<Page>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
/ / REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended July 31, 2008
OR
/ / TRANSITIONAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
/ / SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Date of event requiring this shell company report...............
Commission File Number 0-14884
[GRAPHIC]
Sand Technology Inc.
(FORMERLY SAND TECHNOLOGY SYSTEMS INTERNATIONAL INC.)
(Exact name of registrant as specified in its charter)
CANADA
(Jurisdiction of incorporation or organisation)
215 REDFERN AVENUE, SUITE 410
WESTMOUNT, QUEBEC, CANADA H3Z 3L5
(Address of principal executive offices)
SEBASTIEN VEZINA
1 (514) 877-2964
1 (514) 871-8977
svezina@lavery.qc.ca
1 PLACE VILLE MARIE, SUITE 4000
MONTREAL, QUEBEC, CANADA H3B 4M4
(Name, Telephone, Email and/or Facsimile number and
Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the
Act
Title of each class Name of each exchange on which registered
NONE N/A
<Page>
Securities registered pursuant to Section 12(g) of the Act.
CLASS A COMMON SHARES
Securities for which there is a reporting obligation pursuant to Section
15(d) of the Act.
NONE
Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report.
14,318,189 CLASS A COMMON SHARES
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act / / Yes /X/ No
If this report is an annual or transition report, indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934. / / Yes /X/ No
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. /X/ Yes / / No
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):
Large accelerated filer / / Accelerated filer / / Non-accelerated filer /X/
Indicate by check mark which basis of accounting the registrant has used to
prepare the financial statements included in this filing:
U.S. GAAP / / International Financial Reporting Standards as issued Other /X/
By the International Accounting Standards Board / /
Indicate by check mark which financial statement item the registrant has elected
to follow.
Item 17 / / Item 18 /X/
If this is an annual report, indicate by check mark whether the registrant is a
shell company (as defined in Rule 12b-2 of the Exchange Act). / / Yes /X/ No
-ii-
<Page>
SAND TECHNOLOGY INC.
TABLE OF CONTENTS
<Table>
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS...............................................3
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE.............................................................3
ITEM 3. KEY INFORMATION.....................................................................................3
A. SELECTED FINANCIAL DATA................................................................................3
B. CAPITALIZATION AND INDEBTEDNESS........................................................................6
C. REASONS FOR THE OFFER AND USE OF PROCEEDS..............................................................6
D. RISK FACTORS...........................................................................................6
ITEM 4. INFORMATION ON THE COMPANY.........................................................................18
A. HISTORY AND DEVELOPMENT OF THE COMPANY................................................................18
B. BUSINESS OVERVIEW.....................................................................................19
C. ORGANIZATIONAL STRUCTURE..............................................................................23
D. PROPERTY, PLANTS AND EQUIPMENT........................................................................24
ITEM 4A. UNRESOLVED STAFF COMMENTS.......................................................................24
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS.......................................................24
A. OPERATING RESULTS.....................................................................................24
B. LIQUIDITY AND CAPITAL RESOURCES.......................................................................29
C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC...................................................31
D. TREND INFORMATION.....................................................................................31
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.........................................................32
A. DIRECTORS AND SENIOR MANAGEMENT.......................................................................32
B. COMPENSATION..........................................................................................34
C. BOARD PRACTICES.......................................................................................38
D. EMPLOYEES.............................................................................................42
E. SHARE OWNERSHIP.......................................................................................43
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS..................................................46
A. MAJOR SHAREHOLDERS....................................................................................46
B. RELATED PARTY TRANSACTIONS............................................................................47
C. INTERESTS OF EXPERTS AND COUNSELS.....................................................................48
ITEM 8. FINANCIAL INFORMATION..............................................................................48
A. CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION...............................................48
B. SIGNIFICANT CHANGES...................................................................................48
ITEM 9. THE OFFER AND LISTING..............................................................................48
A. OFFER AND LISTING DETAILS.............................................................................48
B. PLAN OF DISTRIBUTION..................................................................................49
C. MARKETS...............................................................................................49
D. SELLING SHAREHOLDERS..................................................................................49
E. DILUTION..............................................................................................50
F. EXPENSES OF THE ISSUE.................................................................................50
ITEM 10. ADDITIONAL INFORMATION..........................................................................50
A. SHARE CAPITAL.........................................................................................50
B. MEMORANDUM AND ARTICLES OF INCORPORATION..............................................................50
C. MATERIAL CONTRACTS....................................................................................56
D. EXCHANGE CONTROLS.....................................................................................56
E. TAXATION..............................................................................................58
F. DIVIDENDS AND PAYING AGENTS...........................................................................62
G. STATEMENTS BY EXPERTS.................................................................................62
H. DOCUMENTS ON DISPLAY..................................................................................62
I. SUBSIDIARY INFORMATION................................................................................62
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK......................................62
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES..........................................63
</Table>
-i-
<Page>
<Table>
PART II..........................................................................................................63
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES.................................................63
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHT OF SECURITY HOLDERS AND USE OF PROCEEDS.....................63
ITEM 15. CONTROLS AND PROCEDURES.........................................................................63
A. DISCLOSURE CONTROLS AND PROCEDURES....................................................................63
B. MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING...............................63
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT................................................................64
ITEM 16B. CODE OF ETHICS..................................................................................64
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES..........................................................65
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES......................................66
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS..........................66
PART III.........................................................................................................66
ITEM 17. FINANCIAL STATEMENTS............................................................................66
ITEM 18. FINANCIAL STATEMENTS...............................................................................66
ITEM 19. EXHIBITS........................................................................................67
</Table>
-ii-
<Page>
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Annual Report on Form 20-F (the "Report")
are "forward-looking statements" within the meaning of the United States
Securities Act of 1933 and of the United States Securities Exchange Act of 1934
(the "Exchange 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 Technology Inc. ("SAND" or the
"Company") 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 us
on November 18, 2008. For a more detailed discussion of these risks and
uncertainties and other business risks, see Item 3 - "Risk Factors" and Item 5 -
"Trend Information". Although the Company has attempted to identify important
risks and factors that could cause actual actions, events or results to differ
materially from those described in forward-looking statements, there may be
other factors and risks that cause actions, events or results not to be as
anticipated, estimated or intended. 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.
