OF BUSINESS INTELLIGENCE.
RISK: We are focusing our selling efforts increasingly on larger,
enterprise-wide implementations of our SAND/DNA Product Suite and we expect
such sales to constitute an increasing portion of any future revenue
growth. To date, our selling efforts have resulted in limited
enterprise-wide implementations of our SAND/DNA Product Suite.
IMPACT: While we have devoted resources to promoting market awareness of
our products and the needs our products address (including training our
sales personnel and demonstrating our products at industry conferences and
trade shows), we cannot assure you that these efforts will be sufficient to
build market awareness of the need for the enterprise-wide implementations
for business intelligence or acceptance of our products. Failure of a
significant market for enterprise business intelligence products to fully
develop, or failure of enterprise-wide implementations of our products to
achieve broad market acceptance, could have a material adverse effect on
our business, operating results and financial condition.
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MANAGEMENT'S DISCUSSION & ANALYSIS
2. RAPIDLY CHANGING TECHNOLOGY RISK - WE DEPEND ON ENTERPRISES TO ADOPT
OUR TECHNOLOGY.
RISK: The market for our products is characterized by rapidly changing
technology, evolving industry standards and customer requirements, emerging
competition, and frequent new product introductions. Our products
incorporate a number of advanced technologies, including a proprietary data
analysis engine, a distributed architecture, as well as Web access and
delivery technology. We may be required to change and improve our products
in response to changes in operating systems, applications, networking and
connectivity software, computer and communications hardware, programming
tools and computer language technology.
IMPACT:
i. As a result, the life cycle of our products is difficult to
estimate. We attempt to establish and maintain partner alliances
with influential companies in a variety of core technology areas to
help us successfully respond to changing technology, identify new
product opportunities, or develop and bring new products to market
in a timely and cost- effective manner. Our failure to establish
such alliances could have a material adverse effect on our
business, operating results and financial condition.
ii. We have in the past experienced delays in software development and
there can be no assurance that we will not experience delays in
connection with our current or future product development
activities. Our failure, for technological or other reasons, to
develop and introduce new products and product enhancements on a
timely basis could have a material adverse effect on our business,
operating results and financial condition.
iii. In addition, we or our competitors may announce enhancements to
existing products, or new products that have the potential to
supplant or provide lower cost alternatives to our existing
products. The introduction of such enhancements or new products
could render our existing products obsolete and unmarketable.
Furthermore, introduction by us of products with reliability,
quality or compatibility problems could result in reduced orders,
delays in collecting accounts receivable, and additional service
costs. The failure to introduce a new product or product
enhancement on a timely basis could delay or hinder market
acceptance. Research and development efforts may require us to
expend significant capital and other resources. Any such event
could have a material adverse effect on our business, operating
results and financial condition.
3. COMPLEXITY OF PRODUCTS - OUR SOLUTIONS ARE HIGHLY TECHNICAL AND ANY
UNDETECTED SOFTWARE ERRORS, FAILURES OR VIRUSES IN OUR PRODUCTS MAY BE
SUBJECT TO PRODUCT LIABILITY CLAIMS FOR SUCH DEFECTS.
RISK: Despite our testing of new products and their use by current and
potential customers when first introduced or when new enhancements are
released, we cannot assure you that there will be no defects or errors in
new products or enhancements in our commercial shipments.
34
<Page>
MANAGEMENT'S DISCUSSION & ANALYSIS
IMPACT:
i. Although we have not experienced material adverse effects resulting
from any such defects and errors to date, we cannot assure you that
defects and errors will not be found in new products or
enhancements, resulting in loss of revenues, delay in market
acceptance or damage to our reputation, which could have a material
adverse effect upon our business, operating results and financial
condition.
ii. While our license agreements with our customers typically contain
provisions designed to limit our exposure for potential claims
based on errors or malfunctions of our products, it is possible,
however, that these provisions may not be effective under the laws
of certain jurisdictions. Although we have not experienced any
product liability claims to date, the sale and support of our
products entails the risk of such claims. Although we carry
insurance against product liability risks, we cannot assure you
that such insurance would be adequate to cover a potential claim. A
product liability claim brought against us could have a material
adverse effect on our business, operating results and financial
condition.
4. PROPRIETARY RIGHTS - THERE IS LIMITED PROTECTION OF OUR PROPRIETARY
RIGHTS.
RISK: We currently rely mainly on a combination of copyright and trademark
laws, patents, trade secrets, confidentiality procedures and contractual
provisions to protect our proprietary rights. We seek to protect our
software, documentation and other written materials under trade secret and
copyright laws, which afford only limited protection. We currently have
eight United States patents and thirty-two foreign patents. We cannot
assure you that our patents will not be invalidated, circumvented or
challenged, or that the rights granted under our patents will provide
competitive advantages to us. Others may develop technologies that are
similar or superior to our technology or design around any patent that may
be owned by us.
IMPACT:
i. Despite our efforts to protect our proprietary rights, unauthorized
parties may attempt to copy aspects of our products or to obtain
and use information that we regard as proprietary. Policing
unauthorized use of our products is difficult, and while we are
unable to determine the extent to which piracy of our software
products exists, we can expect software piracy to be a persistent
problem.
ii. In addition, the laws of some foreign countries do not protect our
proprietary rights as fully as do the laws of the United States and
Canada. There can be no assurance that our means of protecting our
proprietary rights in North America or abroad will be adequate. We
have entered into source code escrow agreements with a number of
our customers and indirect channel partners requiring release of
source code under certain conditions. The provision of source code
escrows may increase the likelihood of misappropriation by third
parties. Although we are not currently aware of any claims asserted
by third parties that we infringe on their intellectual property,
we expect that in the future software product developers will
increasingly be subject to infringement claims as the number of
products and competitors in our industry segment grows and the
functionality of products in different industry segments overlaps.
Any such claims, with or without merit, could be time consuming to
defend, result in costly litigation, divert management's attention
and resources, cause product shipment delays or require us to
35
<Page>
MANAGEMENT'S DISCUSSION & ANALYSIS
enter into royalty or licensing agreements which may not be
available on terms acceptable to us, if at all. In the event of a
successful claim of product infringement against us and our failure
or inability to license the infringed or similar technology, our
business, operating results and financial condition could be
materially adversely affected.
5. THIRD PARTY SOFTWARE USE - THERE MAY BE LIMITED SUPPORT OF THIRD PARTY
SOFTWARE
RISK: We may rely upon certain software that we license from third parties,
including software that may be integrated with our internally-developed
software and used in our products to perform key functions. We cannot
assure you that these third-party software licenses will be available to us
on terms acceptable to us or indeed that our suppliers will continue to
support their software or remain in business.
IMPACT:
Our inability to obtain or maintain any such software licenses could result
in shipment delays or reductions until equivalent software could be
developed, identified, licensed and integrated, which could have a material
adverse effect on our business, operating results and financial condition.
b) BUSINESS RISKS
1. COMPETITIVE ENVIRONMENT - WE OPERATE IN A HIGHLY COMPETITIVE
ENVIRONMENT.
RISK: We compete in the highly competitive computer software industry as a
result of bringing our SAND/DNA Analytics products, SAND/DNA Access and
more recently our SAND/DNA for SAP BI products to market. The market in
which we operate is still developing and is intensively competitive, highly
fragmented, and characterized by rapidly changing technology and evolving
standards. Our current and potential competitors offer a variety of
solutions and generally fall within several categories:
- vendors that offer data warehouse appliances which operate
specifically with their proprietary platform such as Netezza, NCR
Teradata and DATAllegro;
- software vendors that offer products which focus on structured data
archiving such as FileTek and PBS;
- other companies that may in the future announce offerings of
enterprise information management solutions.
IMPACT:
i. Our competitive position in our market is uncertain and changing
due principally to the variety of current and potential competitors
and the emerging nature of the market. Over the last year, we have
been able to establish ourselves as complementary to many of the
vendors that were seen as competitors with respect to SAND/DNA
Analytics. We now have offerings that complement SAP BI, Oracle,
IBM DB2 and Microsoft SQL warehouse. We expect additional
competition as other established and emerging companies enter into
the intelligent information management software market and new
products and technologies are introduced. Increased competition
could result in price reductions, fewer customer orders, reduced
gross margins, longer sales cycles, and loss of market share.
36
<Page>
MANAGEMENT'S DISCUSSION & ANALYSIS
ii. Current and potential competitors may make strategic acquisitions
or establish cooperative relationships among themselves or with
third parties, thereby increasing the ability of their products to
address the needs of our prospective customers. Our current or
future indirect channel partners including systems integrators and
application vendors may establish cooperative relationships with
our current or potential competitors and limit our ability to sell
products through particular distribution channels. Such competition
could have a material adverse effect on our ability to enter into
new licensing agreements, and maintenance and support renewals for
existing licensing agreements, with respect to our products.
Competitive pressures could also require us to reduce the price of
our products.
iii. We compete mainly on the basis of product features, lower Total
Cost of Ownership (TCO), Return on Investment (ROI), time to
market, ease of use, product performance, product quality, user
scalability, open architecture, customer support and price. While
we believe we presently compete favourably with respect to each of
these factors, some potential customers may be reluctant to work
with us due to our share price or our current financial situation.
iv. We cannot assure you that we will be able to compete successfully
against current and future competitors, and the failure to do so
could have a material adverse effect on our business, operating
results and financial condition.
2. INTERNATIONAL BUSINESS - THE INTERNATIONAL NATURE OF OUR BUSINESS
EXPOSES US TO FINANCIAL AND REGULATORY RISKS.
RISK: Revenues earned outside North America are expected to remain
significant in the future. We have sales offices in the United Kingdom and
Germany. The following table summarizes the percentage of sales generated
outside North America.
<Table>
<Caption>
-----------------
2005 52%
-----------------
2006 70%
2007 71%
2008 66%
-----------------
</Table>
A key component of our strategy is our planned expansion into additional
international markets. To facilitate this international expansion, we need
to localize our products for the additional foreign markets.
IMPACT:
i. If the revenues generated by these expanded international
operations do not offset the expense of establishing and
maintaining these foreign operations, there could be a material
adverse effect on our business, operating results and financial
condition. To date, we have only limited experience in developing
localized versions of our products and marketing and distributing
our products internationally. We cannot assure you that we will be
able to successfully localize, market, sell and deliver our
products in these markets.
37
<Page>
MANAGEMENT'S DISCUSSION & ANALYSIS
ii. There are also additional risks in doing business on an
international level, such as increased difficulty in controlling
operating expenses, unexpected changes in regulatory requirements,
tariffs and other trade barriers, difficulties in staffing and
managing foreign operations, longer payment cycles, problems in
collecting accounts receivable, political instability, fluctuations
in currency exchange rates, seasonal reductions in business
activity, and potentially adverse tax consequences. These risks
could adversely impact the success of our international operations.
We cannot assure you that one or more of these factors will not
have a material adverse effect on our future international
operations and, consequently, on our business, operating results
and financial condition.
38
<Page>
MANAGEMENT'S DISCUSSION & ANALYSIS
3. KEY PERSONNEL - WE DEPEND ON KEY PERSONNEL.
RISK: Our success depends to a significant degree upon the continued
contributions of our research and development and sales and marketing
teams, as well as our management, some of whom would be difficult to
replace.
IMPACT:
i. We believe that our future success will depend in large part upon
our ability to attract and retain highly skilled managerial,
engineering, sales and marketing, and finance personnel.
Competition for qualified personnel remains strong, and there can
be no assurance that we will be successful in attracting and
retaining such personnel.
ii. We have in the past experienced difficulties in hiring highly
qualified sales and engineering personnel. The loss of the services
of any of our other key personnel, the inability to attract or
retain qualified personnel in the future or delays in either hiring
required personnel or the rate at which new people become
productive, particularly sales personnel and engineers, could have
a material adverse effect on our business, operating results and
financial condition.
4. PRESSURES IN THE GLOBAL FINANCIAL SYSTEM MAY ADVERSELY AFFECT OUR
FINANCES AND OPERATIONS IN WAYS THAT MAY BE HARD TO PREDICT OR TO
DEFEND AGAINST
Recent events have demonstrated that business and industries throughout the
world are intertwined to a degree that we do not always realize. Thus,
events seemingly unrelated to us or to our industry may adversely affect us
over the course of time. For example, rapid changes to the foreign currency
exchange regime may adversely affect our financial results. Credit
contraction in financial markets may hurt our ability to access credit in
time of need. A reduction in credit, combined with reduced economic
activity, may adversely affect businesses and industries that collectively
constitute a significant portion of our customer base. As a result, these
customers may need to reduce their purchases of our products or services,
or we may experience greater difficulty in receiving payment for the
products or services that these customers purchase from us. Any of these
events, or any other events caused by turmoil in world financial markets,
may have a material adverse effect on our business, operating results, and
financial conditions.
39
<Page>
MANAGEMENT'S DISCUSSION & ANALYSIS
F. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Our disclosure controls and procedures are designed to provide reasonable
assurance that information required to be disclosed by us is recorded,
processed, summarized and reported within the time periods specified under
Canadian and U.S. securities laws and include controls and procedures that are
designed to ensure that the information is accumulated and communicated to
management, to allow timely decisions regarding required disclosure.
As of July 31, 2008, an evaluation of the effectiveness of our disclosure
controls and procedures, as defined in RULE 13(a)-15(e) UNDER THE U.S.
SECURITIES EXCHANGE ACT OF 1934 and under REGULATION 52-109 OF THE QUEBEC
SECURITIES ACT, was carried out by management under the supervision of, and with
the participation of, the President and CEO and the CFO. Based on that
evaluation, the President and CEO and the CFO concluded that the design and
operation of our disclosure controls and procedures were effective as at July
31, 2008.
MANAGEMENT REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining adequate internal
control over financial reporting, as defined in RULE 13A-15(f) UNDER THE U.S.
SECURITIES EXCHANGE ACT OF 1934 and under REGULATION 52-109 OF THE QUEBEC
SECURITIES ACT. Internal control over financial reporting is a process designed
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with GAAP. All internal control systems, no matter how well designed, have
inherent limitations. Therefore, even those systems determined to be effective
can provide only reasonable assurance with respect to financial statement
preparation and presentation.
Management has evaluated the design and operation of the Corporation's internal
control over financial reporting as of July 31, 2008, based on the framework and
criteria established in INTERNAL CONTROL - INTEGRATED FRAMEWORK issued by the
COSO. Management's assessment included evaluation of elements such as the design
and operating effectiveness of key financial reporting controls, process
documentation, accounting policies, and our overall control environment. Based
on this assessment, management has concluded that the Corporation's internal
control over financial reporting as of July 31, 2008 is effective.
ADDITIONAL INFORMATION
Additional information about SAND may be obtained from the website of the
Corporation at www.sand.com or on SEDAR at www.sedar.com
40
<Page>
MANAGEMENT'S STATEMENT OF RESPONSIBILITY FOR FINANCIAL REPORTING
The management of SAND Technology Inc. (the "Corporation") is responsible for
the preparation and integrity of the consolidated financial statements and the
Management's Discussion and Analysis ("MD&A"). The consolidated financial
statements have been prepared in accordance with accounting principles generally
accepted in Canada and necessarily include some amounts that are based on
management's best estimates and judgment. Financial and operating data elsewhere
in the MD&A are consistent with that contained in the accompanying consolidated
financial statements.
To assist management in the discharge of these responsibilities, the Corporation
maintains a system of internal controls over financial reporting designed to
provide reasonable assurance that accounting records are reliable and assets are
safeguarded.
The Board of Directors appoints the Audit Committee. The Audit Committee meets
with management as well as with the external auditors to satisfy itself that
management is properly discharging its financial reporting responsibilities and
to review these consolidated financial statements and the Independent Auditors'
Report. The Audit Committee reports its findings to the Board of Directors for
consideration in approving these consolidated financial statements for
presentation to the shareholders. The independent registered chartered
accountants have direct access to the Audit Committee of the Board of Directors.
The consolidated financial statements and MD&A have been reviewed and approved
by the Board of Directors.
Raymond Chabot Grant Thornton LLP has audited these consolidated financial
statements independently on behalf of the shareholders, in accordance with
Canadian generally accepted accounting standards and the standards of the Public
Company Accounting Oversight Board (United States). Their report outlines the
nature of their audit and expresses their opinion on these consolidated
financial statements.
/s/ Arthur G. Ritchie /s/ Zainab A. Schwartz
Arthur G. Ritchie Zainab A. Schwartz
President and Chief Executive Officer Vice-President, Finance and Chief
Financial Officer
November 18, 2008
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining adequate internal
control over financial reporting, as defined in RULE 13A-15(f) UNDER THE U.S.
SECURITIES EXCHANGE ACT OF 1934 and under REGULATION 52-109 OF THE QUEBEC
SECURITIES ACT. Internal control over financial reporting is a process designed
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with GAAP. All internal control systems, no matter how well designed, have
inherent limitations. Therefore, even those systems determined to be effective
can provide only reasonable assurance with respect to financial statement
preparation and presentation.
Management has evaluated the design and operation of the Corporation's internal
control over financial reporting as of July 31, 2008, based on the framework and
criteria established in INTERNAL CONTROL - INTEGRATED FRAMEWORK issued by the
COSO. Management's assessment included evaluation of elements such as the design
and operating effectiveness of key financial reporting controls, process
documentation, accounting policies, and our overall control environment. Based
on this assessment, management has concluded that the Corporation's internal
control over financial reporting as of July 31, 2008 is effective.