* * *
SAND Technology, N-Vector, Sand Online 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 the Company. All other
trademarks are the property of their respective owners. All other product and
service names mentioned are the trademarks of their respective companies.
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3. KEY INFORMATION
A. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial information
with respect to SAND for the five (5) years ended July 31, 2008 and is extracted
in part from the consolidated financial statements that have been audited by our
auditors, Raymond Chabot Grant Thornton LLP for the fiscal years ended July 31,
2008 (included herein at Item 18), July 31, 2007 and July 31, 2006 and Deloitte
& Touche LLP for the fiscal
-3-
<Page>
years ended July 31, 2005 and July 31, 2004. 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 enterity by the consolidated
financial statements included in Item 18.
This selected financial data has been prepared in accordance with Canadian
generally accepted accounting principles ("Canadian GAAP") which differs in many
respects from generally accepted accounting principles in the United States
("U.S. GAAP"). A discussion of differences between Canadian GAAP and U.S. GAAP
is contained in Note 16 to the audited consolidated financial statements. Any
monetary figure included in this Report is presented consistent with Canadian
GAAP except where otherwise indicated.
The selected financial data set forth below is stated in thousands of
Canadian dollars (except per share amounts).
FIVE YEAR COMPARATIVE SUMMARY OF SELECTED FINANCIAL DATA
(EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS UNLESS OTHERWISE INDICATED)
(IN ACCORDANCE WITH CANADIAN GAAP)
<Table>
<Caption>
YEARS ENDED JULY 31 2008 2007 2006 2005 2004
- -----------------------------------------------------------------------------------------------------------------------------
OPERATING RESULTS
- -----------------------------------------------------------------------------------------------------------------------------
Revenue $ 6,998 $ 6,729 5,477 $ 6,096 $ 5,349
- -----------------------------------------------------------------------------------------------------------------------------
Research and Development Costs $ (1,972) $ (2,215) $ (2,442) $ (3,272) $ (3,309)
- -----------------------------------------------------------------------------------------------------------------------------
Selling, General and Administrative Expenses $ (4,412) $ (5,100) $ (5,221) $ (8,318) $ (7,605)
- -----------------------------------------------------------------------------------------------------------------------------
Amortization $ (187) $ (201) $ (248) $ (277) $ (242)
- -----------------------------------------------------------------------------------------------------------------------------
Cost of Sales and Product Support $ (1,470) $ (1,667) $ (1,554) $ (1,754) $ (1,652)
- -----------------------------------------------------------------------------------------------------------------------------
Loss from Operations $ (1,043) $ (2,454) $ (3,988) $ (7,525) $ (7,459)
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Other Income (Expense) $ (229) $ (72) $ 61 $ 162 $ 329
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Equity and Gain on Sale of Subsidiaries N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Net Income (Loss) $ (1,272) $ (2,526) $ (3,927) $ (7,363) $ (7,130)
- -----------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION
- -----------------------------------------------------------------------------------------------------------------------------
Working Capital $ 85 $ 238 $ 1,852 $ 5,820 $ 13,274
- -----------------------------------------------------------------------------------------------------------------------------
Total Assets $ 2,803 $ 2,357 $ 3,445 $ 7,935 $ 15,991
- -----------------------------------------------------------------------------------------------------------------------------
Total Liabilities $ 4,063 $ 3,239 $ 2,508 $ 3,100 $ 3,632
- -----------------------------------------------------------------------------------------------------------------------------
Capital Stock $ 38,530 $ 38,530 $ 38,024 $ 38,024 $ 38,557
- -----------------------------------------------------------------------------------------------------------------------------
Shareholders' Equity (Deficit) $ (1,260) $ (882) $ 937 $ 4,835 $ 12,359
- -----------------------------------------------------------------------------------------------------------------------------
Basic and Diluted Weighted Average Number of
Shares Outstanding 14,318,189 13,094,288 12,818,189 12,860,438 13,079,649
- -----------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA (IN DOLLARS PER SHARE)
Net Loss Per Share (Basic and dilutive) $ (0.09) $ (0.19) $ (0.31) $ (0.57) $ (0.55)
- -----------------------------------------------------------------------------------------------------------------------------
</Table>
The same data, presented in conformity with U.S. GAAP is shown in the following
table:
-4-
<Page>
FIVE YEAR COMPARATIVE SUMMARY OF SELECTED FINANCIAL DATA
(EXPRESSED IN THOUSANDS OF CANADIAN DOLLARS UNLESS OTHERWISE INDICATED)
(IN ACCORDANCE WITH U.S. GAAP)
<Table>
<Caption>
YEARS ENDED JULY 31 2008 2007 2006 2005 2004
- -----------------------------------------------------------------------------------------------------------------------------
OPERATING RESULTS
- -----------------------------------------------------------------------------------------------------------------------------
Revenue $ 6,998 $ 6,729 5,477 $ 6,096 $ 5,349
- -----------------------------------------------------------------------------------------------------------------------------
Research and Development Costs $ (1,972) $ (2,215) $ (2,442) $ (3,272) $ (3,309)
- -----------------------------------------------------------------------------------------------------------------------------
Selling, General and Administrative Expenses $ (4,698) $ (5,498) $ (5,419) $ (8,318) $ (7,605)
- -----------------------------------------------------------------------------------------------------------------------------
Amortization $ (187) $ (201) $ (248) $ (277) $ (242)
- -----------------------------------------------------------------------------------------------------------------------------
Cost of Sales and Product Support $ (1,470) $ (1,667) $ (1,554) $ (1,754) $ (1,652)
- -----------------------------------------------------------------------------------------------------------------------------
Loss from Operations $ (1,329) $ (2,852) $ (4,186) $ (7,525) $ (7,459)
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Other Income (Expense) $ (229) $ (72) $ 61 $ 162 $ 329
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Equity and Gain on Sale of Subsidiaries N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Net Income (Loss) $ (1,558) $ (2,924) $ (4,125) $ (7,363) $ (7,130)
- -----------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION
- -----------------------------------------------------------------------------------------------------------------------------
Working Capital $ 85 $ 238 $ 1,852 $ 5,820 $ 13,274
- -----------------------------------------------------------------------------------------------------------------------------
Total Assets $ 2,803 $ 2,357 $ 3,445 $ 7,935 $ 15,991
- -----------------------------------------------------------------------------------------------------------------------------
Total Liabilities $ 5,387 $ 3,550 $ 2,508 $ 3,100 $ 3,632
- -----------------------------------------------------------------------------------------------------------------------------
Capital Stock $ 38,530 38,530 38,024 38,024 38,557
- -----------------------------------------------------------------------------------------------------------------------------
Shareholders' Equity (Deficit) $ (2,584) $ (1,193) $ 937 $ 4,835 $ 12,359
- -----------------------------------------------------------------------------------------------------------------------------
Basic and Diluted Weighted Average Number
of Shares Outstanding 14,318,189 13,094,288 12,818,189 12,860,438 13,079,649
- -----------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA (IN DOLLARS PER SHARE)
- -----------------------------------------------------------------------------------------------------------------------------
Net Loss Per Share (Basic and dilutive) $ (0.11) $ (0.22) $ (0.32) $ (0.57) $ (0.55)
- -----------------------------------------------------------------------------------------------------------------------------
</Table>
As of November 18, 2008, the Company had 14,318,189 common shares outstanding.
Each common share entitles its holder to one vote.
DISCLOSURE OF THE EXCHANGE RATE WITH FINANCIAL REPORTING CURRENCY
<Table>
<Caption>
FOREIGN
EXCHANGE RATE
CANADIAN TO FISCAL Fiscal Fiscal Fiscal Fiscal
US DOLLAR: 2008 2007 2006 2005 2004
- -----------------------------------------------------------------------------------------------------------------------------
Average 1.0352 1.1258 1.1551 1.2418 1.3381
- -----------------------------------------------------------------------------------------------------------------------------
High/low 1.0755 / 0.7695 1.1853 / 1.0372 1.2187 / 1.0990 1.3326 / 1.1774 1.4099 / 1.2692
- -----------------------------------------------------------------------------------------------------------------------------
</Table>
-5-
<Page>
<Table>
<Caption>
MONTH ENDED HIGH LOW
- ----------------------------------------------------------------------------
November 18, 2008 0.8713 0.8033
- ----------------------------------------------------------------------------
October 31, 2008 0.9447 0.7695
- ----------------------------------------------------------------------------
September 30, 2008 1.0796 1.0338
- ----------------------------------------------------------------------------
August 30, 2008 1.0678 1.0253
- ----------------------------------------------------------------------------
July 31, 2008 1.0261 1.0016
- ----------------------------------------------------------------------------
June 30, 2008 1.0282 0.9942
- ----------------------------------------------------------------------------
May 31, 2008 1.0189 0.9844
- ----------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MONTH MONTHLY AVERAGE
- --------------------------------------------------------------
October 2008 1.1848
- --------------------------------------------------------------
September 2008 1.0583
- --------------------------------------------------------------
August 2008 1.0544
- --------------------------------------------------------------
July 2008 1.0127
- --------------------------------------------------------------
June 2008 1.0157
- --------------------------------------------------------------
May 2008 0.9995
- --------------------------------------------------------------
</Table>
On November 18, 2008, the noon buying rate for US$1.00 was CAN$1.2239.
SUMMARY OF DIFFERENCES BETWEEN US AND CANADIAN GAAP
A reconciliation of the differences between generally accepted accounting
principles in the United States and Canada is presented in Note 16 of the
consolidated financial statements stated in Item 18.
B. CAPITALIZATION AND INDEBTEDNESS
Not applicable.
C. REASONS FOR THE OFFER AND USE OF PROCEEDS
Not applicable.
D. RISK FACTORS
In addition to the other information in this Report, 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.
-6-
<Page>
RISKS SPECIFIC TO THE COMPANY:
RISKS ASSOCIATED WITH OUR FINANCIAL RESULTS
HISTORY OF LOSSES - WE HAVE A HISTORY OF LOSSES AND MAY INCUR FUTURE
LOSSES.
RISK:
We have incurred the following net losses between the financial years
2004 and 2008:
<Table>
2004 $ (7,129,930)
---------------------------------------------
2005 $ (7,363,054)
----------------------------------------------
2006 $ (3,926,921)
----------------------------------------------
2007 $ (2,526,524)
----------------------------------------------
2008 $ (1,271,950)
----------------------------------------------
</Table>
We may continue to experience substantial losses in the future. 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 will depend on our ability to generate sufficient revenues,
including locating sufficient customers who will purchase our
products and use our services.
IMPACT:
If our revenues grow more slowly or if our operating expenses are higher
than expected, we will not achieve profitability, in which case our financial
conditions 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.
-7-
<Page>
INSUFFICIENT CAPITAL - WE NEED TO RAISE ADDITIONAL CAPITAL 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 our 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.Given
the current global financial crisis, it will be very difficult to raise
additional funds through private placement or the market, except through an
increase in loans from a major shareholder.
FACTORS:
(i) In order to continue operations and 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 current 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, our failure to increase our revenues will negatively
impact our financial results. We then would not have sufficient
capital to fund our operations, unless we can obtain such capital
from external sources.
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 current and planned operations. We may need to
undertake additional measures to reduce our operating expenses in
the future.
(ii) Our consolidated financial statements are prepared on a "going
concern" basis, meaning that the carrying amounts of assets,
liabilities, revenues and expenses presented in our financial
statements and the balance sheet classification have not been
adjusted as they would be required if the going concern assumptions
was not appropriate.