/s/ Arthur G. Ritchie /s/ Zainab A. Schwartz
Arthur G. Ritchie Zainab A. Schwartz
President and Chief Executive Officer Vice-President, Finance and Chief
Financial Officer
November 18, 2008
41
<Page>
INTENTIONALLY LEFT BLANK
42
<Page>
SAND TECHNOLOGY INC.
CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2008, 2007 AND 2006
43
<Page>
INTENTIONALLY LEFT BLANK
44
<Page>
INDEPENDENT AUDITORS' REPORT
To the Shareholders
SAND Technology Inc.
We have audited the consolidated balance sheets of SAND Technology Inc. and
subsidiaries (the "Corporation") as at July 31, 2008 and 2007 and the
consolidated statements of operations and comprehensive loss, shareholders'
deficiency and cash flows for each of the years in the three-year period ended
July 31, 2008. 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.
We conducted our audits in accordance with Canadian generally accepted auditing
standards and standards of the Public Company Accounting Oversight Board (United
States). These standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Corporation as
at July 31, 2008 and 2007 and the results of its operations and its cash flows
for each of the years in the three-year period ended July 31, 2008 in accordance
with Canadian generally accepted accounting principles.
The Corporation is not required to have, nor were we engaged to perform, audits
of its internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the
Corporation's internal control over financial reporting. Accordingly, we express
no such opinion.
RAYMOND CHABOT GRANT THORNTON LLP
Chartered Accountants
Montreal, Canada
October 31, 2008
45
<Page>
COMMENTS BY INDEPENDENT AUDITORS FOR U.S. READERS ON CANADA-U.S. REPORTING
DIFFERENCES
The standards of the Public Company Accounting Oversight Board (United States)
require the addition of an explanatory paragraph (following the opinion
paragraph) when the consolidated financial statements are affected by conditions
and events that cast substantial doubt on the Corporation's ability to continue
as a going concern, such as those described in Note 2 to the consolidated
financial statements of the Corporation. Our report to the shareholders and
Board of Directors, dated October 31, 2008, is expressed in accordance with
Canadian reporting standards, which do not require a reference to such events
and conditions in the independent auditors' report when the events and
conditions are properly accounted for and adequately disclosed in the financial
statements.
RAYMOND CHABOT GRANT THORNTON LLP
Chartered Accountants
Montreal, Canada
October 31, 2008
46
<Page>
SAND TECHNOLOGY INC.
CONSOLIDATED BALANCE SHEETS
July 31, 2008 and 2007
(In Canadian dollars, unless otherwise noted)
- --------------------------------------------------------------------------------
<Table>
<Caption>
2008 2007
----------- -----------
$ $
ASSETS
Current assets
Cash 775,443 330,711
Accounts receivable 1,573,867 1,582,957
Unbilled receivable 245,184 -
----------- -----------
Prepaid expenses 86,224 150,964
2,680,718 2,064,632
Capital assets (Note 4) 122,314 181,669
Other assets (Note 5) - 110,847
----------- -----------
2,803,032 2,357,148
=========== ===========
LIABILITIES
Current liabilities
Accounts payable and accrued liabilities (Note 6) 1,327,575 1,076,116
Deferred revenue 1,111,640 1,305,270
Due to a shareholder (Note 7) 1,267,701 750,144
----------- -----------
3,706,916 3,131,530
Long-term liabilities
Deferred credits 78,232 107,569
Convertible debentures (Note 8) 278,343 -
----------- -----------
4,063,491 3,239,099
----------- -----------
SHAREHOLDERS' DEFICIENCY
Share capital (Note 9)
Authorized
Unlimited number of class "A" common shares, without par value
Issued
14,318,189 class "A" common shares (14,318,189 in 2007) 38,530,441 38,530,441
Equity component of convertible debentures (Note 8) 446,027 -
Contributed surplus (Note 9b)) 752,525 305,110
Deficit (40,989,452) (39,717,502)
----------- -----------
(1,260,459) (881,951)
----------- -----------
2,803,032 2,357,148
=========== ===========
Basis of presentation (Note 2)
Commitments (Note 12)
</Table>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
On behalf of the Board,
/s/ Arthur G. Ritchie /s/ Wayne Musselman
- -------------------------------------- -----------------------------------
Arthur G. Ritchie, Director Wayne Musselman, Director
47
<Page>
SAND TECHNOLOGY INC.
CONSOLIDATED OPERATIONS AND COMPREHENSIVE LOSS
Years ended July 31, 2008, 2007 and 2006
(In Canadian dollars, unless otherwise noted)
- --------------------------------------------------------------------------------
<Table>
<Caption>
2008 2007 2006
------------ ------------ ------------
$ $ $
REVENUE 6,998,472 6,728,540 5,477,485
------------ ------------ ------------
Operating expenses
Cost of sales and product support 1,470,215 1,666,331 1,554,313
Research and development costs, net (Note 10) 1,971,813 2,215,146 2,441,950
Amortization of capital assets and other assets (Notes 4 and 5) 187,517 201,274 248,455
Selling, general and administrative expenses 4,411,736 5,100,057 5,220,443
------------ ------------ ------------
8,041,281 9,182,808 9,465,161
------------ ------------ ------------
Loss from operations (1,042,809) (2,454,268) (3,987,676)
------------ ------------ ------------
Interest income (expenses)
Amortization of the debt component of the convertible debentures discount (17,966) - -
Interest on due to shareholders (198,000) (72,256) -
Interest income (expense) - other (13,175) - 60,755
------------ ------------ ------------
(229,141) (72,256) 60,755
------------ ------------ ------------
NET LOSS AND COMPREHENSIVE LOSS (1,271,950) (2,526,524) (3,926,921)
============ ============ ============
Basic and diluted loss per share (Note 9) (0.09) (0.19) (0.31)
============ ============ ============
Basic and diluted weighted average number of common shares outstanding 14,318,189 13,094,288 12,818,189
============ ============ ============
</Table>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
48
<Page>
SAND TECHNOLOGY INC.
CONSOLIDATED SHAREHOLDERS' DEFICIENCY
Years ended July 31, 2008, 2007 and 2006
(In Canadian dollars, unless otherwise noted)
- --------------------------------------------------------------------------------
<Table>
<Caption>
Share capital
--------------------------
Equity
component of Shareholders'
Number of convertible Contributed equity
shares Amount debentures surplus Deficit (deficiency)
----------- ------------- ------------ ----------- ------------- -------------
$ $ $ $ $
Shareholders' equity as at July 31, 2005 12,818,189 38,024,756 74,000 (33,264,057) 4,834,699
Net loss (3,926,921) (3,926,921)
Stock-based compensation (Note 9) 29,000 29,000
----------- ------------- ------------ ----------- ------------- -------------
Shareholders' equity as at July 31, 2006 12,818,189 38,024,756 103,000 (37,190,978) 936,778
Share capital issuance 1,500,000 675,795 675,795
Net loss (2,526,524) (2,526,524)
Warrants issuance (Note 9) (170,110) 170,110
Stock-based compensation (Note 9) 32,000 32,000
----------- ------------- ------------ ----------- ------------- -------------
Shareholders' deficiency as at July 31, 2007 14,318,189 38,530,441 305,110 (39,717,502) (881,951)
Net loss (1,271,950) (1,271,950)
Stock-based compensation (Note 9) 144,000 144,000
Convertible debentures issuance (equity
component) (Note 8) 446,027 446,027
Warrants issuance with the convertible
debentures (Note 8) 303,415 303,415
----------- ------------- ------------ ----------- ------------- -------------
Shareholders' deficiency as at July 31, 2008 14,318,189 38,530,441 (446,027) (752,525) (40,989,452) (1,260,459)
=========== ============= ============ =========== ============= =============
</Table>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
49
<Page>
SAND TECHNOLOGY INC.
CONSOLIDATED CASH FLOWS
Years ended July 31, 2008, 2007 and 2006
(In Canadian dollars, unless otherwise noted)
- --------------------------------------------------------------------------------
<Table>
<Caption>
2008 2007 2006
----------- ----------- -----------
$ $ $
OPERATING ACTIVITIES
Net loss and comprehensive loss (1,271,950) (2,526,524) (3,926,921)
Non-cash items
Amortization of capital assets and other assets 187,517 201,274 248,455
Stock-based compensation 144,000 32,000 29,000
Amortization of the debt component of the convertible
debentures discount 17,966 - -
Changes in working capital items
Accounts receivable 9,090 (96,670) 75,326
Unbilled receivable (245,184) - -
Prepaid expenses 64,740 (57,738) 34,505
Accounts payable and accrued liabilities 251,459 365,234 (362,717)
Deferred revenue (193,630) 74,176 (216,898)
----------- ----------- -----------
Cash flows from operating activities (a) (1,035,992) (2,008,248) (4,119,250)
----------- ----------- -----------
INVESTING ACTIVITIES
Capital assets and cash flows from investing activities (17,315) (40,730) (72,240)
----------- ----------- -----------
FINANCING ACTIVITIES
Due to a shareholder 517,557 320,683 17,463
Share capital issuance - (17,966) -
Convertible debentures issuance 1,009,819 - -
Amortization of deferred credits (29,337) (29,337) (29,337)
----------- ----------- -----------
Cash flows from financing activities 1,498,039 967,141 (11,874)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH 444,732 (1,081,837) (4,203,364)
Cash, beginning of year 330,711 1,412,548 5,615,912
----------- ----------- -----------
Cash, end of year 775,443 330,711 1,412,548
=========== =========== ===========
(a) Additional information Interest paid 211,176 70,938 -
=========== =========== ===========
</Table>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
50
<Page>
SAND TECHNOLOGY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2008, 2007 and 2006
(In Canadian dollars, unless otherwise noted)
1. NATURE OF OPERATIONS
SAND Technology Inc. and its subsidiaries (the "Corporation") is involved in the
design, development, marketing and support of software products and services
that a) reduce large amount of data into a tiny footprint; and b) enable users
to retrieve usable business information from large amounts of data. The software
products, collectively known as the SAND/DNA Product Suite, are designed to
provide an efficient and cost effective way for business users to make fast and
easy inquiries of large databases without the intervention of specialist
information technology professionals.
2. BASIS OF PRESENTATION
The financial statements have been prepared in accordance with Canadian
generally accepted accounting principles and on the basis of the going concern
assumption, meaning that it is reasonably assumed that the Corporation will be
able to realize its assets and discharge its liabilities in the normal course of
operations.
In light of operating losses suffered in the current and past years, the
Corporation's ability to realize its assets and discharge its liabilities
depends on the continued financial support of its shareholders and debenture
holders, its ability to obtain additional financing and its ability to achieve
revenue growth. The Corporation is executing a business plan to allow it to
continue as a going concern which is to continue to search for additional
sources of debt and equity financing, and achieve profitability through cost
containment and revenue growth. There can be no assurance that the Corporation's
activities will be successful.
While the financial statements have been prepared on the basis of accounting
principles applicable to a going concern, current global economic turbulence and
liquidity crisis cast substantial doubt upon the validity of this assumption. If
the going concern assumption was not appropriate for these financial statements,
then adjustments would be necessary in the carrying values of the assets and
liabilities, the reported net losses and the balance sheet classifications used.
3. ACCOUNTING POLICIES
CURRENT ACCOUNTING POLICIES
ACCOUNTING ESTIMATES
The preparation of financial statements in accordance with Canadian generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts recorded in the financial statements and
notes to financial statements. These estimates are based on management's best
knowledge of current events and actions that the Corporation may undertake in
the future. The most significant estimates relate to the issuance of convertible
debentures, options, Share Award Plan, warrants and R&D provision. Actual
results may differ from these estimates.
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PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of SAND Technology
Inc. and its wholly-owned subsidiaries which are located in Germany, United
Kingdom, Ireland and United States. All intercompany transactions and balances
have been eliminated.
REVENUE RECOGNITION
The Corporation generates revenues principally through two sources: software
licences and services. Software licence revenues are normally generated from
licensing the perpetual use of the Corporation's software products. Service
revenues are generated from sales of maintenance, implementation, consulting and
training services performed for customers that licence the Corporation's
products.
Revenue from the sale of software licence agreements is recognized upon delivery
of software if persuasive evidence of an arrangement exists, collection is
probable, the fee is fixed or determinable and vendor-specific evidence of an
arrangement exists to allocate the total fee to the different elements of an
arrangement. Vendor-specific objective evidence (VSOE) is typically based on the
price charged when an element is sold separately or, in the case of an element
not yet sold separately, the price established by management if it is probable
that the price, once established, will not change before market introduction. If
VSOE of all undelivered elements exists but evidence does not exist for one or
more delivered elements, then revenue is recognized using the residual method.
Under the residual method, the fair value of the undelivered elements is
deferred, and the remaining portion of the agreement fee related to the
delivered elements is recognized as revenue provided that all other revenue
recognition criteria are met. If evidence of fair value of one or more
undelivered elements cannot be established, revenue is deferred and recognized
ratably over the last undelivered element.
In circumstances where the implementation services are essential to the
functionality of the software or where the software requires significant
customization, the Corporation recognizes software licence revenue using the
percentage-of-completion method over the implementation period. The
percentage-of-completion is measured by the percentage of implementation hours
incurred to date to total estimated implementation hours. Past experience has
shown expended hours to be the best measure of progress.
Revenues from maintenance services for licences previously sold and implemented
are recognized ratably over the term of the contract.
Revenues from sales with extended payment terms are recognized when
collectibility is reasonably assured.
Revenues from consulting and training services not considered as part of the
implementation of software licences are recognized as the services are provided.
Amounts received in advance of the delivery of products or performance of
services are classified as deferred revenue.
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CAPITAL ASSETS
Capital assets are recorded at cost and are amortized over their estimated
useful lives using the straight-line method over the following periods:
PERIODS
-------------------------------
Furniture and equipment 5 years
Computer equipment 3 years
Leasehold improvements Over the lease term of 10 years
OTHER ASSETS
Contract costs are comprised of an amount paid to a vendor upon the transfer of
a long-term service contract and are amortized ratably over the term of the
contract ending in 2008.
IMPAIRMENT OF LONG-LIVED ASSETS
Capital assets and intangible assets subject to amortization are tested for
recoverability when events or changes in circumstances indicate that their
carrying amount may not be recoverable. The carrying amount of a long-lived
asset is not recoverable when it exceeds the sum of the undiscounted cash flows
expected from its use and eventual disposal. In such a case, an impairment loss
must be recognized and is equivalent to the excess of the carrying amount of a
long-lived asset over its fair value.
SHARE ISSUANCE COSTS
Costs directly identifiable with the raising of share capital financing are
charged against share capital. Share issuance costs incurred in advance of share
subscriptions are recorded as non-current deferred assets. Share issuance costs
related to uncompleted share subscriptions are charged to operations.
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 costs.
INCOME TAXES
The Corporation uses the liability method of accounting for income taxes. Under
this method, future income tax assets and liabilities are determined according
to differences between the carrying amounts and tax bases of assets and
liabilities. They are measured by applying enacted or substantively enacted tax
rates and laws at the date of the financial statements for the years in which
the temporary differences are expected to reverse. The Corporation records a
valuation allowance for future income tax assets if, based on available
information, it is more likely than not that some or all of the future income
tax assets will not be realized.
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DEFERRED CREDITS
Deferred credits include deferred lease inducements, which are amortized on a
straight-line basis over the term of the lease as a deduction of lease expense.
FOREIGN CURRENCY TRANSLATION
Monetary assets and liabilities in foreign currency of Canadian corporations and
integrated foreign operations are translated at the exchange rate in effect at
the balance sheet date. Non-monetary items are translated at the historical
rate. Revenue and expenses in foreign currency are translated at the average
rate in effect during the year, with the exception of revenue and expenses
relating to non-monetary assets and liabilities, which are translated at the
historical rate. Gains and losses are included in operations for the year.
LOSS PER SHARE
Per share computations are based on the weighted average number of shares
outstanding during the year. The dilutive effect of options, warrants and shares
from the Share Award Plan is determined using the treasury stock method.
STOCK-BASED COMPENSATION AND OTHER STOCK-BASED PAYMENTS
The Corporation accounts for stock-based compensation under the recommendations
of Section 3870 of the CANADIAN INSTITUTE OF CHARTERED ACCOUNTANTS' HANDBOOK
(CICA HANDBOOK), "Stock-based Compensation and Other Stock-based Payments",
which sets standards for recognizing, measuring and disclosing stock-based
compensation and other stock-based payments made in exchange for goods and
services. The standards require the Corporation to use a fair-value based method
for all stock-based awards and the recognition of an expense in the financial
statements. See Note 9 for additional information.
GUARANTEES
In the normal course of its operations, the Corporation has entered into
agreements that contain certain features which meet the definition of a
guarantee under the guidance provided by Accounting Guideline AcG-14.
Certain agreements with customers include intellectual-property indemnification
obligations that are customary in the industry. These obligations would
generally require the Corporation to compensate a third party for certain
damages and claims incurred as a result of third-party intellectual-property
claims arising from these agreements.
The nature of these obligations prevents the Corporation from making a
reasonable estimate of the maximum potential amount it could be required to pay.
Historically, the Corporation has not made any payments under such obligations.
In addition, the Corporation has provided warranties as part of the sale of its
subsidiary for claims against it related to conditions existing prior to the
sale. The warranties expire in 2010.
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ADOPTION OF NEW ACCOUNTING POLICIES
The Corporation adopted the following new CICA HANDBOOK sections issued by the
Canadian Institute of Chartered Accountants (CICA) which were effective for the
Corporation for the interim periods beginning on or after August 1, 2007.
FINANCIAL INSTRUMENTS - RECOGNITION AND MEASUREMENT
The CICA issued CICA HANDBOOK Section 3855, "Financial Instruments - Recognition
and Measurement". The Section is effective for annual and interim periods
beginning on or after October 1, 2006. It describes the standards for
recognizing and measuring financial assets, financial liabilities and
non-financial derivatives. The Section requires that i) all financial assets be
measured at fair value, with some exceptions such as loans and investments that
are classified as held to maturity, ii) all financial liabilities be measured at
fair value when they are derivatives or classified as held-for-trading purposes
(other financial liabilities are measured at their carrying value), and iii) all
derivative financial instruments be measured at fair value, even when they are
part of a hedging relationship.
The transitional provision of this section requires that the Corporation
re-measure the financial assets and liabilities as appropriate at the beginning
of its fiscal year. Any adjustment of the previous carrying amount is recognized
as an adjustment of the balance of retained earnings or deficit at the beginning
of the fiscal year of initial application or as an adjustment of the opening
balance of a separate component of accumulated other comprehensive income, as
appropriate. The financial statements of the prior fiscal years are not
restated.
The adoption of these recommendations resulted in the accounting choices as
described below for the Corporation's financial assets and liabilities:
- - Cash is classified as HELD-FOR-TRADING FINANCIAL ASSETS. It is measured at
fair value and changes in fair value are recognized in operations. This
change had no impact on the Corporation's consolidated financial
statements;
- - Trade accounts receivable are classified as LOANS AND RECEIVABLE. They are
measured at amortized cost, which is generally the initially recognized
amount, less any allowance for doubtful accounts. This change had no impact
on the Corporation's consolidated financial statements;
- - Accounts payable and accrued liabilities, and due to a shareholder are
classified as OTHER FINANCIAL LIABILITIES. They are measured at amortized
cost using the effective interest rate method, except for due to a
shareholder which is at cost. Interest calculated using the effective
interest method is presented in operations under Interest expenses. This
change had no impact on the Corporation's consolidated financial
statements;
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- - Convertible debentures are classified as other financial liabilities. They
are measured at amortized cost using the effective interest rate method.
Interest calculated using the effective interest method is presented in
operations under Interest expenses. Financing cost are recognized in net
income.
FINANCIAL INSTRUMENTS - DISCLOSURE AND PRESENTATION
The CICA issued revisions to CICA HANDBOOK Section 3860 and issued the new CICA
HANDBOOK Section 3861, "Financial Instruments - Disclosure and Presentation".
The revisions change the accounting for certain financial instruments that have
liability and equity characteristics. These revisions come into effect for years
beginning on or after October 1, 2006. See Notes 8 and 9 for the impact in the
disclosure and presentation of the Corporation's consolidated financial
statements due to the convertible debentures that were issued during the year.
INTEREST DISCOUNT OR PREMIUM IN THE STATEMENT OF CASH FLOWS
In July 2007, the Emerging Issues Committee of the CICA issued revisions to the
EIC-47, "Interest Discount or Premium in the Statement of Changes in Financial
Position". EIC-47 clarifies the presentation in the statement of cash flows of
transactions involving acquisition of a financial asset or issuance of a
financial liability, at a discount or premium, when the asset or liability is
accounted for on an amortized basis. This abstract is to be applied for interim
and annual periods ending on or after September 30, 2007. The Corporation
implemented the EIC-47.
The adoption of EIC-47 required the Corporation to separately disclose the
interest accrued on the debt component of the convertible debentures on the
consolidated statement of cash flows. (See Note 8 for the impact on the
Corporation's consolidated financial statements of the convertible debentures
that were issued during the year.)
CONVERTIBLE AND OTHER DEBT INSTRUMENTS WITH EMBEDDED DERIVATIVES
In March 2007, the Emerging Issues Committee of the CICA issued EIC-164,
"Convertible and Other Debt Instruments with Embedded Derivatives". EIC-164
discusses the accounting for convertible and other debt instruments with
embedded derivatives in accordance with CICA HANDBOOK Section 3855, "Financial
Instruments - Recognition and Measurement". This abstract replaced EIC-158,
"Accounting for Convertible Instruments", for entities that have adopted CICA
HANDBOOK Section 3855. The Corporation implemented the EIC-164.
The adoption of EIC-164 required the Corporation to separately account for the
debt and equity components of the convertible debentures on the consolidated
balance sheet. (See Notes 8 and 9 for the impact on the Corporation's
consolidated financial statements of the convertible debentures that were issued
during the year.)
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ACCOUNTING POLICY CHOICE FOR TRANSACTION COSTS
In June 2007, the Emerging Issues Committee of the CICA issued EIC-166,
"Accounting Policy Choice for Transaction Costs". EIC-166 provides guidance on
the choice of accounting policy for transaction costs when a financial asset is
acquired or a financial liability is incurred. EIC-166 states that one of the
following accounting policies should be adopted, i) recognize all transaction
costs in net income or ii) add transaction costs that are directly attributable
to the acquisition or issue of a financial asset or financial liability to the
amount determined in accordance with Section 3855. The accounting policy should
be adopted for all similar financial instruments but a different accounting
policy choice might be made for financial instruments that are not similar. The
Corporation implemented the EIC-166.
Based on the adoption of this abstract, the Corporation has decided to recognize
all transaction costs in net income for other financial liabilities.
COMPREHENSIVE INCOME AND EQUITY
The CICA issued CICA HANDBOOK Section 1530, "Comprehensive Income". The Section
is effective for annual and interim periods beginning on or after October 1,
2006. It describes how to report and disclose comprehensive income, which is
comprised of the Corporation's net income and other comprehensive income. Other
comprehensive income includes unrealized exchange gains and losses in
translation of self-sustaining foreign operations and changes in the fair market
value of derivative instruments designated as cash flow hedges, net of
applicable taxes.
The CICA also made changes to CICA HANDBOOK Section 3250, "Surplus", and
reissued it as Section 3251, "Equity". The Section is also effective for years
beginning on or after October 1, 2006 and established standards in how to report
and disclose equity. The Corporation implemented those sections.
The adoption of these sections has no financial impact on the Corporation's
consolidated financial statements.
ACCOUNTING CHANGES
The CICA issued revisions to Section 1506 of the CICA HANDBOOK, "Accounting
Changes". The revisions established criteria for changing accounting policies,
together with the accounting treatment and disclosure of changes in accounting
policies and estimates, and corrections of errors. Furthermore, the new standard
requires the communication of the new primary sources of generally accepted
accounting principles (GAAP) that are issued but not yet effective or not yet
adopted by the Corporation. The revisions are effective for annual and interim
periods beginning on or after January 1, 2007. The Corporation implemented the
Section.
Aside from adopting the above accounting policies, the adoption of the Section
above has no impact on the Corporation's consolidated financial statements.
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FUTURE ACCOUNTING CHANGES
As at October 17, 2008, certain new primary sources of GAAP have been published
but are not yet in effect. The Corporation has not early adopted any of these
standards. The new standards which are effective for interim periods beginning
on or after August 1, 2008 and could potentially impact the Corporation's
financial statements are detailed as follows:
FINANCIAL INSTRUMENTS - DISCLOSURES
CICA HANDBOOK Section 3862, "Financial Instruments - Disclosures", describes the
required disclosures for the assessment of the significance of financial
instruments for a company's financial position and performance and of the nature
and extent of risk arising from financial instruments to which the company is
exposed and how the company manages those risks. This section is effective for
interim periods beginning on or after October 1, 2007 and the Corporation will
implement it as of August 1, 2008. The Corporation is currently evaluating the
impact of the adoption of this new section on the consolidated financial
statements.
FINANCIAL INSTRUMENTS - PRESENTATION
CICA HANDBOOK Section 3863, "Financial Instruments - Presentation", establishes
standards for the presentation of financial instruments and non-financial
derivatives. It carries forward the presentation related requirement of Section
3861, "Financial Instruments - Disclosure and Presentation". This section is
effective for interim periods beginning on or after October 1, 2007. The
Corporation is currently evaluating the impact of the adoption of this new
section on the consolidated financial statements.
CAPITAL DISCLOSURES
CICA HANDBOOK Section 1535, "Capital Disclosures", establishes standards for
disclosing information about a company's capital and how it is managed. It
describes the disclosure of the company's objectives, policies and processes for
managing capital, the quantitative data about what the company regards as
capital, whether the company has complied with any capital requirements, and, if
it has not complied, the consequences of such non-compliance. This section is
effective for interim periods beginning on or after October 1, 2007. The
Corporation is currently evaluating the impact of the adoption of this new
section on the consolidated financial statements.
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4 - CAPITAL ASSETS
2008
----------------------------------
ACCUMULATED
COST AMORTIZATION NET
--------- ------------ -------
$ $ $
Furniture and equipment 322,463 320,582 1,881
Computer equipment 643,266 598,258 45,008
Leasehold improvements 287,610 212,185 75,425
--------- --------- -------
1,253,339 1,131,025 122,314
========= ========= =======
2007
----------------------------------
ACCUMULATED
COST AMORTIZATION NET
--------- ------------ -------
$ $ $
Furniture and equipment 320,113 320,002 111
Computer equipment 628,301 546,539 81,762
Leasehold improvements 287,610 187,814 99,796
--------- --------- -------
1,236,024 1,054,355 181,669
========= ========= =======
Amortization expense of capital assets amounted to $76,670 in 2008 ($90,428 in
2007).
5 - OTHER ASSETS
2008
--------------------------------
Accumulated
Cost amortization Net
------- ------------ -------
$ $ $
Contract costs 471,100 471,100 --
======= ======= ===
2007
--------------------------------
Accumulated
Cost amortization Net
------- ------------ -------
$ $ $
Contract costs 471,100 360,253 110,847
======= ======= =======
Amortization expense of contract costs amounted to $110,847 in 2008 ($110,846 in
2007).
6 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
2008 2007
--------- ---------
$ $
Trade accounts 924,655 815,737
Salaries and commission payable and related expenses 173,226 98,769
Sales taxes payable 229,693 161,610
--------- ---------
1,327,575 1,076,116
========= =========
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7 - DUE TO A SHAREHOLDER
During the fiscal year 2008, the Corporation obtained an additional loan from a
significant shareholder who is also the President and Chief Executive Officer.
Under the loan agreement, a maximum of $400,000 of funds is available. An amount
of $165,000 was obtained and is repayable within 30 days of the receipt of a
written demand from the shareholder. The loan bears interest at 15% and is
payable on the last business day of each calendar month.
Based on another agreement formalized in 2007, the Corporation obtained an
additional loan of $352,557, during the fiscal year 2008, from a significant
shareholder who is also the President and Chief Executive Officer. The loan is
repayable within 90 days of the receipt of a written demand from the
shareholder. The loan bears interest at 15% and is payable the last day of each
month. The loan originated from amounts owed by the Corporation to the
shareholder by virtue of his employment contracts (amounts owed from services
rendered, prior to 2002: $429,461; in 2006: $320,683; and in 2008: $352,557).
In conjunction with the ratification of the loan agreement formalized in 2007,
the Corporation also issued 103,061 warrants, each warrant entitling the holder
to purchase one class "A" common share of the Corporation at a price of US$0.44
per share and being valid for the term of the agreement. The residual valuation
method was used to allocate the proceeds between the liability component and the
equity component. The value of the liability component was determined to be the
face value of the debt because there is no maturity date and by difference, the
value of the equity instrument was determined to be nil.
During the fiscal year 2008, an inter-creditor priority agreement was signed
when the Corporation issued the secured convertible debentures described in Note
8. The parties agreed that the sums owing under the debentures will be paid by
the Corporation to the debenture holders and the trustee in priority to the sums
owing by the Corporation to the principal shareholder subject to the fact that
for each C$2 paid to the debenture holders, the Corporation shall remit C$1 to
the principal shareholder as repayment for the sums representing the principal
amount only.
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8 - CONVERTIBLE DEBENTURES
On April 18, 2008, the Corporation issued secured convertible debentures
("Convertible Debentures") on a private placement basis and received proceeds of
$1,009,819 (US$1,002,600) for the issue of a total of 1,114 units. Each unit
consists of one 8% Convertible Debenture due December 31, 2017, having a nominal
value of US$900, redeemable and convertible at the option of the Corporation if
the bid price of the stock has been above $1.50 for 60 consecutive trading days,
and convertible at the option of the holder into class "A" common shares at
US$0.45 per share and 1,000 share purchase warrants of the Corporation. Each
warrant entitles its holder to purchase one additional common share (warrant
share) of the Corporation at a price of US$0.70 per warrant share at any time
until the earlier of the close of business on the day which is 36 months from
April 18, 2008 or the sixtieth consecutive trading day in which the bid price of
the common shares has been above US$1.50. Interest is calculated at the rate of
8% per annum, payable in kind, i.e. in common shares at a rate of US$0.45 per
share. The interest is due on each conversion date (date when that principal
amount is being converted) subsequent to January 1, 2009, and on the maturity
date. The financing is secured by a first rank hypothec on all of the
Corporation's property and assets, movable and immovable, corporeal and
incorporeal, present and future, of every kind and nature for the principal
amount and accrued interest. The proceeds from the private placement will be
used to increase marketing and advertising capital needs and expansion.
For accounting purposes, the debenture contains both a liability component and
an equity component being the share warrants, conversion option and the interest
payable in shares, which have been separately presented in the consolidated
balance sheet:
- - The liability component of the Convertible Debentures is calculated using
the present value of the cash flows of principal and interest payments
using a discount rate of 15%, which in management's opinion, approximates
an interest rate applicable to non-convertible secured debt. The amount
calculated, at the issue date, for the carrying amount of the debt
component is $260,377. The carrying value of the debentures will be
accreted to their face value over their life to maturity (December 31,
2017). The accretion expense will be included in interest expense in the
consolidated statement of operations. The debt issuance costs have been
recorded directly against net income. The interest expense accrued for the
debt component for the year ended July 31, 2008 is $17,966 and has been
included as part of interest expenses on the consolidated statement of
operations and comprehensive loss;
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8 - CONVERTIBLE DEBENTURES (CONTINUED)
- - The carrying amount of the equity component, at the issue date, was valued
at $749,442, determined by deducting the carrying amount of the liability
component from the gross proceeds received on the compounded instrument.
The value of the equity contains the fair value of the share warrants,
conversion option and the interest payable in shares. The fair value of the
warrants was estimated at $303,415. This amount was recorded to contributed
surplus. The fair value of the warrants at the time the convertible
debentures were issued were estimated using the Black-Scholes option
pricing model with the following assumptions:
Dividend yield --
Expected volatility 90%
Risk-free interest rate 3.25%
Expected life 3 years
The remaining balance represents the fair value of the conversion option and the
interest payable in shares in the amount of $446,027. This amount was recorded
as the equity component of the convertible debentures.
9 - SHARE CAPITAL
A) AUTHORIZED AND ISSUED
2008 TRANSACTIONS
During the fiscal year 2008, the Corporation did not conduct any transactions
that impacted the share capital.
2007 TRANSACTIONS
During the fiscal year 2007, the Corporation concluded a private placement and
issued 1,500,000 class "A" common shares at a price of US$0.40 per share for
total cash proceeds of $675,795. In addition, the Corporation issued 750,000
warrants entitling two shareholders to purchase up to 750,000 shares of the
Corporation at a price of US$0.60 for three years until May 2010.
The fair value of the warrants at the time they were granted was estimated at
$170,110. This amount was recorded as contributed surplus. The fair value of the
warrants at the time they were granted was estimated using the Black-Scholes
option pricing model with the following assumptions:
Dividend yield --
Expected volatility 90%
Risk-free interest rate 4.4%
Expected life 3 years
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B) WARRANTS
The following table summarizes information about the Corporation's share
warrants described in Notes 7, 8 and 9a):
<Table>
<Caption>
2008
-------------------------------------------
WEIGHTED
AVERAGE WEIGHTED
NUMBER OF REMAINING LIFE AVERAGE
WARRANTS (YEARS) EXERCISE PRICE
--------- -------------- --------------
US$
Outstanding, beginning of year 853,061 2.8 0.58
Granted (Note 8) 1,114,000 2.7 0.70
---------
Outstanding and exercisable, end of year 1,967,061 2.3 0.65
=========
</Table>
<Table>
<Caption>
2007
-------------------------------------------
WEIGHTED
AVERAGE WEIGHTED
NUMBER OF REMAINING LIFE AVERAGE
WARRANTS (YEARS) EXERCISE PRICE
--------- -------------- --------------
US$
Granted, outstanding and exercisable, end of year 853,061 2.8 0.58
=======
</Table>
C) SHARE AWARD PLAN
Effective September 30, 2007, under a Share Award Plan, the Corporation may
grant class "A" common shares to its regular full-time employees and those of
its subsidiaries up to a maximum of 1,000,000 class "A" common shares, at a
value not to exceed the fair market value of the class "A" common shares at the
time of grant, conditioned upon a certain period of continued service with the
Corporation or other acceptable consideration.
The Share Award Plan is intended to promote the interests of the Corporation by
(i) aiding the retention and facilitating the recruitment of outstanding
personnel by providing incentive compensation opportunities; and (ii) matching
employees' and other service providers' financial interests with those of the
Corporation's shareholders. The administrator has the authority to determine
terms and conditions of each award granted.
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The following table presents the share award compensation expense included in
selling, general and administrative expenses for the year ended July 31, 2008.