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 STOCK.
RISK:
Our quarterly and operating results are difficult to predict, have
fluctuated in the past, and may fluctuate in the future.
FACTORS:
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' roadmaps 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.
-8-
<Page>
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 common
shares to decline. When the market price of a company's stock 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.
RISKS ASSOCIATED WITH OUR BUSINESS AND OPERATIONS
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:
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 takes us a substantial amount of time to
generate revenue from our sales effort.
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 also 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
-9-
<Page>
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 us to hire
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 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.
RISKS WHICH MAY AFFECT THE VALUE OF OUR SECURITIES
VOLATILITY IN STOCK 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
(the "OTC-BB") under the symbol SNDTF.OB. Our share price, which has ranged from
a low of US$0.31 to a high of US$0.85 during the twelve-month period ended July
31, 2008, could continue to be subject to wide fluctuations.
-10-
<Page>
FACTORS:
(i) The volume of trading in our Class A Common Shares on the OTC-BB 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:
When the market price of a company's stock 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.
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 18, 2008, and we have
reserved an additional 5,158,561 Class A Common Shares for future issuance. We
have granted rights to purchase 963,500 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
4,195,061 Class A Common Shares for future issuance upon exercise of all
outstanding share purchase warrants and upon conversion of all outstanding
convertible debentures.
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.
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 41.28% of our Class A Common
Shares. Arthur G. Ritchie, President, Chief Executive Officer and the Chairman
of the board of directors of SAND, beneficially owns approximately 25.13% of
SAND's Class A Common Shares. The Estate of Jerome Shattner (Jerome Shattner was
the late Executive Vice President of the Company), beneficially owns 7.31% of
our Class A Common Shares,
-11-
<Page>
Thomas M. O'Donnell, director of SAND, beneficially owns 5.49% of our Class A
Common Shares while George Wicker, a director of SAND, beneficially owns 1.92%
of our Class A Common Shares.
IMPACT:
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
also have the effect of delaying or preventing a change in control of SAND.
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:
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 Company.
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.
TECHNOLOGY RISKS
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.
-12-
<Page>
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.
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.
-13-
<Page>
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 a 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, 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.
PROPRIETARY RIGHTS - THERE IS LIMITED PROTECTION OF OUR PROPRIETARY RIGHTS.
RISK:
We currently rely primarily 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 nine 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 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
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 enter into royalty or
licensing agreements which may not be available on terms acceptable
to
-14-
<Page>
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.
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.
BUSINESS RISKS
COMPETITIVE ENVIRONMENT - WE OPERATE IN A HIGHLY COMPETITIVE ENVIRONMENT.
RISK:
We compete in the highly competitive computer software industry. 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:
(i) vendors that offer data warehouse appliances which operate
specifically with their proprietary platform such as Netezza, NCR
Teradata and DATAllegro;
(ii) software vendors that offer products which focus on structured data
archiving such as FileTek and PBS;
(iii) other companies that may in the future announce offerings of
enterprise information management solutions.
-15-
<Page>
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.
(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 primarily 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
stock price or our current overall 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.
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 of North
America.
<Table>
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.
-16-
<Page>
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.
(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.
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.
GLOBAL FINANCIAL SYSTEM - 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
RISK:
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
-17-
<Page>
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.
IMPACT:
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.
ITEM 4. INFORMATION ON THE COMPANY
A. HISTORY AND DEVELOPMENT OF THE COMPANY
GENERAL BACKGROUND
SAND was incorporated on December 10, 1982 under the CANADA BUSINESS
CORPORATIONS ACT (the "CBCA") 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 Company ("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 and have since maintained our focus on 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 on providing specialized systems
integration services in connection with 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 Limited
(previously named Sand Technology (U.K.) Limited)("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.
-18-
<Page>
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 the
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.
B. BUSINESS OVERVIEW
We are a company with a commitment to a rapidly evolving industry which
seeks to improve the business professional's ability to make timely, fact-based
business decisions and to help large enterprises maintain cost-effective and
timely access to enormous amounts of data.
Our revenues consist of license fees for software products and fees for a
range of associated services, including software maintenance and support,
training and system implementation consulting. Our plans to achieve
profitability in the future will continue to require us to devote substantial
financial resources to grow our work force, improve our infrastructure, continue
the development, marketing and the distribution of our products, and generally
support our expanding operations.
PRODUCTS AND SERVICES
OVERALL
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.
These software product solutions have been marketed and are known as the
SAND/DNA Product Suite and are 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.
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; and
(b) help manage the data explosion in industry by maintaining rapid
access to huge volumes of "Nearline 2.0" data.
During the fiscal year 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
-19-
<Page>
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.
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 the fiscal year 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 the fiscal year 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 the fiscal year 2005, we released 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.
(d) During the fiscal year 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.
-20-
<Page>
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.
PRINCIPAL MARKETS
Our corporate headquarters are located in Montreal, Canada, where we also
have development and sales resources. Our subsidiary Sand Technology Corporation
has offices in Kenilworth, New Jersey and Pasadena, California to provide for
the development, sales, marketing and distribution of the SAND/DNA product suite
in the United States.
Our subsidiary Sand Technology Limited has an office in Camberley,
southwest of London, United Kingdom. Our subsidiary Sand Technology Deutschland
GmbH has an office in Hamburg, Germany.
Sales to customers outside North America, including sales generated by our
United Kingdom subsidiary, represented 70%, 71% and 66% of our total revenue for
the years ended July 31, 2006, July 31, 2007 and July 31, 2008, respectively.
MARKETING CHANNELS
We have alliances or commercial relationships with, among others, SAP AG
("SAP"), International Business Machines Corporation ("IBM"), Sun Microsystems,
Inc., Total Tec Systems Inc., Accenture Ltd., Cap Gemini S.A., Hewlett-Packard
Company, Inforte Corporation (acquired by Business & Decision Group), Posetiv
Limited, Open Text Corporation, Atos Origin, Microsoft Corporation, Oracle
Corporation, DunnHumby Ltd. and FreeSat Inc. (formerly TopEnd Solutions). 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.
Our long-term goal is to ensure that our products become a recognized
platform for advanced analytical applications and managing large data volumes
through strategic systems integration assignments and our direct sales force.
While we will continue to a limited degree to pioneer vertical and application
markets through our own direct sales efforts, our long term distribution
strategy is to engage a network of industry-leading solutions providers, both
application vendors and systems integrators, to incorporate the SAND/DNA Product
Suite as a key part of their offering.
COMPETITION
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:
-21-
<Page>
- 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.
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. With the release of SAND/DNA Access and SAND/DNA for SAP
BI we have been able to establish ourselves as complementary to many of the
vendors that we were seen as competitors with respect to SAND/DNA Analytics. We
now have offerings that complement SAP, Oracle, IBM DB2, and Microsoft SQL
warehouses. 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.
We compete primarily 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, our market is evolving at a rapid pace.
PROPRIETARY RIGHTS
We currently rely primarily 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 nine United States
patents and thirty-two foreign patents.
In 1994, SAND acquired all the rights, title and interest in the Nucleus
Database Engine Subsystem. In addition to trademarks, trade names and other
proprietary rights, these interests included patents related to bit vector
compression and boolean operation processing capability.
In October 1997, SAND acquired the Advanced Technology Group of XDB
Systems, Inc. as well as the rights to the source code of Quantum Leap. Quantum
Leap was designed to provide a more flexible architecture for customization and
incorporation of new technology quickly and effectively using small footprint
engines.
The Company has been issued nine United States patents and thirty-two
foreign patents which provide protection for the SAND Analytic Server and the
SAND Searchable Archive which incorporate the Nucleus database engine and other
Nucleus derived products.
The Company has also filed applications in accordance with the Patent
Cooperation Treaty (the "PCT"). The PCT is a multilateral treaty that was
concluded in Washington in 1970 and entered into force in 1978. It is
administered by the International Bureau of the World Intellectual Property
Organization (the "WIPO"), headquartered in Geneva, Switzerland. The PCT
facilitates the obtaining of protection for inventions where such protection is
sought in any or all of the PCT contracting states. It provides for the filing
of one patent application (the "international application"), with effect in
several contracting states, instead of
-22-
<Page>
filing several separate national and/or regional patent applications. At the
present time, an international application may include designation for regional
patents in respect of contracting states party to regional patent treaties. The
PCT does not eliminate the necessity of prosecuting the international
application in the national phase of processing before the national or regional
offices, but it does facilitate such prosecution in several important respects
by virtue of the procedures carried out first on all international applications
during the international phase of processing under the PCT. The formalities
check, the international search and (optionally) the international preliminary
examination carried out during the international phase, as well as the automatic
deferral of national processing which is entailed, give the applicant more time
and a better basis for deciding whether and in what countries to further pursue
the application.
The Company holds registered trademarks and trademarks. 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 the Company. All other trademarks are the property of
their respective owners. All other product and service names mentioned are the
trademarks of their respective companies.
C. ORGANIZATIONAL STRUCTURE
SAND has three wholly-owned subsidiaries: (i) Sand Technology (Ireland)
Limited; (ii) STSI Licensing, LLC; and (iii) Sand Technology Corporation. Sand
Technology (Ireland) Limited has itself two wholly-owned subsidiaries, Sand
Technology Deutschland GmbH, an entity existing under the laws of Germany, and
Sand Technology Limited, a company existing under the laws of England:
<Table>
<Caption>
PERCENTAGE OF VOTING
SUBSIDIARY JURISDICTION OF INCORPORATION SECURITIES HELD
- ----------------------------------------------------------------------------------------------------------
Sand Technology Corporation Delaware 100%
- ----------------------------------------------------------------------------------------------------------
STSI Licensing, LLC New Jersey 100%
- ----------------------------------------------------------------------------------------------------------
Sand Technology (Ireland) Limited Ireland 100%
- ----------------------------------------------------------------------------------------------------------
</Table>
The following chart illustrates the principal subsidiaries of SAND,
together with the jurisdiction of incorporation of each company and the
significant properties held by each company:
[THE REMAINDER OF THIS PAGE HAS BEEN LEFT INTENTIONALLY BLANK]
-23-
<Page>
[CHART]
D. PROPERTY, PLANT AND EQUIPMENT
As at July 31, 2008, we leased a total of approximately 14,073 square feet
of office space in three cities across North America, approximately 90 square
feet in the United Kingdom and 828 square feet in Germany. The weighted average
annualized cost per square foot of the space occupied is $23.51 including real
estate taxes and operating expenses. No lease extends beyond March 31, 2011.
ITEM 4A. UNRESOLVED STAFF COMMENTS
Not Applicable.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
A. OPERATING RESULTS
Compared to the fiscal year 2007, during the fiscal year 2008, there was a
reduction in our net loss of 50%. A combination of factors resulted in this
positive impact.
First, our revenues increased by 4% from the fiscal year 2007, as we
obtained new customers as well as increased our sales to existing customers.
While we were expecting a greater increase in revenues, sales appear to have
been postponed due to delays by certain third party software vendors in
releasing the next version of their products as well as issues that customers
encountered with those third party products. In North America, there was an
increase in revenue of 24% and a reduction in net loss of 38% compared to the
fiscal year 2007. In Europe, there was a slight decrease in revenue of 4% and a
reduction in net earnings of 14%.
-24-
<Page>
Second, we reduced our operating expenses by 12% from the fiscal year 2007,
reflecting an effectiveness of our cost controls.
SALES
REVENUE - TOTAL AND VARIATION
The following table provides a summary of the gross revenue growth for
fiscal years 2008, 2007 and 2006.