The table also presents the assumptions used to determine the fair value of the
share awards granted during 2008, using the Black-Scholes option pricing model:
2008
--------
Compensation cost $ 44,000
Fair value $180,000
Dividend yield --
Expected volatility (a) 90%
Risk-free interest rate (a) 4.0%
Expected life (a) 3 years
Vested period 3 years
Number of class "A" common shares granted but not yet issued 407,500
(a) Weighted average assumptions.
D) STOCK OPTION PLANS
The Corporation has two stock option plans:
1. Under the 1996 Stock Incentive Plan, the Corporation may grant options to
its regular full-time employees and those of its subsidiaries up to a
maximum of 1,100,000 class "A" common shares;
2. Under the 1996 Stock Option Plan, the Corporation may grant options to its
regular full-time employees and non-employee directors and those of its
subsidiaries up to a maximum of 900,000 class "A" common shares.
Under both plans, the exercise price of each option is not less than the market
price of the Corporation's shares on the Over the Counter Bulletin Board (OTC
BB) on the day prior to the date of grant. Options vest equally over a five-year
period and the options' maximum term is 10 years except for three key employees
for which management allows an extension of 10 years for the options already
expired.
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OPTIONS GRANTED AFTER 2003 FISCAL YEAR
The following table summarizes information about the Corporation's stock
options:
<Table>
<Caption>
2008 2007 2006
-------------------------- -------------------------- --------------------------
WEIGHTED WEIGHTED WEIGHTED
NUMBER OF AVERAGE NUMBER OF AVERAGE NUMBER OF AVERAGE
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
--------- -------------- --------- -------------- --------- --------------
(000s) $US (000s) $US (000s) $US
Outstanding, beginning of year 1,169 1.52 1,041 1.59 1,121 2.10
Granted -- -- 288 1.00 133 1.00
Forfeited (577) 1.92 (160) 1.00 (213) 3.95
Expired (36) 1.92 -- --
----- ----- -----
Outstanding, end of year 556 1.03 1,169 1.52 1,041 1.59
===== ===== =====
Options exercisable, end of year 359 1.05 728 1.79 609 1.84
===== ===== =====
</Table>
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The following table summarizes significant ranges of exercise prices of
outstanding options held by directors, officers and employees as of July 31,
2008:
<Table>
<Caption>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------- --------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
NUMBER OF REMAINING LIFE AVERAGE NUMBER OF AVERAGE
RANGE OF EXERCISE PRICES OPTIONS (YEARS) EXERCISE PRICE OPTIONS EXERCISE PRICE
- ------------------------ --------- -------------- -------------- --------- --------------
(000S) US$ (000S) US$
Less than US$1.00 160 7.97 0.69 160 0.69
US$1.00 to US$1.49 380 6.83 1.00 183 1.00
US$3.00 to US$3.99 5 9.40 4.00 5 4.00
US$5.00 to US$5.99 5 2.17 5.00 5 5.00
US$6.00 to US$6.99 6 0.78 6.46 6 6.46
--- ---
556 7.08 1.33 359 1.05
=== ===
</Table>
The following table presents the stock-based compensation expense included in
selling, general and administrative expenses for the years ended July 31, 2008,
2007 and 2006. The table also presents the assumptions used to determine the
stock-based compensation expense for the options granted during 2007 and 2006,
using the Black-Scholes option pricing model:
2008 2007 2006
-------- ------- --------
Compensation cost $100,000 $32,000 $ 29,000
Fair value $ 80,000 $74,300 $ 31,350
Dividend yield -- --
Expected volatility (a) 90% 90%
Risk-free interest rate (a) 4.0% 3.5%
Expected life (a) 7 years 7 years
Number of options granted 287,500 133,000
(a) Weighted average assumptions.
66
<Page>
OPTIONS GRANTED DURING 2003 FISCAL YEAR
For stock options granted to employees during 2003, the options are fully vested
and therefore there would be no compensation cost impact in 2008, had the
Corporation determined compensation cost based on the fair value of the stock
options at grant dates consistently with the method recommended under CICA
HANDBOOK Section 3870. For the fiscal years 2007 and 2006, the Corporation's
earnings would have been reported at the pro forma amounts indicated below:
2007 2006
---------- ----------
$ $
Net loss, as reported (2,526,524) (3,926,921)
Fair value of stock-based compensation (55,380) (56,796)
---------- ----------
Pro forma net loss (2,581,904) (3,983,717)
========== ==========
Pro forma basic and diluted loss per share (0.20) (0.31)
========== ==========
The fair value of stock options granted during 2003 was estimated using the
Black-Scholes option pricing model using the following weighted average
assumptions:
Dividend yield --
Expected volatility 87%
Risk-free interest rate 4.8%
Expected life 7 years
d) Loss per share
Shares from Share Award Plan, options and warrants described in Notes 7, 8 and 9
were not included in the diluted loss per share calculation because the
Corporation incurred a loss, and inclusion would have created an anti-dilutive
effect.
67
<Page>
10 - RESEARCH AND DEVELOPMENT COSTS
The net amounts of research and development costs presented in the consolidated
statements of operations and comprehensive loss have been determined as follows:
2008 2007 2006
--------- --------- ---------
$ $ $
Research and development costs 2,205,793 2,315,146 2,541,950
Investment tax credits (a) (b) (233,980) (100,000) (100,000)
--------- --------- ---------
1,971,813 2,215,146 2,441,950
========= ========= =========
(a) The investment tax credits recorded by the Corporation are subject to
review and approval by tax authorities and it is possible that the amounts
granted will be different from the amounts accounted for.
(b) The Corporation's investment tax credit claims previously submitted for the
fiscal year ended July 31, 2007 were reviewed by the tax authorities in
2008. Following a positive review, the Corporation collected $233,980 more
than what had been originally recorded and no investment tax receivable has
been recorded for the current year.
11 - INCOME TAXES
The reconciliation of income taxes at Canadian statutory rates with the reported
income taxes is as follows:
<Table>
<Caption>
2008 2007 2006
-------- -------- ----------
$ $ $
Income tax recovery at Canadian statutory rates (475,000) (785,000) (1,257,000)
Non-recording of benefit from losses carried forward (475,000) (785,000) (1,257,000)
-------- -------- ----------
-- -- --
======== ======== ==========
</Table>
The significant components of the Corporation's future income tax assets and
liabilities are as follows:
2008 2007
----------- -----------
$ $
Future income tax assets
Losses carried forward 15,000,000 14,000,000
Capital assets 185,000 173,000
Research and development 1,700,000 4,000,000
----------- -----------
16,885,000 18,173,000
Future income tax liabilities
Investment tax credits -- 64,000
----------- -----------
16,885,000 18,109,000
Less: valuation allowance (16,885,000) (18,109,000)
----------- -----------
Net future income taxes -- --
=========== ===========
68
<Page>
11 - INCOME TAXES (CONTINUED)
As at July 31, 2008, the Corporation has non-capital losses carried forward to
reduce future taxable income for Canadian federal and provincial tax purposes as
well as American, British and German tax purposes of approximately $16,000,000
and $15,000,000, US$21,000,000, (pound)700,000 and (euro)3,800,000,
respectively, expiring at various dates to 2028. In addition, the Corporation
has unclaimed research and development expenditures carried forward of
approximately $14,000,000, which can be used to reduce taxable income at any
time in the future, and investment tax credits of approximately $3,000,000,
which can be applied against future Canadian federal income taxes payable,
expiring at various dates to 2018. The benefits of these items have not been
recognized in the consolidated financial statements.
12 - COMMITMENTS
The Corporation is committed under operating leases through 2011 for the rental
of buildings for a total amount of $690,450. The minimum payments due in each of
the forthcoming years are as follows:
$
-------
2009 283,260
2010 244,314
2011 162,876
-------
690,450
=======
69
<Page>
13 - SEGMENTED INFORMATION
The Corporation is considered to have only one reportable business segment in
two geographic areas. Both the North American and European areas market the
SAND/DNA Product suite. The accounting policies of the geographic areas are the
same as described in the summary of accounting policies. The Corporation
evaluates geographic areas' performance based on income before income taxes.
Sales for each geographic area are based on the location of the third party
customer. All intercompany transactions between areas have been eliminated.
NORTH
AMERICA EUROPE TOTAL
---------- --------- ----------
$ $ $
2008
Revenue 2,410,048 4,588,424 6,998,472
Loss before income taxes (2,352,852) 1,080,903 (1,271,950)
Identifiable assets 816,377 1,986,655 2,803,032
Capital assets 90,608 31,706 122,314
2007
Revenue 1,941,034 4,787,506 6,728,540
Loss before income taxes (3,789,146) 1,262,622 (2,526,524)
Identifiable assets 795,121 1,562,027 2,357,148
Capital assets 128,395 53,274 181,669
Other assets -- 110,847 110,847
2006
Revenue 1,634,977 3,842,508 5,477,485
Loss before income taxes (3,924,363) (2,558) (3,926,921)
Identifiable assets 1,630,134 1,814,987 3,445,121
Capital assets 157,101 74,266 231,367
Other assets -- 221,694 221,694
14 - SIGNIFICANT CUSTOMERS
For the year ended July 31, 2008, the Corporation generated approximately 12% of
its revenue from one customer in Europe (12% and 14% of its revenue from two
customers in Europe in 2007 and 10% from one customer in 2006).
70
<Page>
15 - FINANCIAL INSTRUMENTS
FAIR VALUE
As at July 31, 2008, the fair value of accounts receivable, unbilled receivable
and accounts payable and accrued liabilities is equivalent to their respective
carrying value given that they will mature shortly.
The fair value of the due to a shareholder could not be determined since it is
practically impossible to find a financial instrument on the market having
substantially the same economic characteristics.
As at July 31, 2008, the fair value of the debt component of the convertible
debenture, estimated by discounting expected cash flows at an interest rate
applicable to non-converted secure debt of 15%, is not significantly different
from its respective carrying value at July 31, 2008.
The Corporation's main financial risk exposure and its financial risk management
policies are as follows.
INTEREST RATE RISK
The Corporation is not exposed to interest rate risk.
CREDIT RISK
As at July 31, 2008, the carrying amount reported on the Corporation's balance
sheet of cash and accounts receivable represents the maximum exposure to credit
risk. The Corporation has accounts receivable from relatively large customers
engaged in various industries; due to this, the Corporation's credit risk
concentration is limited. As at July 31, 2008, one customer represented 38% (one
customer represented 52% in 2007) of accounts receivable. The Corporation
minimizes its exposure to credit risk by placing its cash with two major banks.
CURRENCY RISK
The Corporation operates internationally and is exposed to risk from changes in
foreign currency rates. The Corporation does not hold any financial instruments
that mitigate this risk.
As at July 31, 2008 and 2007, the Corporation's current assets and liabilities
denominated in foreign currencies are as follows:
2008 2007
----------------------- -----------------------
CURRENT CURRENT CURRENT CURRENT
ASSETS LIABILITIES ASSETS LIABILITIES
--------- ----------- --------- -----------
U.S. dollars 245,573 293,213 386,956 239,049
Pounds sterling 1,436,050 1,143,269 1,038,036 1,007,192
Euros 791,303 825,074 421,477 454,423
71
<Page>
16 - RECONCILIATION OF RESULTS REPORTED IN ACCORDANCE WITH CANADIAN GAAP TO
U.S. GAAP AND OTHER SUPPLEMENTARY U.S. GAAP DISCLOSURES
DIFFERENCES BETWEEN CANADIAN AND U.S. GAAP
The material differences between Canadian and U.S. GAAP affecting the
Corporation's consolidated financial statements are detailed as follows:
2008 2007
---------- ----------
$ $
Net loss reconciliation
Net loss - Canadian GAAP (1,271,950) (2,526,524)
Adjustment for:
Stock-based compensation (a) (22,653) (86,572)
Warrants (b) (45,834) (311,433)
Convertible debentures (c) (217,375) --
---------- ----------
Net loss - U.S. GAAP (1,557,812) (2,924,529)
========== ==========
Basic and diluted loss per share - U.S. GAAP (0.11) (0.22)
========== ==========
Long-term liabilities reconciliation
Total long-term liabilities - Canadian GAAP 278,343 --
Adjustments for:
Warrants (b) 357,267 311,433
Convertible debentures (c) 966,716 --
---------- ----------
Total long-term liabilities - U.S. GAAP 1,602,326 311,433
========== ==========
Shareholders' deficiency reconciliation
Shareholders' deficiency - Canadian GAAP (1,260,459) (881,951)
Adjustments for:
Net loss reconciling items (see above) (285,862) (398,005)
Stock-based compensation (a) 22,653 284,763
Warrants (b) (311,433) (170,110)
Convertible debentures (c) (749,342) --
---------- ----------
Shareholders' deficiency - U.S. GAAP (2,584,443) (1,165,303)
========== ==========
72
<Page>
A) STOCK-BASED COMPENSATION
Under Canadian GAAP, stock-based compensation expense was accounted for using
the fair value based method beginning August 1, 2005.
Under U.S. GAAP, effective August 1, 2005, the Corporation adopted SFAS No. 123
(revised 2004), "Share-based Payment", which requires that share-based payments
(to the extent they are compensatory) be recognized based on their fair value
and the estimated number of shares that the Corporation ultimately expects will
vest and to be expensed over the applicable vesting period. The fair value of
the unvested portion of the share-based payments granted prior to August 1, 2005
(the Corporation's adoption date of SFAS No. 123(R)) is measured based on the
grant date fair value of those awards previously calculated under SFAS No. 123,
net of estimated forfeitures.
The impact for fiscal year 2008 was an increase in net loss by $22,653 and an
increase in contributed surplus by $307,416. The impact for fiscal year 2007 was
an increase in net loss by $86,572 and an increase in shareholders' deficiency
and contributed surplus by $284,763.
B) SHARE PURCHASE WARRANTS
Under Canadian GAAP, share purchase warrants are classified and accounted for as
equity in the Corporation's consolidated financial statements.
Under U.S. GAAP, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" it is required that share purchase warrants with an exercise
price denominated in a currency other than its functional currency be classified
and accounted for as a financial liability. As well, any gains or losses in fair
value are recognized in earnings.
The impact for fiscal year 2008 was an increase in net loss by $45,834, an
increase in long-term liabilities by $357,267, an decrease in shareholders'
deficiency by $357,267 and a decrease in contributed surplus by $170,110. The
impact for fiscal year 2007 was an increase in net loss by $311,433, an increase
in long-term liabilities by $311,433 and an increase in shareholders' deficiency
and contributed surplus by $170,110.
73
<Page>
C) CONVERTIBLE DEBENTURES
Under Canadian GAAP, share purchase warrants of the convertible debentures are
classified and accounted for as equity. Conversion option and the interest
payable in shares are classified and accounted for as equity component of the
convertible debentures.
The technical interpretation of U.S. GAAP, in accordance with SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities", currently
requires that share purchase warrants and conversion option with an exercise
price denominated in a currency other than Corporation's functional currency be
classified and accounted for as financial derivative liabilities at fair value
with changes in fair value recognized in net operations.
Under Canadian GAAP, the fair value of the debt component of the convertible
debentures is required to be calculated and the debt component is accounted for
as liability; the balance of the debentures issue price over the initial
carrying amount of the debt component is recognized in equity as described
above.
Under U.S. GAAP, in accordance with SFAS No. 133, the initial carrying amount of
the debt component represents the balance of the debentures issue price over the
initial fair value of the conversion option and share purchase warrants. Under
both GAAP, the carrying amount of the debt component is accreted to its face
value over the contractual period of the debentures by using the effective
interest method.
The impact for fiscal year 2008 was to increase net loss by $217,375, decrease
equity component by $446,027, increase long-term liabilities by $966,717,
decrease shareholders' deficiency by $966,717 and decrease contributed surplus
by $303,415.
SUPPLEMENTARY DISCLOSURES
The following items present other supplementary disclosures required under U.S.
GAAP:
a) Accounts receivable are net of allowance for doubtful accounts of $6,756
($9,068 in 2007).
b) Under U.S. GAAP, research and development investment tax credits (see Note
9) would be classified as a reduction of the income tax expense instead of
a reduction of the related research and development costs.
d) Under Canadian GAAP, future income taxes are calculated based on enacted or
substantially enacted tax rates applicable to future years. Under U.S.
GAAP, only enacted rates are used in the calculation of future income
taxes. This difference in GAAP did not result in a difference in the
financial position, results of operations or cash flows of the Corporation
for the years presented.
74
<Page>
RECENT PRONOUNCEMENTS
SFAS NO. 157, "FAIR VALUE MEASUREMENT"
In September 2006, in an effort to increase consistency and comparability in
fair value measurements, the FASB issued Statement No.157, "Fair Value
Measurement", which defines fair value, establishes guidelines for measuring
fair value and expands disclosures regarding fair value measurements. SFAS No.
157 does not require any new instruments to be recognized at fair value. SFAS
No. 157 is effective for financial statements issued for fiscal years beginning
after November 15, 2007. In February 2008, the FASB issued FASB Staff Position
FAS 157-2, "Effective date of FASB statement No. 157", to provide a one-year
deferral of the effective date of SFAS 157 for non-financial assets and
non-financial liabilities, except those that are recognized or disclosed in
financial statements at fair value on a recurring basis (that is, at least
annually). For non-financial assets and non-financial liabilities subject to the
deferral, the effective date of SFAS 157 is postponed to fiscal year beginning
after November 15, 2008 and to interim periods within those fiscal years. The
Corporation is currently evaluating the effect that the adoption of SFAS No. 157
will have on its consolidated results.
75
<Page>
INTENTIONALLY LEFT BLANK
76
<Page>
INTENTIONALLY LEFT BLANK
77
<Page>
DIRECTORS AND OFFICERS
DIRECTORS
ARTHUR G. RITCHIE
Chairman of the Board, President and
Chief Executive Officer of SAND
WAYNE MUSSELMAN
Accountant and Business Consultant
THOMAS P. O'DONNELL
Chief Executive Officer of
Edge Specialists LLC
DOUGLAS S. PRYDE
Barrister & Solicitor
MARTIN SHINDLER
Accountant and Business Consultant
GEORGE WICKER
Attorney and Business Consultant
AUDIT COMMITTEE
WAYNE MUSSELMAN (Chairman)
MARTIN SHINDLER
DOUGLAS S. PRYDE
OFFICERS
ARTHUR G. RITCHIE
Chairman of the Board, President and Chief
Executive Officer of SAND
ZAINAB AHMED SCHWARTZ
Vice-President, Finance and Administration,
and Chief Financial Officer of SAND
SEBASTIEN VEZINA
Corporate Secretary
78
<Page>
SHAREHOLDERS' INFORMATION
EXECUTIVE OFFICE
SAND Technology Inc.
215 Redfern Avenue
Suite 410
Westmount, Quebec
CANADA H3Z 3L5
UNITED STATES
SAND Technology Corporation
754A Lexington Avenue
Kenilworth, New Jersey
07033
U.S.A.
IRELAND
SAND Technology (Ireland) Limited
6 Fitzwilliam Square
Dublin 2
IRELAND
UNITED KINGDOM
SAND Technology Limited
Quatro House
Frimley Road
Camberley, Surrey
GU16 7ER
UNITED KINGDOM
GERMANY
SAND Technology Deutschland GmbH
Chilehaus A, Fischertwiete 2
D-20095 Hamburg
GERMANY
AUDITORS
Raymond Chabot Grant Thornton
600 de la Gauchetiere West
Montreal, Quebec
Canada H3B 4L8
TRANSFER AGENTS
CIBC Mellon Trust Company
2001 University Street
Suite 1600
Montreal, Quebec
CANADA H3A 2A6
INVESTOR RELATIONS
Inquiries may be directed to
de Jong & Associates, sndt@dejong.org
(760) 943-9065
STOCK TRADING INFORMATION
The Corporation 's Class A Common Shares are traded on The OTC Bulletin Board
under the trading symbol SNDTF.OB
FORM 20-F
The Corporation's Annual Report on Form 20-F as filed with the Securities and
Exchange Commission and our quarterly reports are available without charge, upon
written request addressed to the Vice President and Chief Financial Officer at
the Corporation's Executive Office or on our website at www.sand.com.
ANNUAL MEETING
The annual meeting of shareholders will held at be 10:00 a.m. on Thursday,
December 18, 2008, at the offices of Lavery, de Billy, 1 Place Ville Marie, 40th
Floor, Montreal, Quebec, Canada.
79
<Page>
Canada
SAND Technology Inc.
(Corporate Headquarters)
215 Redfern, Suite 410
Westmount,
Quebec H3Z 3L5
Tel: (514) 939-3477
Fax: (514) 939-2042
Web: www.sand.ca
United States
SAND Technology Corp.
754A Lexington Ave.
Kenilworth,
NJ 07033
Tel: (732) 750-4848
Fax: (732) 750-4848
Web: www.sand.com
United Kingdom
SAND Technology Ltd.
Quatro House
Frimley Road, Camberley
Surrey GU16 7ER
Tel: +44 (0) 1276 804604
Fax: +44 (0) 1276 804605
Web: www.sand.com
Germany
SAND Technology
Deutschland GmbH
Chilehaus A
Fischertwiete 2
D-20095 Hamburg
Tel: +49 (0)40 32005 836
Fax: +49 (0)40 32005 601
Web: www.sandtechnology.de
<Page>
[SAND TECHNOLOGY(TM) LOGO]
215 REDFERN AVENUE, SUITE 410
WESTMOUNT, QUEBEC, CANADA H3Z 3L5
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
NOTICE is hereby given that the Annual Meeting of the Shareholders of SAND
TECHNOLOGY INC. (the "Corporation" or "Sand") will be held at the offices of
Lavery, de Billy, 40th Floor, 1 Place Ville Marie, Montreal, Quebec, Canada, on
Thursday, December 18, 2008 at 10:00 o'clock (Eastern Standard Time) in the
morning (the "Meeting"), for the following purposes:
1. to receive the Audited Consolidated Financial Statements of the Corporation
for the fiscal year ended July 31, 2008, together with the Report of the
Auditors thereon;
2. to elect six (6) directors to hold office until the next annual meeting of
shareholders or until their respective successors are elected;
3. to appoint Raymond Chabot Grant Thornton LLP, Chartered Accountants, to the
office of Auditor for the fiscal year 2009 and to authorize the Board of
Directors to fix the remuneration of the Auditor; and
4. to transact such further and other business as may properly be brought
before the Meeting or any adjournment or adjournments thereof.
Additional information relating to the matters to be put before the Meeting is
set forth in the Management Proxy Circular which accompanies this Notice.
Dated at Westmount, Province of Quebec, Canada, this 18th day of November 2008.
BY ORDER OF THE BOARD OF DIRECTORS,
(S) ARTHUR G. RITCHIE
-------------------------------------
Arthur G. Ritchie
Chairman of the Board
President and Chief Executive Officer
THE BOARD OF DIRECTORS HAS FIXED THE CLOSE OF BUSINESS ON THURSDAY, NOVEMBER 20,
2008 AS THE RECORD DATE FOR THE DETERMINATION OF THE SHAREHOLDERS ENTITLED TO
RECEIVE NOTICE OF, AND TO VOTE AT THE MEETING. SHAREHOLDERS WHO ARE UNABLE TO BE
PRESENT IN PERSON AT THE MEETING ARE REQUESTED TO FILL IN, DATE, SIGN AND RETURN
THE FORM OF PROXY ACCOMPANYING THIS NOTICE. IN ORDER TO BE VOTED, PROPERLY
EXECUTED FORMS OF PROXY MUST BE DEPOSITED WITH CIBC MELLON TRUST COMPANY, 200
QUEEN'S QUAY EAST, UNIT 6, TORONTO, ONTARIO, CANADA M5A 4K9, NO LATER THAN 5:00
P.M. (EST) ON MONDAY, DECEMBER 15, 2008 OR, IF THE MEETING IS ADJOURNED,
FORTY-EIGHT (48) HOURS (EXCLUDING SATURDAYS, SUNDAYS AND HOLIDAYS) BEFORE ANY
ADJOURNED MEETING.
<Page>
[SAND(R)
TECHNOLOGY LOGO]
MANAGEMENT PROXY CIRCULAR
ANNUAL MEETING OF SHAREHOLDERS
REGISTERED SHAREHOLDERS
You will have received a form of proxy from Sand Technology Inc.'s (the
"CORPORATION") transfer agent, CIBC Mellon Trust Company ("CIBC MELLON").
Complete, sign and mail your form of proxy in the postage prepaid envelope
provided or fax it to the number indicated on the form.
NON-REGISTERED SHAREHOLDERS
Your Class A Common Shares (the "COMMON SHARES") are held in the name of a
nominee (securities broker, trustee or other financial institution). You will
have received a request for voting instructions from your broker. Follow the
instructions on your Voting Instruction Form to vote by telephone, Internet or
fax, or complete, sign and mail the Voting Instruction Form in the postage
prepaid envelope provided. TO VOTE IN PERSON AT THE MEETING, SEE THE BOX ON PAGE
2 OF THE MANAGEMENT PROXY CIRCULAR (THE "MANAGEMENT PROXY CIRCULAR").
PROXY VOTING
WHO IS SOLICITING MY PROXY?
THE ENCLOSED FORM OF PROXY IS BEING SOLICITED BY THE MANAGEMENT OF THE
CORPORATION in connection with the annual meeting of shareholders (the
"MEETING") and the associated costs will be borne by the Corporation. The
solicitation of proxies will be primarily by mail, but may be by telephone or
other personal contact by Directors of the Corporation, such Directors receiving
no compensation therefore. In addition, the Corporation shall, upon request,
reimburse brokerage firms and other custodians for their reasonable expenses in
forwarding proxies and related material to beneficial owners of Common Shares of
the Corporation.
HOW DO I VOTE?
There are two ways you can vote your shares if you are a registered shareholder.
You may vote in person at the Meeting or you may sign the enclosed form of proxy
appointing the named persons or some other person you choose, who need not be a
shareholder, to represent you as proxyholder and vote your shares at the
Meeting. If your Common Shares are held in the name of a nominee, please see the
box on page 2 for voting instructions.
WHAT IF I PLAN TO ATTEND THE MEETING AND VOTE IN PERSON?
If you are a registered shareholder and plan to attend the Meeting on December
18, 2008 and wish to vote your Common Shares in person at the Meeting, do not
complete or return the form of proxy. Your vote will be taken and counted at the
Meeting. Please register with the transfer agent, CIBC Mellon, upon arrival at
the Meeting. If your Common Shares are held in the name of a nominee, please see
the box on page 2 for voting instructions.
WHAT AM I VOTING ON?
Shareholders will be asked to vote on the following matters:
1. the election of Directors to the Board of Directors of the Corporation
for the ensuing year;
<Page>
-2-
2. the appointment of auditors for the Corporation for the ensuing year
and on the authorization for the Directors to fix their remuneration;
3. ANY SUCH OTHER BUSINESS AS MAY PROPERLY BE BROUGHT BEFORE THE MEETING
OR AT ANY ADJOURNMENT THEREOF.
(For further information, please refer to the heading "AGENDA FOR
SHAREHOLDERS MEETING".)
Other than as specifically discussed under the heading "AGENDA FOR SHAREHOLDERS
MEETING", no director or senior officer, past, present or nominated hereunder,
or any associate or affiliate of such persons, or any person on behalf of whom
this solicitation is made, has any interest, direct or indirect, in any matter
to be acted upon at the Meeting, except that such persons may be directly
involved in the normal business of the Meeting or the general affairs of the
Corporation.
WHAT IF I SIGN THE FORM OF PROXY ENCLOSED WITH THIS CIRCULAR?
Signing the enclosed form of proxy gives authority to Mr. Arthur G. Ritchie or
Douglas S. Pryde, each of whom is a director of the Corporation, or to another
person you have appointed, to vote your shares at the Meeting.
CAN I APPOINT SOMEONE OTHER THAN THESE DIRECTORS TO VOTE MY SHARES?
YES. WRITE THE NAME OF THIS PERSON, WHO NEED NOT BE A SHAREHOLDER, IN THE BLANK
SPACE PROVIDED IN THE FORM OF PROXY. It is important to ensure that any other
person you appoint is attending the Meeting and is aware that he or she has been
appointed to vote your shares. Proxyholders should, upon arrival at the Meeting,
present themselves to a representative of CIBC Mellon.
WHAT DO I DO WITH MY COMPLETED PROXY?
Return it to the Corporation's transfer agent, CIBC Mellon, at 2001 University
Avenue, Suite 1600, Montreal, Quebec, H3A 2A6, or by fax to (514) 285-3640
(within Canada and the United States), NO LATER THAN 5:00 P.M. (EASTERN DAYLIGHT
TIME) ON FRIDAY, DECEMBER 12, 2008. This will ensure that your vote is recorded.
IF I CHANGE MY MIND, CAN I TAKE BACK MY PROXY ONCE I HAVE GIVEN IT?
Yes. If you change your mind and wish to revoke your proxy, prepare a written
statement to this effect. The statement must be signed by you or your attorney
as authorized in writing or, if the shareholder is a corporation, under its
corporate seal or by an officer or attorney of the corporation duly authorized.
This statement must be delivered at the above-mentioned registered office of
CIBC Mellon, at any time up to and including the last business day preceding the
day of the Meeting, or any adjournment thereof, at which the proxy is to be
used, or with the Chairman of the Meeting on the day of the Meeting or any
adjournment thereof, and upon either of such deposits the proxy is revoked.
HOW WILL MY SHARES BE VOTED IF I GIVE MY PROXY?
The persons named on the form of proxy must vote or refrain from voting your
Common Shares, or must vote for or against the matters on the agenda, in
accordance with your directions, or you can let your proxyholder decide for you.
In the absence of such directions, proxies received by management will be voted
on the election of Directors to the Board of Directors of the Corporation for
the ensuing year and on the appointment of auditors of the Corporation for the
ensuing year. Please refer to the heading "AGENDA FOR SHAREHOLDERS' MEETING".
WHAT IF AMENDMENTS ARE MADE TO THESE MATTERS OR IF OTHER MATTERS ARE BROUGHT
BEFORE THE MEETING?
The persons named in the form of proxy will have discretionary authority with
respect to amendments or variations to matters identified in the enclosed form
of proxy and with respect to other matters which may properly come before the
Meeting. As of the time of printing of this Management Proxy Circular,
management of the Corporation knows of no such amendment, variation or other
matter expected to come before the
<Page>
-3-
Meeting. If any other matters properly come before the Meeting, the persons
named in the form of proxy will vote on them in accordance with their best
judgment.
HOW MANY SHARES ARE ENTITLED TO VOTE?
As of the date hereof, there are 14,318,189 Common Shares of the Corporation
issued and outstanding, each of which is entitled to one vote at the Meeting.
Only shareholders registered at the close of business on November 20, 2008 (the
"RECORD DATE") are entitled to receive notice of and to vote at the Meeting
unless after that date a shareholder of record transfers his shares and the
transferee, upon producing properly endorsed certificates evidencing such shares
or otherwise establishing that he owns the shares, requests no later than 10
days before the Meeting that the transferee's name be included on the list of
shareholders entitled to vote, in which case such transferee is entitled to vote
such shares at the Meeting.
The following are the only persons who, to our knowledge, beneficially own
or exercise control or direction, directly or indirectly over shares carrying
more than five (5%) percent of the votes attached to Common Shares of the
Corporation as at November 18, 2008:
<Table>
<Caption>
APPROXIMATE NUMBER OF PERCENTAGE OF
COMMON SHARES BENEFICIALLY COMMON SHARES
OWNED, CONTROLLED OR OWNED,
DIRECTED, DIRECTLY OR INDIRECTLY CONTROLLED OR DIRECTED
- ------------------------- -------------------------------- ----------------------
Arthur G. Ritchie 3,598,388 25.13%
Thomas M. O'Donnell 785,500 5.49%
Estate of Jerome Shattner 1,048,000 7.32%
</Table>
The total number of Common Shares owned, controlled or directed, directly
or indirectly by the senior management and directors of the Corporation as a
group, to our knowledge, is 5,910,988, or approximately 41.28%, at November 18,
2008.
WHAT IF OWNERSHIP OF SHARES HAS BEEN TRANSFERRED AFTER NOVEMBER 20, 2008?
The person who acquired such shares after November 20, 2008, must produce
properly endorsed share certificates or otherwise establish that he or she owns
the shares and must ask the Corporation no later than 5:00 p.m. (Eastern
Daylight Time) on December 8, 2008 that his or her name be included in the list
of shareholders before the Meeting in order to be entitled to vote these shares
at the Meeting.
WHO COUNTS THE VOTES?
The Corporation's transfer agent, CIBC Mellon, counts and tabulates the proxies.
This is done independently of the Corporation to preserve the confidentiality of
individual shareholder votes. Proxies are referred to the Corporation only in
cases where a shareholder clearly intends to communicate with management or when
it is necessary to do so to meet the requirements of applicable law.
IF I NEED TO CONTACT THE TRANSFER AGENT, HOW DO I REACH THEM?
For general shareholder enquiries, you can contact the transfer agent by mail
at:
CIBC Mellon Trust Company
2001 University Street
Suite 1600
Montreal, Quebec, Canada H3A 2A6
<Page>
-4-
or by telephone:
within Canada and the United States at 1-514-285-3600
or by fax:
within Canada and the United States at 1-514-285-3640
IF MY SHARES ARE NOT REGISTERED IN MY NAME BUT ARE HELD IN THE NAME OF A NOMINEE
(A BANK, TRUST CORPORATION, SECURITIES BROKER, TRUSTEE OR OTHER), HOW DO I VOTE
MY SHARES?
There are two ways you can vote your shares held by your nominee. As required by
Canadian securities legislation, you will have received your nominee either a
request for voting instructions or a form of proxy for the number of shares you
hold. For your shares to be voted for you, please follow the voting instructions
provided by your nominee. Since the Corporation has limited access to the names
of its non-registered shareholders, if you attend the Meeting, the Corporation
may have no record of your shareholdings or of your entitlement to vote unless
your nominee has appointed you as proxyholder. Therefore, if you wish to vote in
person at the Meeting, insert your own name in the space provided on the request
for voting instructions or form of proxy and return same by following the
instructions provided. Do not otherwise complete the form as your vote will be
taken at the Meeting. Please register with the transfer agent, CIBC Mellon, upon
arrival at the Meeting.
WHAT IS THE FINAL DATE TO SUBMIT A SHAREHOLDER PROPOSAL FOR THE NEXT ANNUAL
MEETING?
The final date for submitting shareholder proposals to the Corporation for the
next annual meeting of the shareholders is August 29, 2009.