<Table>
<Caption>
TOTAL REVENUE AND REVENUE 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 during the fiscal year 2008 were $6,998,472, an increase of 4%
from sales of $6,728,540 during the fiscal year 2007. Our sales during the
fiscal year 2007 were $6,728,540, an increase of 23% from sales of $5,477,485
during the fiscal year 2006. Our sales during the fiscal year 2006 were
$5,477,485, a decrease of 10% from sales of $6,096,033 during the fiscal year
2005.
The increase in our revenues for fiscal year 2008 was mainly due to an
increase in license upgrades from our existing customers but the revenue growth
has been slowed due to a longer-than-expected sales cycle.
The increase in our revenues for fiscal year 2007 was associated primarily
with a growing acceptance of our products as well as license upgrades from our
existing customer base.
REVENUE - SEGMENT AND VARIATION
The Company has two geographical segments. Both North American and European
segments market the SAND/DNA Product Suite. The following table provides a
summary of the revenue growth by geographical segments for the fiscal years
2008, 2007 and 2006.
<Table>
<Caption>
NORTH AMERICA EUROPE
- ---------------------------------------------------------------------------------------------------------------------
Revenue by segment and revenue
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>
-25-
<Page>
NORTH AMERICA
Our sales in North America during the fiscal year 2008 were $2,410,048, an
increase of 24% from sales of $1,941,034 during the fiscal year 2007. Our sales
during the fiscal year 2007 in North America were $1,941,034, an increase of 19%
from sales of $1,634,977 during the fiscal year 2006. Our sales during the
fiscal year 2006 in North America were $1,634,977, a decrease of 44% from sales
of $2,899,252 during the fiscal year 2005.
The increase in North American sales during the fiscal year 2008 was 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.
EUROPE
In Europe, sales during the fiscal year 2008 were $4,588,424, a decrease of
4% from sales of $4,787,506 during the fiscal year 2007; sales during the fiscal
year 2007 were $4,787,506, an increase of 25% from sales of $3,842,508 during
the fiscal year 2006; sales during the fiscal year 2006 were $3,842,508, an
increase of 20% from sales of $3,196,781 during the fiscal year 2005.
The decrease in European sales during the fiscal year 2008 was due to the
unexpected delay by some key customers implementing our software solutions. Our
focus during the fiscal year 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.
COSTS
The following table provides a summary of our operating expenses for the
fiscal years 2008, 2007 and 2006.
<Table>
<Caption>
AS A % AS A % AS A %
OF OF 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 $ 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>
-26-
<Page>
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 during the fiscal year 2008 was $1,470,215, a decrease of
12% from cost of sales of $1,666,331 during the fiscal year 2007. Our cost of
sales during the fiscal year 2007 was $1,666,331, an increase of 7% from cost of
sales of $1,554,313 during the fiscal year 2006. Our cost of sales during the
fiscal year 2006 was $1,554,313, a decrease of 11% from cost of sales of
$1,754,138 in 2005.
The decrease in our cost of sales during the fiscal year 2008 was due to
the reduction in travel and related expenses and the reallocation of some of the
payroll costs into selling, general and administrative expenses.
The increase in the cost of sales during the fiscal year 2007, which
reflected the increase in revenue, was primarily due to the costs associated
with software licenses and salaries and other personnel-related expenses
incurred in providing support and maintenance services.
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 during the fiscal year 2008 was $187,517, a decrease of 7%
from amortization of $201,274 during the fiscal year 2007. Our amortization in
the fiscal year 2007 was $201,274, a decrease of 19% from amortization of
$248,455 during the fiscal year 2006. Our amortization during the fiscal year
2006 was $248,455, a decrease of 10% from amortization of $277,276 during the
fiscal year 2005.
The decrease in amortization during the fiscal year 2008 is due to the
'natural' amortization of the capital assets. In 2008, the contract costs have
been fully amortized and the furniture and equipment is almost fully amortized.
During the fiscal year 2008, there were acquisitions of $17,315 for computer
equipment mostly related to research and development.
SELLING, GENERAL AND ADMINISTRATIVE ("SG&A") EXPENSES
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 during the fiscal year 2008 were $4,411,736, a decrease
of 13% from SG&A expenses of $5,100,057 during the fiscal year 2007. Our SG&A
expenses during the fiscal year 2007 were $5,100,057, a decrease of 2% from SG&A
expenses of $5,220,443 during the fiscal year 2006. Our SG&A expenses in the
fiscal year 2006 were $5,220,443, a decrease of 37% from SG&A expenses of
$8,317,831 in the fiscal year 2005.
The decrease in SG&A expenses in the fiscal year 2008 was 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 that were initiated at the end
of the fiscal year 2005.
-27-
<Page>
NET LOSSES
TOTAL AND VARIATION
The following table provides a summary of the net losses for the fiscal
years 2008, 2007 and 2006.
<Table>
<Caption>
TOTAL REVENUE AND REVENUE VARIATION 2008 2007 2006
- -----------------------------------------------------------------------------------------------------
Net loss
Net loss $ (1,271,950) $ (2,526,524) $ (3,926,921)
Variation year-over-year decrease (increase) in
net loss 50% 36% 47%
- -----------------------------------------------------------------------------------------------------
</Table>
Our net losses in the fiscal year 2008 were $1,271,950, a decrease of 50%
from net losses of $2,526,524 in the fiscal year 2007. Our net losses in the
fiscal year 2007 were $2,526,524, a decrease of 36% from net losses of
$3,926,921 in the fiscal year 2006. Our net losses in the fiscal year 2006 were
$3,926,921, a decrease of 47% from net losses of $7,363,054 in the fiscal year
2005.
The decrease in our net loss for the fiscal year 2008 is mainly due to an
increase in our sales and a significant reduction in our operating costs. These
results reflect the transitional 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.
SEGMENT AND VARIATION
The following table provides a summary of net losses by geographical
segments for the fiscal years 2008, 2007 and 2006.