AGENDA FOR SHAREHOLDERS' MEETING
ELECTION OF THE DIRECTORS
The board of directors (the "BOARD OF DIRECTORS" or the "BOARD") of the
Corporation shall consist of six members. AT THE MEETING, THE PERSONS NAMED
HEREUNDER WILL BE PROPOSED FOR ELECTION AS DIRECTORS OF THE CORPORATION. EXCEPT
WHERE AUTHORITY TO VOTE IN FAVOUR OF THE ELECTION OF DIRECTORS IS WITHHELD, THE
NOMINEES NAMED IN THE ACCOMPANYING FORM OF PROXY WILL VOTE THE COMMON SHARES
REPRESENTED BY SUCH PROXY IN FAVOUR OF THE ELECTION OF THE PERSONS NAMED
HEREUNDER. Management does not contemplate that any nominee will be unable or
unwilling to serve as a director. Each director elected will hold office until
the next annual meeting or until a successor is duly elected or appointed,
unless he/she ceases to hold office pursuant to the CANADA BUSINESS CORPORATIONS
ACT, or his/her office is vacated earlier pursuant to the by-laws of the
Corporation.
The following table sets forth certain information concerning the directors of
the Corporation, including their beneficial ownership of shares of the
Corporation as of November 18, 2008. Unless otherwise indicated, each nominee
holds sole voting and investment power over his shares.
<Table>
<Caption>
NUMBER AND PERCENTAGE
OF COMMON SHARES
NAME, RESIDENCE AND BENEFICIALLY OWNED
OFFICE HELD DIRECTOR SINCE PRINCIPAL OCCUPATION OR CONTROLLED
- ------------------------------------------ -------------- ----------------------------------------------- ----------------------
P. Wayne Musselman (1) (2) 2007 Accountant and Business Consultant and Chairman Nil
Toronto, Ontario, Canada of the Board of the Corporation (Nil%)
Thomas M. O'Donnell 2008 Chief Executive Officer of Edge Specialists LLC 384,700 (4)
Woodstock, Illinois, United States (2.69%)
Douglas S. Pryde (1) (2) 2001 Barrister & Solicitor Nil
Mount Royal, Quebec, Canada (Nil%)
</Table>
<Page>
-5-
<Table>
<Caption>
NUMBER AND PERCENTAGE
OF COMMON SHARES
NAME, RESIDENCE AND BENEFICIALLY OWNED
OFFICE HELD DIRECTOR SINCE PRINCIPAL OCCUPATION OR CONTROLLED
- ------------------------------------------ -------------- ----------------------------------------------- ----------------------
Arthur G. Ritchie
Westmount, Quebec, Canada 1983 President and Chief Executive Officer of the 3,598,388 (3)
President and Chief Executive Officer Corporation (25.13%)
Martin Schindler (1) 1987 Accountant and Business Consultant 5,950
Sarasota, Florida, United States (0.04%)
George Wicker (2) 1996 Attorney and Business Consultant 274,950
Palm Beach Gardens, Florida, United States (1.92%)
</Table>
Notes:
(1) Member of the Audit Committee of the Board.
(2) Member of the Governance, Nomination, Human Resources and Compensation
Committee of the Board (the "COMPENSATION COMMITTEE").
(3) Excludes 625,000 shares of the Corporation subject to exercise of share
purchase warrants.
(4) Excludes a maximum 668,000 shares of the Corporation subject to conversion
of convertible debentures and excludes 334,000 shares of the Corporation
subject to exercise of share purchase warrants.
Each nominee as director supplied the information concerning the number of
Common Shares over which he exercises control or direction.
INFORMATION ON DIRECTORS
With the exception of Mr. Thomas O'Donnell, all of the proposed nominees were
elected to their respective present term of office by the shareholders of the
Corporation at a meeting in respect of which the Corporation circulated to
shareholders a management proxy circular.
Mr. Thomas O'Donnell has an extensive career in the software and financial
markets. He is Chief Executive Officer, founder and majority owner of Edge
Specialists L.L.C., which is an independent software vendor with extensive
United States patent protection providing derivative trading tools including
options, stocks and futures trading. In addition, Mr. O'Donnell was a Designated
Primary Market Maker on the Chicago Board of Options Exchange and has extensive
experience in the financial markets.
UNLESS SUCH AUTHORITY IS WITHHELD, THE PERSONS NAMED IN THE ENCLOSED PROXY FORM
INTEND TO VOTE AT THE MEETING FOR THE ELECTION OF THESE DIRECTORS.
CEASE TRADE ORDERS, BANKRUPTCIES, PENALTIES OR SANCTIONS
To the best of the Corporation's knowledge, after having made due inquiry, the
Corporation confirms that as at the date hereof, no director or executive
officer of the Corporation:
(a) is, as at the date hereof or has been, within the 10 years before the date
hereof, a director, chief executive officer or chief financial officer of
any Corporation, that while that person was acting in that capacity:
(i) was the subject of a cease trade or similar order or an order that
denied the Corporation access to any exemption under securities
legislation, for a period of more than 30 consecutive days;
(ii) was subject to an event that resulted, after the director or executive
officer ceased to be a director or executive officer, in the
Corporation being the subject of a cease trade or similar
<Page>
-6-
order or an order that denied the Corporation access to any exemption
under securities legislation, for a period of more than 30 consecutive
days;
(iv) within a year of that person ceasing to act in that capacity, became
bankrupt, made a proposal under any legislation relating to bankruptcy
or insolvency or was subject to or instituted any proceedings,
arrangement or compromise with creditors or had a receiver, receiver
manager or trustee appointed to hold its assets; or
(b) has, within the 10 years before the date hereof, become bankrupt, made a
proposal under any legislation relating to bankruptcy or insolvency, or
become subject to or instituted any proceedings, arrangement or compromise
with creditors, or had a receiver, receiver manager or trustee appointed to
hold the assets of the director, officer or shareholder.
To the best of the Corporation 's knowledge, after having made due inquiry, the
Corporation confirms that as at the date hereof, no director or executive
officer of the Corporation was subject to any penalties or sanctions imposed by
a court relating to Canadian securities legislation or by a Canadian securities
regulatory authority or has entered into a settlement agreement with a Canadian
securities regulatory authority, nor was subject to any other penalties or
sanctions imposed by a court or regulatory body that would likely be considered
important to a reasonable investor in deciding whether to vote for a proposed
director.
APPOINTMENT OF AUDITORS
Management proposes Raymond Chabot Grant Thornton LLP as auditors of the
Corporation until the next annual meeting of the Corporation and to authorize
the directors to fix their remuneration. Raymond Chabot Grant Thornton LLP have
been auditors of the Corporation since August 2, 2006.
UNLESS SUCH AUTHORITY IS WITHHELD, THE PERSONS NAMED IN THE ENCLOSED PROXY FORM
INTEND TO VOTE AT THE MEETING FOR THE RE-APPOINTMENT OF RAYMOND CHABOT GRANT
THORNTON LLP AS AUDITORS OF THE CORPORATION AND TO AUTHORIZE THE DIRECTORS TO
DETERMINE THEIR REMUNERATION.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation paid to
the Corporation's President and Chief Executive Officer and named executive
officers (the "NAMED EXECUTIVE OFFICERS") as required to be disclosed in
accordance with applicable Canadian and United States securities regulations
during the Corporation's three financial years ended July 31, 2008, July 31,
2007 and July 31, 2005:
"Named Executive Officers" or "NEOs" means the following individuals:
- - each Chief Executive Officer;
- - each Chief Financial Officer;
- - each of the Corporation's three most highly compensation executive
officers, other than the Chief Executive Officer and the Chief Financial
Officer, who were serving as executive officers at the end of the most
recently completed financial year and whose total salary and bonus exceeds
$150,000; and
- - any additional individuals for whom disclosure would have been provided
under (c) except that the individual was not serving as an officer of the
Corporation at the end of the most recently completed financial year-end.
Such information includes the following: the salary earned, the bonus, any other
compensation, including the specific benefits and other personal benefits, the
options granted under the stock option plan of the Corporation and any other
compensation which is not disclosed elsewhere.
As at July 31, 2008, the end of the most recently completed financial year of
the Corporation, the Corporation had two Named Executive Officers, whose names
and positions held within the Corporation are set out in the
<Page>
-7-
summary compensation table below.
SUMMARY COMPENSATION TABLE
<Table>
<Caption>
LONG-TERM COMPENSATION
-----------------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
----------------------------- -------------------------------------- -------
OTHER ANNUAL SECURITIES UNDER RESTRICTED SHARES OR LTIP ALL OTHER
SALARY BONUS COMPENSATION OPTIONS / SARs RESTRICTED SHARE PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) GRANTED (#) UNITS ($) ($) ($)
- ------------------------------- ---- ------- ------ ------------ ---------------- -------------------- ------- ------------
Arthur G. Ritchie 2008 212,153 -- -- -- -- -- --
President and Chief Executive 2007 150,000 -- -- -- -- -- --
Officer 2006 150,000 -- -- -- -- -- --
Jerome Shattner (1) 2008 -- -- -- -- -- -- --
Former Executive Vice President 2007 -- -- -- -- -- -- --
2006 156,000 -- -- -- -- -- --
Zainab A. Schwartz (2)
Vice President, Finance and 2008 120,000 -- -- -- -- -- --
Administration and Chief 2007 -- -- -- -- -- -- --
Financial Officer 2006 -- -- -- -- -- -- --
Gilles Therrien (3)
Former Vice President, Finance 2008 121,275 -- -- -- -- -- 127,339
and Administration and Chief 2007 121,275 -- -- 40,000 -- -- --
Financial Officer 2006 116,833 10,000 -- -- -- -- --
</Table>
Notes:
(1) Mr. Shattner left the Corporation on December 5, 2006.
(2) Ms. Schwartz was appointed as Vice President, Finance and Administration
and Chief Financial Officer on June 18, 2008.
(3) Resigned on May 9, 2008.
OPTIONS / STOCK APPRECIATION RIGHTS ("SARs") GRANTED DURING THE MOST RECENT
FINANCIAL YEAR
The table below sets forth a summary of stock option grants made to the Named
Executive Officers under the Corporation's stock option plan during the
financial year ended July 31, 2008:
<Table>
<Caption>
MARKET VALUE OF
SECURITIES
% OF TOTAL UNDERLYING
OPTIONS/SARS OPTIONS ON THE
SECURITIES UNDER GRANTED TO EXERCISE OR DATE OF GRANT
OPTIONS/SARs EMPLOYEES IN BASE PRICE ($)/ ($)/COMMON EXPIRATION
NAME GRANTED (#) 2008(2) COMMON SHARE SHARE DATE
- ----------------------------- ---------------- ------------ ---------------- --------------- ----------
Arthur G. Ritchie Nil N/A N/A N/A N/A
President and Chief Executive
Officer
Zainab A. Schwartz Nil N/A N/A N/A N/A
Vice President, Finance and
Administration and Chief
Financial Officer
</Table>
<Page>
-8-
AGGREGATE OPTIONS EXERCISED DURING THE MOST RECENT FINANCIAL YEAR AND YEAR END
OPTION VALUE
There were no stock options exercised by a Named Executive Officer during the
financial year ended July 31, 2008. The table below sets out, on an aggregate
basis, the number and value of unexercised options as at July 31, 2008.
<Table>
<Caption>
VALUE OF UNEXERCISED
UNEXERCISED OPTIONS/SARs IN-THE-MONEY OPTIONS/SARs
AS AT JULY 31, 2008 AS AT JULY 31, 2008
(#) ($)(2)
-------------------------- --------------------------
SECURITIES
ACQUIRED ON AGGREGATE
EXERCISE VALUE REALIZED EXERCISABLE UNEXERCISABLE
NAME (#) ($)(1) EXERCISABLE UNEXERCISABLE ($) ($)
- --------------------------- ----------- -------------- ----------- ------------- ----------- -------------
Arthur G. Ritchie Nil N/A Nil Nil Nil N/A
President and Chief
Executive Officer
Zainab A. Schwartz Nil N/A Nil Nil Nil N/A
Vice President, Finance and
Administration and Chief
Financial Officer
</Table>
Notes:
(1) Aggregate Value Realized is the difference between the market price of the
Common Shares of the Corporation on the date of exercise and the option
exercise price, multiplied by the number of common shares acquired.
(2) Value of Unexercised Options is equal to the difference between the closing
price of the Common Shares of the Corporation on the OTC-BB on July 31,
2008 and the exercise prices of options outstanding, multiplied by the
number of shares purchasable under such options.
TERMINATION OF EMPLOYMENT, CHANGE IN RESPONSIBILITIES AND EMPLOYMENT CONTRACTS
Arthur G. Ritchie, President and Chief Executive Officer and a Director of the
Corporation, entered into an employment agreement (the "EMPLOYMENT AGREEMENT")
with the Corporation upon the expiry of his previous employment agreement on
December 31, 1993. The Employment Agreement, effective January 1, 1994 was for
an initial term of five (5) years and was automatically extended for additional
periods of twelve (12) months each until August 1, 2007, when it was resiliated
and replaced by a consulting agreement (the "CONSULTING AGREEMENT") by and
between Mr. Arthur G. Ritchie, the Corporation and Jerart Financial Services
Limited, a company wholly-owned by Mr. Ritchie, whereby Jerart Financial
Services Limited agreed to provide the Corporation with corporate management
services through the person of Arthur G. Ritchie himself. Pursuant to the
Consulting Agreement, Arthur G. Ritchie shall act as President and Chief
Executive Officer for a period of five (5) years starting on August 1, 2007,
which term can be renewed for additional periods of twelve (12) months each,
unless and until either the Corporation, or Jerart Financial Services Limited or
Mr. Ritchie have given a notice not less than three (3) months prior to the
expiration of the then on-going term. The Consulting Agreement provides that Mr.
Ritchie shall be paid an annual base salary, such bonuses as may from time to
time be payable pursuant to any bonus program which is offered to senior
officers or as may from time to time be payable at the discretion of the Board
of Directors and a fee of one percent (1%) of the gross revenues resulting from
the licensing, sale or other disposition of the Nucleus Data Base System for so
long as the System is delivered as a stand-alone product of the Corporation. Mr.
Ritchie was paid a base salary of $212,153, $150,000 and $150,000 during each of
the fiscal years ended July 31, 2008, 2007 and 2006 respectively and the Board
of Directors approved the payment of a cash bonus of $395,973 to Mr. Ritchie for
the fiscal year ended July 31, 2003, of which $252,000 was paid during the
fiscal year ended July 31, 2006. Mr. Ritchie does not hold any outstanding stock
options, which have not been exercised under the 1996 Stock Incentive Plan or
the 1996 Stock Option Plan of the Corporation. No payments have been made to
date relative to the licensing, sale or other dispositions of the Nucleus Data
Base Systems. In the event the Consulting Agreement of Mr. Ritchie (i) is
resiliated by the Corporation for any reason other than for Cause (as defined in
the Consulting Agreement) or death or (ii) is terminated by Mr. Ritchie for Good
Reason (as defined in the Consulting Agreement), Mr. Ritchie will be entitled to
receive, among other things, a lump sum payment
<Page>
-9-
equivalent to two (2) times the sum of his then current annual base salary and
the amount of the bonuses received by him in the immediate past year and Mr.
Ritchie shall continue for a period of two (2) years to participate in all
benefit plans and programs of the Corporation to the extent such participation
is possible, and, if such continued participation is barred, to receive amounts
equal to the out-of-pocket costs of participation in plans and programs
providing substantially similar benefits.
ARRANGEMENTS INVOLVING THE EMPLOYEES IN THE CAPITAL OF THE CORPORATION
The Corporation has an informal employee compensation plan, which also applies
to management, pursuant to which, if employees fulfil stated goals with respect
to sales revenue, new account penetration, profit contribution and other
criteria, their incomes will increase proportionately above the guaranteed base
until the specified target income is earned or exceeded. The informal employee
compensation plan is not based upon a mathematical formula in the case of
management, but is rather subject to individual negotiation.
1996 STOCK INCENTIVE PLAN
On July 8, 1996, the Board of Directors adopted the 1996 Stock Incentive Plan
(the "INCENTIVE PLAN") pursuant to which the beneficiaries selected by a
committee of the Board of Directors may be granted options to subscribe for
common shares. The Incentive Plan was confirmed, approved and ratified by the
shareholders of the Corporation at the annual and special meeting of the
shareholders held on December 17, 1996. On November 9, 1999, by resolution, the
directors of the Corporation amended the Incentive Plan to increase the maximum
aggregate number of options to purchase common shares which may be granted under
the Incentive Plan. This resolution of the directors was confirmed, approved and
ratified by the shareholders of the Corporation at the annual and special
meeting of the shareholders held on December 17, 1999. The total number of
common shares of the Corporation authorized for grants of options is 1,100,000
(as adjusted to reflect the share subdivision on a two-for-one basis on December
31, 1996) subject to adjustment to take into account changes in the capital
structure of the Corporation.
On November 21, 2005, the Board of Directors approved an amendment to the 1996
Stock Incentive Plan to extend the life of the Incentive Plan for an additional
period of ten (10) years. This amendment was confirmed, approved and ratified by
the shareholders of the Corporation at the annual and special meeting of the
shareholders held on December 15, 2005. On October 3, 2006, the Board of
Directors provided for the amendment of each Stock Incentive Agreement between
an optionee and the Corporation whereby the options granted and outstanding
thereunder shall be exercisable for a period of ten (10) years from July 7, 2006
with immediate vesting for all those outstanding options which have vested on or
prior to July 7, 2006.
The Incentive Plan is administered by the Compensation Committee of the Board of
Directors each of whose members is a "disinterested person" as defined under the
Exchange Act and an "outside director" as defined in the UNITED STATES INTERNAL
REVENUE CODE. The former Options Committee has been dissolved. The Incentive
Plan permits the granting of incentive stock options on terms designed to gain
certain advantages under United States Federal income tax law. During the fiscal
year ended on July 31, 2008, the duties of the Compensation Committee were
performed by the Board of Directors.
The term and number of common shares covered by each option, as well as the
permitted frequency of exercise of such options, are determined by the
Compensation Committee at the time the options are granted to the recipients.
The number of common shares which may be subject to option in favour of a single
recipient may not exceed 5% of the outstanding common shares of the Corporation.
The exercise price of each option for common shares may not be less than the
closing price of the common shares on the trading day prior to the day the
option is granted or, if there was no transaction on that day, the average of
the bid and ask prices on that day, less any discount as decided by the Board of
Directors within the extent permitted by the applicable regulatory provisions.
Options granted under the Incentive Plan may not be assigned or pledged. No
financial assistance is available to recipients in connection with the exercise
of an option. The Corporation may terminate the Incentive Plan at any time,
subject to vested rights.
<Page>
-10-
1996 STOCK OPTION PLAN
On July 8, 1996, the Board of Directors adopted the 1996 Stock Option Plan (the
"OPTION PLAN") pursuant to which the beneficiaries selected by a committee of
the Board of Directors may be granted options to subscribe for common shares.
The Option Plan was confirmed, approved and ratified by the shareholders of the
Corporation at the annual and special meeting of the shareholders held on
December 17, 1996. On November 9, 1999, by resolution, the directors of the
Corporation amended the Option Plan to increase the maximum aggregate number of
options to purchase common shares, which may be granted under the Option Plan.
This resolution of the directors was confirmed, approved and ratified by the
shareholders of the Corporation at the annual and special meeting of the
shareholders held on December 17, 1999. The total number of common shares of the
Corporation authorized for grants of options is 900,000 (as adjusted to reflect
the share subdivision on a two-for-one basis on December 31, 1996), subject to
adjustment to take into account changes in the capital structure of the
Corporation.
On November 21, 2005, the Board of Directors approved an amendment to the Option
Plan to extend the life of the Option Plan and of the options granted and
outstanding under the Option Plan for an additional period of ten (10) years.
This amendment was confirmed, approved and ratified by the shareholders of the
Corporation at the annual and special meeting of the shareholders held on
December 15, 2005. On October 3, 2006, the Board of Directors provided for the
amendment of each Stock Option Agreement between an optionee and the Corporation
whereby the options granted and outstanding thereunder shall be exercisable for
a period of ten (10) years from July 7, 2006 with immediate vesting for all
those outstanding options which have vested on or prior to July 7, 2006.
The Option Plan is administered by the Compensation Committee of the Board of
Directors each of whose members is a "disinterested person" as defined under the
Exchange Act and an "outside director" as defined in the UNITED STATES INTERNAL
REVENUE CODE. During the fiscal year ended on July 31, 2008, the duties of the
Compensation Committee were performed by the Board of Directors.
The term and number of Common Shares covered by each option, as well as the
permitted frequency of exercise of such options, are determined by the
Compensation Committee at the time the options are granted to the recipients.
The number of Common Shares which may be subject to option in favour of a single
recipient may not exceed 5% of the outstanding common shares of the Corporation.
The exercise price of each option for Common Shares may not be less than the
price of the Common Shares as determined by the Compensation Committee within
the extent permitted by the applicable regulatory provisions. Options granted
under the Option Plan may not be assigned or pledged. No financial assistance is
available to recipients in connection with the exercise of an option. Options
which expire or are terminated or surrendered or unexercised are thereafter
available for the granting of other options. The Corporation may terminate the
Option Plan at any time subject to vested rights.
During the fiscal year ended July 31, 2008, no options were granted. 577,000
options were cancelled, due to the merger of ClarityBlue Limited with Experian
Limited and 36,000 options expired. No options were exercised.
As at November 18, 2008, 556,000 options had been granted and remained
outstanding under the Option Plan and the Incentive Plan and 1,444,000 options
remained available for grant.
SHARE AWARD PLAN
On November 2, 2006, the Board of Directors of the Corporation established a
Share Award Plan pursuant to which up to 1,000,000 Common Shares of the
Corporation shall be issuable under the Share Award Program through direct and
immediate issuances without any intervening option grants. Each such share
issuance shall be evidenced by a Share Award Agreement that complies with the
terms and conditions of the Share Award Plan, and which state the number of
common shares being awarded, the restrictions imposed on the shares awarded
under such Share Award Agreement and such other representations, agreements,
terms or conditions as may be required or desirable by the Board of Directors of
the Corporation. The award recipient
<Page>
-11-
shall obtain the rights and obligations of a shareholder of the Corporation with
respect to the common shares of the Corporation award under the Share Award
Agreement only upon vesting of the award.
On August 28, 2007, the Board of Directors of the Corporation authorized the
award of up to 665,000 common shares. As of November 18, 2008, the Corporation
has awarded 407,500 common shares including grants which are dependant on the
award recipients and achieving certain defined objectives.
EQUITY COMPENSATION PLAN INFORMATION
<Table>
<Caption>
NUMBER OF COMMON SHARES
NUMBER OF COMMON SHARES REMAINING AVAILABLE
TO BE ISSUED UPON WEIGHTED AVERAGE FOR FUTURE ISSUANCE
EXERCISE OF OUTSTANDING EXERCISE PRICE OF UNDER THE EQUITY
PLAN CATEGORY OPTION OUTSTANDING OPTIONS COMPENSATION PLANS
- ------------------------------------------------ ----------------------- ------------------- -----------------------
Equity Compensation Plans of the Corporation 963,500 1.05 2,036,500
approved by the shareholders
Equity Compensation Plans of the Corporation not 0 N/A 0
approved by the shareholders
Total: 963,500 -- 2,036,500
</Table>
INDEBTEDNESS TO THE CORPORATION OF DIRECTORS AND EXECUTIVE OFFICERS
In the fiscal year 2007, the Corporation formalized the conditions pertaining to
a loan that originated from amounts owed by the Corporation to Arthur G.
Ritchie, its President and Chief Executive Officer by virtue of his employment
contract (amounts owed from services rendered, prior to 2002 of $429,461; in
2006, of $320,683; and in 2008, of $352,557). The loan is repayable within 90
days of the receipt of a written demand from Mr. Ritchie. The loan bears
interest at the rate of 15%. In conjunction with the ratification of the loan
agreement, the Corporation also issued 103,061 share purchase warrants, each
warrant entitling the purchase of one Common Share of the Corporation at a price
of US$0.44 per share and is valid for the term of the agreement. The residual
valuation method was used to allocate the proceeds between the liability
component and the equity component.
During the fiscal year 2008, the Corporation obtained an additional loan from
Arthur G. Ritchie in the amount of $165,000 which is repayable within 90 days of
the receipt of a written demand from Mr. Ritchie. The loan bears interest at the
rate of 15% and is payable on the last business day of each calendar month.
DIRECTORS' AND OFFICERS' LIABILITY INSURANCE
The Corporation maintains directors' and officers' liability insurance which,
subject to the provisions and exclusions contained in the policy, protects the
directors and officers as such, against any claims made during the term of their
office against any of tem for a wrongful act, provided they acted honestly and
in good faith with a view to the best interests of the Corporation. The policy
provides coverage with a limit of US$5,000,000 per loss per policy period,
subject to a deductible of US$250,000 per securities claim and US$250,000 per
other claim. The current annual premium is paid entirely by the Corporation and
amounts to approximately US$140,000. To the extent permitted by law, the
Corporation has entered into an indemnification agreement with each of its
directors and senior officers.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND INTEREST OF INSIDERS IN
MATERIAL TRANSACTIONS
On April 18, 2008, the Corporation entered into a Voting Agreement with Arthur
G. Ritchie and Bradley G. Griffith on behalf of the subscribers of debentures
issued pursuant to a private placement on April 24, 2008 for aggregate proceeds
of US$1,002,600 (the "DEBENTUREHOLDERS"), whereby the Corporation granted the
right to holders of such debentures holding a majority of the aggregate
principal amount of the debentures outstanding
<Page>
-12-
to have the right to designate one member to be nominated as director of the
Corporation and which provided that this member shall initially be Mr. Thomas M.
O'Donnell.
Also on April 18, 2008, the Corporation entered into an Inter-Creditor Priority
Agreement with Arthur G. Ritchie and Bradley G. Griffith on behalf of the
Debentureholders, whereby Arthur G. Ritchie consented to the issue of the
debentures by the Corporation, subject to the fact that for each two Canadian
dollars paid (whether prior to a default or further to a default, including
pursuant to realization proceedings) to the Debentureholders, the Corporation
shall remit one Canadian dollar to Arthur G. Ritchie for the sums representing
the principal amount only (excluding specifically any interest) owing to Arthur
Ritchie as part of the advances, until all sums owing to the Debentureholders or
to Arthur G. Ritchie has been repaid by the Corporation.
AUDIT COMMITTEE INFORMATION
AUDIT COMMITTEE CHARTER
The Audit Committee has a formal charter. The Audit Committee Charter sets out
the mandate and responsibilities of the Audit Committee that the Board of
Directors revised after careful consideration of REGULATION 52-110 RESPECTING
AUDIT COMMITTEES ("REGULATION 52-110") of the Canadian Securities Administrators
and other applicable policies. The Audit Committee Charter is set out in
Schedule A of this Management Proxy Circular.
COMPOSITION OF AUDIT COMMITTEE
NAME INDEPENDENT FINANCIALLY LITERATE
- ------------------ ----------- --------------------
P. Wayne Musselman Yes Yes
Douglas S. Pryde Yes Yes
Martin Schindler Yes Yes
The Audit Committee is comprised of three directors, each of whom is independent
under applicable Canadian and U.S. requirements. All the members of the
Committee are "financially literate" and have the ability to read and understand
a set of financial statements.
RELEVANT EDUCATION AND EXPERIENCE
The education and experience of each Audit Committee member that is relevant to
the performance of his responsibilities are as follows:
Mr. Wayne Musselman, BCom (Hon), FCA, retired as a partner of Deloitte & Touche
in 2004 after a career of nearly thirty years during which he served clients in
the banking, securities, international trade and distribution industries. He
directed the Japanese Service Group of Deloitte Canada and served on the Board
of Deloitte's Global Japanese Services Group. He is currently a director of the
Deloitte Retired Partner Council and of Faith Life Financial.
Mr. Douglas Pryde was a member and a partner of the law firm of Lavery, de
Billy, L.L.P. and its predecessor firms from 1965 to 2001.
Mr. Martin Shindler has since 1964 been the president of a firm of accountants
and business consultants located in Florida.
AUDIT COMMITTEE OVERSIGHT
At no time since the commencement of the Corporation's most recently completed
financial year have any recommendations by the Audit Committee respecting the
appointment and/or compensation of the Corporation's external auditors not been
adopted by the Board of Directors.
<Page>
-13-
RELIANCE ON CERTAIN EXEMPTIONS
At no time since the commencement of the Corporation's most recently completed
financial year has the Corporation relied on exemptions in relation to "De
Minimus Non-Audit Services" or any exemption provided by Part 8 of Regulation
52-110.
The Corporation relies upon the exemption in section 6.1 of Regulation 52-110.
PRE-APPROVAL POLICIES AND PROCEDURES
The Audit Committee approves the engagement terms for all audit and non-audit
services to be provided by the Corporation's accountants before such services
are provided to the Corporation or any of its subsidiaries.
EXTERNAL AUDITOR SERVICE FEES
The fees charged to the Corporation by its external auditor in each of the last
two financial years are as follows:
2008 FINANCIAL YEAR 2007 FINANCIAL YEAR
------------------- -------------------
Audit Fee(1) $ 90,960 $ 85,000
Audit-Related Fees(2) Nil Nil
Tax Fees(3) $ 17,390 $ 14,800
Other(4) Nil $ 4,572
Total $108,350 $104,372
Notes:
(1) Audit fees include fees for services related to the audit of the
Corporation's financial statements or other services that are normally
provided by the external auditors in connection with statutory or
regulatory filings or engagements. These fees also include fees for comfort
letters, statutory audits, attest services, consents and assistance with
the preparation and review of documents filed with regulators, as well as
in connection with the interpretation of accounting and financial reporting
standards.
(2) Audit-related fees include assurance and related services that are
performed by the Corporation's auditors. These services also include
accounting consultations in connection with acquisitions and divestitures
and internal control reviews.
(3) Tax fees include fees for assistance with tax planning, during
restructurings and when taking a tax position, as well as preparation and
review of income and other tax returns and tax opinions.
(4) Other fees include fees for financial services (business recovery), risk
management services, legislative and/or regulatory compliance services and
merger integration services.
CORPORATE GOVERNANCE PRACTICES
The Corporation has reviewed its corporate governance practices in light of the
guidelines contained in REGULATION 58-101 RESPECTING DISCLOSURE OF CORPORATE
GOVERNANCE PRACTICE ("REGULATION 58-101") of the Canadian Securities
Administrators. A description of the Corporation's corporate governance
practices is set out below in response to the requirements of Regulation 58-101.
BOARD OF DIRECTORS
The Board has delegated to the Chief Executive Officer and senior management the
responsibility for day-to-day management of the business of the Corporation,
subject to compliance with the plans approved from time to time by the Board of
Directors. In addition to those matters, which must by law or by the Articles of
the Corporation be approved by the Board, the Board retains responsibility for
significant changes in the Corporation's affairs such as approval of major
capital expenditures, debt and equity financing arrangements and significant
acquisitions and divestitures.
<Page>
-14-
The Board oversees the identification of the principal risks of the
Corporation's business and the implementation by management of appropriate
systems to manage such risks. The Board reviews from time to time organizational
matters such as succession planning. Given current management's tenure, their
vast experience and low turnover, succession planning is not seen as critical at
the present time by the Board.
The following directors are "independent" pursuant to National Policy 58-201
CORPORATE GOVERNANCE GUIDELINES ("NP 58-201") as they qualify as "independent"
directors, as such term is defined in REGULATION 52-110 RESPECTING AUDIT
COMMITTEES: Wayne Musselman, Thomas O'Donnell, Douglas Pryde, Martin Schindler
and George Wicker.
Arthur G. Ritchie is not independent, as he is President and Chief Executive
Officer of the Corporation.
DIRECTORSHIPS
None of the directors is presently a director of any other issuer that is a
reporting issuer (or the equivalent) in any jurisdiction.
ORIENTATION AND CONTINUING EDUCATION
The Board of Directors of the Corporation takes the following steps to ensure
that all new directors receive orientation regarding the role of the Board, its
committees and its directors, and the nature and operation of the Corporation.
The first step is to assess a new director's set of skills and professional
background. This allows the orientation to be customized to that director's
needs since different information regarding the nature and operations of the
Corporation's business will be necessary and relevant to each new director. Once
determined, one or more existing directors, who may be assisted by the
Corporation's management, provide the new director with the appropriate
orientation through a series of meetings, telephone calls and other
correspondence.
Orientation and education of directors is an ongoing matter. As such, ongoing
informal discussions between management and members of the Board are encouraged
and visits to the Corporation's operations are organized.
ETHICAL BUSINESS CONDUCT
The Corporation is committed to promote the highest standard of ethic and
integrity in the pursuance of all of its activities. Furthermore, the directors,
officers and employees of the Corporation are expected to act and to hold their
office within the best interests of the Corporation. The Corporation expects
that all directors shall act in compliance of all laws and regulations
applicable to their office as director of the Corporation.
In the event any transactions or agreements occur in respect of which a director
or executive officer has a material interest, the matter must be initially
reviewed by the Audit Committee and is then submitted to the Board of Directors.
The Board may implement any measures that it finds necessary in order to ensure
the exercise of independent judgment. In the event a director has a material
interest in any transaction or agreement, such Director will abstain from voting
in that regard.
NOMINATION OF DIRECTORS
The Board of Directors of the Corporation does not feel it is necessary to
increase the number of directors on the Board at this time.
The Compensation Committee seeks qualified candidates to be considered for
nomination as directors. Proposed nominations are subject to review and approval
by the Board.
<Page>
-15-
Any new appointees or nominees to the Board of Directors must have a favourable
track record in general business management, special expertise in areas of
strategic interest to the Corporation, the ability to devote the time required
and a willingness to serve as a director.
COMPENSATION
The Compensation Committee evaluates the adequacy of compensation of the
directors and the Corporation's management. After sufficient review and
analysis, the Compensation Committee recommends the compensation of the
directors and the Corporation's management to the Board for approval.
OTHER BOARD COMMITTEES
As of the date hereof, the Audit Committee and the Compensation Committee are
the only Board committees created by the Board of Directors.
ASSESSMENTS
The Compensation Committee is responsible for assessing the individual and
collective effectiveness of the Board and selecting new directors.
AVAILABILITY OF DOCUMENTS
The Corporation will provide to any person, upon request to the Secretary of the
Corporation at 1 Place Ville Marie, Suite 4000, Montreal, Quebec, H3B 4M4:
- A copy of the annual financial statements of the Corporation for the
year ended July 31, 2008, a copy of the related management's
discussion and analysis together with the accompanying report of the
auditors thereon, as well as a copy of all interim financial
statements of the Corporation to July 31, 2008 and of all related
management's discussion and analysis; and
- A copy of this Management Proxy Circular;
Additional information relating to the Corporation is available on the web site
of the System for Electronic Document Analysis and Retrieval (SEDAR), at the
following address: www.sedar.com.