<Table>
<Caption>
NORTH AMERICA EUROPE
- -----------------------------------------------------------------------------------------------------------------------
Net earnings (loss) by segment and
net earnings (loss) 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% 49,460% (100)%
- -----------------------------------------------------------------------------------------------------------------------
</Table>
NORTH AMERICA
In North America, net losses in the fiscal year 2008 were $2,352,852, a
decrease of 38% from net losses of $3,789,146 in the fiscal year 2007. Our net
losses in the fiscal year 2007 were $3,789,146, a decrease of 3% from net losses
of $3,924,363 in the fiscal year 2006. Our net losses in the fiscal year 2006
were $3,924,363, a decrease of 34% from net losses of $5,965,661 in the fiscal
year 2005.
The decrease in our net loss for the fiscal year of 38% was 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.
EUROPE
In Europe, net earnings in the fiscal year 2008 were $1,080,902, a decrease
of 14% from net earnings of $1,262,622 in the fiscal year 2007. Our net earnings
in the fiscal year 2007 were $1,262,622, compared to
-28-
<Page>
net losses of $2,558 in the fiscal year 2006. Our net losses in the fiscal year
2006 were $2,558, a decrease of 100% from net losses of $1,397,393 in the fiscal
year 2005.
The decrease in net earnings by 14% for the fiscal year 2008 was mainly due
to the decrease in revenues by 4%. This result was due to the delay in purchases
of software licenses and services by customers.
INFLATION
Inflation has no material impact on the Company's operations.
IMPACT OF FOREIGN CURRENCY
Since we currently earn revenues and incur expenses in United States
dollars, British pounds, Euros and Canadian dollars, exchange rates for these
and other local currencies in countries where we may operate in the future may
fluctuate in relation to the Canadian dollar and such fluctuations may have an
adverse effect on our earnings or assets when United States dollars, British
pounds, Euros or local currencies are exchanged for Canadian dollars. We have
not entered into forward foreign exchange contracts. Losses and gains resulting
from the translation of revenue and expenses denominated in United States
dollars, British pounds, or Euros into Canadian dollars have been included in
our results of operations.
IMPACT OF GOVERNMENTAL POLICIES
There is no current governmental economic, fiscal, monetary or political
policy or factor that has materially affected or that could materially affect
the Company's operations or investments by shareholders.
B. LIQUIDITY AND CAPITAL RESOURCES
The Company 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. An increase in
unbilled receivables, higher accounts payable and lower deferred revenue
accounted for the changes in the non-cash working capital.
Accounts receivable were $1,573,867 as at July 31, 2008 compared to
$1,582,957 at July 31, 2007.
Accounts payable and accrued liabilities were $1,327,575 as at July 31,
2008 compared with $1,076,116 at July 31, 2007. The increase is mainly due to
the accrual for the sales taxes in the United Kingdom due to the higher sales
during the fiscal year 2008 and payroll related accruals in Germany.
At July 31, 2008, there was a positive working capital of $85,442 compared
with 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 credit 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 Company advanced an additional $517,557 to the Company.
On April 18, 2008, the Company issued 1,114 units by way of a private
placement and received proceeds of $1,009,819 (US$1,002,600). Each unit consists
of one 8% secured convertible debenture due
-29-
<Page>
December 31, 2017, redeemable at the option of the Company if the bid price of
the share has been above US$1.50 for sixty consecutive trading days, and
convertible into Class A Common Shares at US$0.45 per share and 1,000 share
purchase warrants of the Company. Each warrant entitles its holder to purchase
one additional common share of the Company at a price of US$0.70 per 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 US$1.50. Their 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 (as this term is defined in the convertible debenture) subsequent to
January 1, 2009, and on the Maturity Date (as this term is defined in the
convertible debenture). The financing is secured by a first rank hypothec on all
of the Company'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 is being
used to increase marketing and advertising capital needs and expansion.
Capital expenditures by cash for the year ended July 31, 2008 were $17,315,
compared to $40,730 for the year ended July 31, 2007. The expenditures were
mostly related to computer equipment. The Company 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>
Year $
---------------------------------------------
2009 283,260
2010 244,314
2011 162,876
---------------------------------------------
Total 690,450
=============================================
</Table>
Our cash and investments 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
issuing convertible debentures for cash proceeds of $1,009,819 and additional
funding of $517,557 by a major shareholder (our President and Chief Executive
Officer) during the fiscal year. The additional funds compensated the cash usage
from operating activities of $1,035,992.
The Company 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. We expect this to be exacerbated by the current
crisis in the global financial system which may cause customers to seek longer
payment terms. 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. If cash generated from operations becomes insufficient to
satisfy its liquidity requirements, the Company 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 stock and the terms
of this debt could restrict the Company's operations. The sale of additional
equity or convertible debt securities could result in additional dilution to the
Company's existing shareholders. The Company cannot be certain that additional
financing will be available in amounts or on terms acceptable to it, if at all.
If the Company is unable to obtain additional
-30-
<Page>
financing, it may be required to reduce the scope of its operations, which could
harm its business, financial condition and operating results.
C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.
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 the fiscal year 2008 were
$1,971,813, a decrease of 11% from $2,215,146 in the fiscal year 2007. Our
research and development expenses in the fiscal year 2007 were $2,215,146, a
decrease of 9% from $2,441,950 in the fiscal year 2006. Our research and
development expenses in the fiscal year 2006 were $2,441,950, a decrease of 25%
from $3,272,102 in 2005.
The decrease in research and development expenses in the fiscal year 2008
was due to the maturity of SAND/DNA Analytics and SAND/DNA Access products. The
expenditure in the fiscal year 2008 reflected the research and development
required to maintain product and technical leadership.
D. TREND INFORMATION
The Company is maintaining a prudent attitude for 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 we have.
SALES: The Company 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 Company will continue to focus on
research and development efforts that are key to responding to current changing
technology. The Company 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 Company 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 at the current level 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 Company will continue to closely monitor its cash
needs. The Company 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. We have
experienced difficulty in raising capital from external sources and have had to
rely upon loans from a major shareholder (our President and Chief Executive
Officer). The current financial environment does not appear to improve our
ability to raise additional capital from third parties.