The financial information is provided in the Corporation's Financial Statements
and the management's discussion and analysis for the year ended July 31, 2008.
APPROVAL OF CIRCULAR
The Board of Directors of the Corporation has approved the contents of the
Management Proxy Circular and its sending to the shareholders.
DATED at Montreal, Quebec, this 18th day of November, 2008.
SAND TECHNOLOGY INC.
Per: (s) Arthur G. Ritchie
--------------------------------------------------------
Arthur G. Ritchie, President and Chief Executive Officer
<Page>
SCHEDULE A
AUDIT COMMITTEE CHARTER
PURPOSE
The Audit Committee (the "COMMITTEE") of Sand Technology Inc. (the
"CORPORATION") is a committee of the Board of Directors which has responsibility
under the Corporation's governing legislation to review the financial
statements, accounting policies and reporting procedures of the Corporation.
The primary function of the Committee is to assist the Board of Directors in
fulfilling its oversight responsibilities by reviewing: the financial reports
and other financial information provided by the Corporation to any governmental
body or the public; the Corporation's systems of internal controls regarding
finance, accounting, an legal compliance that management and the Board have
established; and the Corporation's auditing, accounting and financial reporting
processes generally. Consistent with this function, the Committee should
encourage continuous improvement of, and should foster adherence to, the
Corporation's policies, procedures and practices at all levels.
The Committee's primary duties and responsibilities are to:
- Serve as an independent and objective party to monitor the
Corporation's financial reporting process and the system of internal
controls.
- Monitor the independence and performance of the Corporation's external
auditors and internal auditing.
- Provide an open avenue of communication among the independent
auditors, financial and senior management and the Board of Directors.
The Committee will primarily fulfil these responsibilities by carrying out the
activities enumerated in Section IV of this Charter.
COMPOSITION
The Committee shall be comprised of three or more directors, each of whom shall
be independent non-management directors, as determined by the Board of
Directors. The composition of the Committee shall adhere to all applicable laws
and all requirements of the stock exchanges on which shares of the Corporation
are listed. In particular, the composition of the Committee shall be in
accordance with (i) Section 10A (m) (3) of the U.S. Exchange Act of 1934, as
amended, and (ii) the Nasdaq listing standards regarding the composition of the
Committee (including Nasdaq's concept of "independence") and the required
qualifications and experience of the members of the Committee, subject to any
exemptions or other relief that may be granted from time to time.
All members of the Committee shall have a working familiarity with basic finance
and accounting practices, and at least one member of the Committee shall be a
"financial expert" in accordance with applicable laws and all requirements of
the stock exchanges on which shares of the Corporation are listed.
Members of the Committee shall be elected by the Board at such times as shall be
determined by the Board and shall serve until their successors shall be duly
elected.
Any member of the Committee may be removed or replaced at any time by the Board
of Directors and shall cease to be a member of the Committee as soon as such
member ceases to be a director.
<Page>
ii
The members of the Committee shall be entitled to receive such remuneration for
acting as members of the Committee as the Board of Directors may from time to
time determine.
MEETINGS
The Committee may appoint one of its members to act as Chairman of the
Committee. The Chairman will appoint a secretary who will keep minutes of all
meetings (the "SECRETARY"). The Secretary does not have to be a member of the
Committee or a director and can be changed by simple notice from the Chairman.
No business may be transacted by the Committee except at a meeting at which a
quorum of the Committee is present or by a resolution in writing signed by all
members of the Committee. A majority of the members of the Committee shall
constitute a quorum, provided that if the number of members of the Committee is
an even number, one half of the number of members plus one shall constitute a
quorum.
The Committee will meet as many times as is necessary to carry out its
responsibilities but in no event will the Committee meet less than four times a
year. The Committee shall meet periodically, but at least once annually with the
independent auditors, with management not present. In addition, the committee
shall meet with the independent auditors and management at least quarterly to
review the Corporation's financial statements and the related press releases.
The time at which, and the place where, the meetings of the Committee shall be
held, the calling of meetings and the procedure in all respects of such meetings
shall be determined by the Committee, unless otherwise provided for in the
by-laws of the Corporation or otherwise determined by resolution of the Board of
Directors.
The Committee may invite to, or require the attendance at, any meetings of the
Committee such officers and employees of the Corporation, legal counsel or other
persons as it deems necessary in order to perform its duties and
responsibilities. The internal and external auditors should also be requested or
required to attend meetings of the Committee and make presentations to the
Committee as appropriate.
Subject to the provisions of the Corporation's governing legislation an
applicable laws, regulations and stock exchange rules, if required for
expediency or to prevent loss to the Corporation, the Chairman of the Committee
may exercise the powers of the Committee in between meetings of the Committee.
In such event, the Chairman shall immediately report to the members of the
Committee and the actions or decisions taken in the name of the Committee shall
be recorded in the proceedings of the Committee.
RESPONSIBILITIES AND DUTIES
To fulfil its responsibilities and duties, the Committee shall:
Documents / Reports review
- Review and recommend any revisions or updates to this Charter and put
them forward for approval by the Board. This should be done
periodically, but at least annually, as conditions dictate.
- Review the interim quarterly financial statements and the annual
audited financial statements (including the Corporation's disclosures
under "Management's Discussion and Analysis of Financial Condition and
Results of Operations"), and the related press releases of the
Corporation with the Corporation's management and independent auditors
and report thereon to the Board of Directors. As part of this review,
the Committee shall review with management the risk factors and any
cautionary language set out in the related filings and recommend any
required or desired amendments thereto.
- Establish policies, procedures and guidelines, as appropriate, with
respect to providing financial information and earnings guidance to
analysts. Generally, the Committee will discuss with management any
financial information and earnings guidance provided to analysts.
These discussions, however, need not occur in advance of each
provision of guidance.
- Satisfy itself, on behalf of the Board of Directors, that the
Corporation's quarterly and annual audited financial statements are
fairly presented both in accordance with generally accepted accounting
<Page>
iii
principles and otherwise, and recommend to the Board of Directors
whether the quarterly and annual financial statements should be
approved.
- Satisfy itself, on behalf of the Board of Directors, that the
information contained in the Corporation's quarterly financial
statements, Annual Report to Shareholders and other financial
publications, such as Management's Discussion and Analysis of
Financial Condition and Results of Operations, the Annual Report on
Form 20-F and similar documentation required pursuant to applicable
laws, rules and regulations does not contain any untrue statement of
any material fact or omit to state a material fact that is required or
necessary to make a statement not misleading, in light of the
circumstances under which it was made.
- Review any financial reports or other financial information of the
Corporation submitted to any governmental body or the public,
including any certification, report, opinion, or review rendered by
the independent auditors.
- Have the right, for the purpose of performing their duties: (i) to
inspect all the books and records of the Corporation and its
subsidiaries; (ii) to discuss such accounts and records and any
matters relating to the financial position of the Corporation with the
officers and auditors of the Corporation and its subsidiaries; (iii)
to commission reports or supplemental information relating thereto;
(iv) to require the auditors to attend any or every meeting of the
Committee; and (v) to engage such independent counsel and other
advisors as are necessary in the Committee's determination.
- Permit the Board of Directors to refer to the Committee such matters
and questions relating to the financial position of the Corporation
and its affiliates or the reporting related thereto as the Board of
Directors may from time to time see fit.
Independent Auditors
- Be directly responsible for the appointment, retention, termination,
compensation, evaluation and oversight of the work of the
Corporation's independent auditors, with such auditors being
ultimately accountable to the Board and the Committee.
- Act as the Corporation's independent auditors' channel of direct
communication to the Corporation. In this regard, the Committee shall,
among other things, receive and review all reports and recommendations
from the Corporation's independent auditors, including the independent
auditor's timely reports of:
1. all critical accounting policies and practices to be used;
2. all alternative treatments of financial information within
generally accepted accounting principles that have been discussed
with the Corporation's management, ramifications of the use of
such alternative disclosures and treatments, and the treatment
preferred by the Corporation's independent auditor; and
3. other material written communications between the independent
auditor and the Corporation's management, such as any management
letter or schedule of unadjusted differences.
- Satisfy itself, on behalf of the Board of Directors, that the
Corporation's auditors are "independent" of management, within the
meaning given to such term in the rules and pronouncement of the
applicable regulatory authorities and professional governing bodies.
In furtherance of the foregoing, the Committee shall request that the
independent auditors, at least annually, provide a formal written
statement delineating all relationships between the independent
auditors and the Corporation consistent with Independence Standards
Board (ISB) Standard No. 1, and request information from the
independent auditors and management to determine the presence or
absence of a conflict of interest. The Committee shall actively engage
the auditors in a dialogue with respect to any disclosed relationships
or services that may impact the objectivity and independence of the
auditors. The Committee shall take, or recommend that the full Board
take, appropriate action to oversee the independence of the auditors.
- Ensure that rotation of the independent auditors' audit partners
satisfies regulatory requirements, and set policies about hiring
current or former employees of the independent auditors.
<Page>
iv
- Be responsible for preapproving, at least annually, all audit and
non-audit services provided by the Corporation's independent auditors;
provided, however, that the Committee shall have the authority to
delegate such responsibility to one or more of its members to the
extent permitted under applicable law and stock exchange rules.
- Ensure that the Corporation's independent auditors do not perform any
non-audit services that are prohibited by law or regulation.
- Annually review and evaluate the performance of the Corporation's
auditors, including a review and evaluation of the lead partner,
taking into account the opinions of management, and make
recommendations to the Board of Directors ad to whether or not to
continue to engage those auditors.
- Determine and review the remuneration of the Corporation's auditors
and any independent advisors (including independent counsel) to the
Committee.
- Satisfy itself, on behalf of the Board of Directors, that the audit
function has been effectively carried out and that any matter which
the independent auditors wish to bring to the attention of the Board
of Directors (including any audit problems or difficulties encountered
in the course of the audit work, and management's responses) has been
addressed and that there are no "unresolved differences" with the
auditors.
Financial reporting processes and risk management
- Review the audit plan of the external auditors for the current year
and review advice from the external auditors relating to management
and internal controls and the Corporation's responses to the
suggestions made therein.
- Monitor the Corporation's internal accounting controls, informational
gathering systems and management reporting on internal control. In
this regard, the Committee will receive regular reports from
management on the Corporation's compliance with Section 404 of the
Sarbanes Oxley Act and any similar requirements under Canadian
securities laws.
- Review with management and the auditors the relevance and
appropriateness of the Corporation's accounting policies and review
and approve all significant changes to such policies.
- Satisfy itself, on behalf of the Board of Directors, that the
Corporation has implemented appropriate systems of internal control
over financial reporting and the safeguarding of the Corporation's
assets and other "risk management" functions (including the
identification of significant risks and the establishment of
appropriate procedures to manage those risks and the monitoring of
corporate performance in light of applicable risks) affecting the
Corporation's assets, management, financial and business operations
and the health and safety of its employees and that these are
operating effectively.
- Review and approve the Corporation's investment and treasury policies
and monitor compliance with such policies.
- Establish procedures for the receipt and treatment of (i) complaints
received by the Corporation regarding accounting, controls, or
auditing matters and (ii) confidential, anonymous submissions by the
Corporation's employees of concerns regarding questionable accounting
or auditing.
Legal and regulatory compliance
- Satisfy itself, on behalf of the Board of Directors, that all material
statutory deductions have been withheld by the Corporation and
remitted to the appropriate authorities.
- Review with principal external counsel any legal matter that could
have a significant impact on the Corporation's financial statements.
- Satisfy itself, on behalf of the Board of Directors, that all
regulatory compliance issues have been identified and addressed and
identifying those that require further work.
<Page>
v
Budgets
Assist the Board of Directors in the review and approval of operational, capital
and other budgets proposed by management.
General
Perform any other activities consistent with this Charter, the Corporation's
By-laws and governing law and stock exchange rules, as the Committee or the
Board of Directors deems necessary or appropriate.
<Page>
SAND TECHNOLOGY INC.
PROXY
THIS PROXY IS SOLICITED BY AND ON BEHALF OF THE MANAGEMENT OF SAND TECHNOLOGY
INC. (THE "CORPORATION") AND WILL BE USED AT THE ANNUAL MEETING OF SHAREHOLDERS
(THE "MEETING") OF THE CORPORATION TO BE HELD ON THURSDAY, DECEMBER 18, 2008 AND
AT EVERY ADJOURNMENT THEREOF.
THE UNDERSIGNED SHAREHOLDER OF SAND TECHNOLOGY INC. HEREBY APPOINTS ARTHUR G.
RITCHIE, CHAIRMAN OF THE BOARD OF THE CORPORATION, OR FAILING HIM, DOUGLAS
PRYDE, A DIRECTOR OF THE CORPORATION, OR FAILING HIM, SEBASTIEN VEZINA,
SECRETARY OF THE CORPORATION, OR INSTEAD OF ANY OF THEM
_______________________________, WITH FULL POWER OF SUBSTITUTION, AS THE PROXY
OF THE UNDERSIGNED TO ATTEND, ACT AND VOTE ALL CLASS A COMMON SHARES HELD OF
RECORD BY THE UNDERSIGNED, AT THE ANNUAL MEETING OF THE SHAREHOLDERS OF THE
CORPORATION, TO BE HELD ON THURSDAY, DECEMBER 18, 2008 AT 10:00 O'CLOCK (EASTERN
STANDARD TIME) IN THE MORNING AT THE OFFICES OF LAVERY, DE BILLY, 40TH FLOOR, 1
PLACE VILLE MARIE, MONTREAL, QUEBEC, CANADA, AND AT EVERY ADJOURNMENT OF THE
MEETING. WITHOUT LIMITING THE GENERAL AUTHORIZATION AND POWERS GIVEN BY THIS
PROXY, THE UNDERSIGNED HEREBY DIRECTS EACH OF PERSONS NAMED AS PROXY TO VOTE AS
FOLLOWS:
1. VOTE FOR [_] WITHOLD FROM VOTING [_] with regard to the election as
Directors of Arthur G. Ritchie, Wayne Musselman, Thomas P. O'Donnell,
Douglas S. Pryde, Martin Shindler and George Wicker.
2. VOTE FOR [_] or WITHOLD FROM VOTING [_] with regard to the appointment of
Raymond Chabot Grant Thornton LLP, as auditor of the Corporation and
authorization for the Audit Committee of the Board of Directors of the
Corporation to fix the remuneration of the auditor.
3. At the discretion of the said proxy, upon any amendment to the matters
identified above or other matters that may properly come before the
Meeting, or any adjournment of the Meeting.
THE SHARES REPRESENTED BY THIS PROXY SHALL BE VOTED, WHERE DESIGNATED, IN THE
MANNER SO DESIGNATED. IF NO DESIGNATION IS MADE, THIS PROXY WILL BE VOTED IN
FAVOUR OF EACH PROPOSAL. ANY PROXIES GIVEN PRIOR TO THE DATE BELOW ARE HEREBY
REVOKED.
Dated this _______ day of _________ 2008
________________________________________
NAME OF SHAREHOLDER
(print name)
----------------------------------------
SIGNATURE OF THE SHAREHOLDER
YOU HAVE THE RIGHT TO APPOINT A PERSON
(WHO NEED NOT BE A SHAREHOLDER) OTHER
THAN A PERSON DESIGNATED IN THIS FORM OF
PROXY TO ATTEND AND ACT FOR YOU AT THE
MEETING. YOU MAY EXERCISE THAT RIGHT BY
INSERTING THE NAME OF YOUR DESIRED
REPRESENTATIVE IN THE BLANK SPACE
PROVIDED AND STRIKING OUT THE NAMES OF
THE NOMINEES OF MANAGEMENT. ANOTHER
APPROPRIATE FORM OF PROXY MAY BE
SUBMITTED.
The Form of Proxy appointing a proxy
holder must be signed in writing by the
registered shareholder or the attorney
of such registered shareholder
authorized in writing. If the registered
shareholder is a corporation, the Form
of Proxy appointing a proxy holder must
be in writing signed by an officer or
attorney of the Corporation duly
authorized by resolution of the
directors of such corporation, which
resolution must accompany such
instrument. Persons signing as
executors, administrators, trustees,
etc., should so indicate and give their
full title as such. A partnership should
sign in the partnership name by an
authorized person(s).
IN ORDER TO BE VALID, PROPERLY EXECUTED
FORMS OF PROXY MUST BE DEPOSITED WITH
CIBC MELLON TRUST COMPANY, 200 QUEEN'S
QUAY EAST, UNIT 6, TORONTO, ONTARIO,
CANADA M5A 4K9, NO LATER THAN 5:00 P.M.
ON MONDAY, DECEMBER 15, 2008 OR, IF THE
MEETING IS ADJOURNED, FORTY-EIGHT (48)
HOURS (EXCLUDING SATURDAYS, SUNDAYS AND
HOLIDAYS) BEFORE ANY ADJOURNED MEETING.
THIS FORM OF PROXY SHOULD BE DATED AND
THE SIGNATURE ON IT SHOULD BE EXACTLY
THE SAME AS ON THE SHARE CERTIFICATE. IF
THIS PROXY IS NOT DATED, IT SHALL BE
DEEMED TO BEAR THE DATE OF THE MEETING.
<Page>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report on Form 6-K to be signed on its behalf by
the undersigned, thereunto duly authorized.
SAND TECHNOLOGY INC.
November 25, 2008 /s/ Arthur G. Ritchie
----------------------------------------
Arthur G. Ritchie
Chairman of the Board, President
and Chief Executive Officer