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
-31-
<Page>
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.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. DIRECTORS AND SENIOR MANAGEMENT
DIRECTORS
The following table sets forth certain information concerning the directors
of the Company, including their beneficial ownership of shares of the Company 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 DIRECTOR BENEFICIALLY OWNED
OFFICE HELD SINCE PRINCIPAL OCCUPATION OR CONTROLLED
- ----------------------------------------------------------------------------------------------------------------
P. Wayne Musselman (1) (2)
Toronto, Ontario, Canada 2007 Accountant and Business Consultant. Nil
Director (Nil)%
- ----------------------------------------------------------------------------------------------------------------
Thomas M. O'Donnell
Woodstock, Illinois, United States 2008 Chief Executive Officer of Edge 384,700 (4)
Director Specialists LLC (2.69)%
- ----------------------------------------------------------------------------------------------------------------
Douglas S. Pryde (1) (2)
Mount Royal, Quebec, Canada 2001 Barrister & Solicitor Nil
Director (Nil)%
- ----------------------------------------------------------------------------------------------------------------
Arthur G. Ritchie
Westmount, Quebec, Canada President, Chief Executive Officer and 3,598,388 (3)
President and Chief Executive 1983 Chairman of SAND (25.13)%
Officer and Chairman of the Board
- ----------------------------------------------------------------------------------------------------------------
Martin Shindler (1)
Sarasota, Florida, United States 1987 Accountant and Business Consultant 5,950
Director (0.04)%
- ----------------------------------------------------------------------------------------------------------------
George Wicker (2)
Palm Beach Gardens, Florida, 274,950
United States 1996 Attorney and Business Consultant (1.92)%
Director
- ----------------------------------------------------------------------------------------------------------------
</Table>
Notes:
(1) Member of the Audit Committee.
(2) Member of the Governance, Nomination, Human Resources and Compensation
Committee.
(3) Excludes 625,000 shares of the Company subject to exercise of share
purchase warrants.
(4) Excludes a maximum of 668,000 shares of the Company subject to conversion
of convertible debentures and excludes 334,000 shares of the Company
subject to exercise of share purchase warrants.
As of November 18, 2008, the directors and officers of the Company as a
group beneficially owned 4,263,988 common shares representing approximately
29.78% of the outstanding common shares of the
-32-
<Page>
Company excluding 1,627,000 common shares subject to exercise of share purchase
warrants or to conversion of convertible debentures. The information as to
common shares beneficially owned or over which control or direction is
exercised, not being within the knowledge of the Company, has been furnished by
the respective directors and officers individually.
Mr. Wayne Musselman, BCom (Hon), FCA, retired as a partner of Deloitte &
Touche LLP 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. Thomas M. O'Donnell has an extensive career in the software and
financial markets. He is Chief Executive Officer, founder and majority owner of
Edge Specialists LLC, 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.
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. Arthur G. Ritchie has been a director and Chief Executive Officer of
SAND since he co-founded the Company in 1983. Prior to the inception of SAND, he
was one of four principals of LGS Data Processing Consultants Inc., a Canadian
information processing consulting firm. Prior to 1979, he was employed by IBM in
South Africa, Europe and Canada, in successive capacities as a systems
engineering professional and in a variety of management and marketing roles.
Mr. Martin Shindler has since 1964 been the president of a firm of
accountants and business consultants located in Florida.
Mr. George Wicker held executive level positions in general management,
program management and finance with Lockheed Martin Corporation and its
predecessor corporations during a thirty-three year career. Mr. Wicker holds a
B.A. in Political Sciences, an MBA in Financial Management from the University
of Santa Clara and a Juris Doctor degree from Pepperdine University.
SENIOR MANAGEMENT
The following table shows certain information with respect to the executive
and other officers of the Company:
<Table>
<Caption>
YEAR
APPOINTED TO OTHER POSITIONS AND BUSINESS
NAME OFFICE OFFICE EXPERIENCE
- ----------------------------------------------------------------------------------------------------------------------
<c>
Arthur G. Ritchie President and Chief Executive Officer 1983 Principal of LGS Data Processing
Consultants Inc.(1)
- ----------------------------------------------------------------------------------------------------------------------
Zainab A. Schwartz Vice-President, Finance and Administration 2008(2) Director of Internal Controls at
and Chief Financial Officer Quebecor World Inc.
- ----------------------------------------------------------------------------------------------------------------------
Sebastien Vezina Corporate Secretary 2008(3) Lawyer(4)
- ----------------------------------------------------------------------------------------------------------------------
</Table>
-33-
<Page>
Notes:
(1) See description of Mr. Arthur G. Ritchie under subsection entitled
"Directors".
(2) Ms. Zainab A. Schwartz was appointed as Vice-President, Finance and
Administration of the Company on June 9, 2008, in replacement of Mr. Gilles
Therrien, who resigned on May 9, 2008.
(3) Mr. Sebastien Vezina replaced Mr. Georges Dube as Secretary of the Company
on January 29, 2008.
(4) Mr. Vezina is a partner at the law firm Lavery, de Billy, L.L.P.
Ms. Zainab Ahmed Schwartz was previously Director of Internal Controls at
Quebecor World Inc. Previously, she specialized in auditing technology and
telecommunications clients while with Deloitte & Touche LLP, including two of
the largest public Canadian telecommunications companies as well as private
software technology companies. She holds a Graduate Diploma in Accountancy from
Concordia University in Montreal together with Bachelor of Commerce from McGill
University in Montreal. She is a member of the Institute of Chartered
Accountants of Ontario.
Mr. Sebastien Vezina is currently a Partner of Lavery, de Billy, L.L.P.,
where he has been practising as a lawyer since 1999. He holds a Bachelor of Laws
from Laval University in Quebec City and is a member of the Quebec Bar since
1999.
There are no family relationships between any director or executive officer
and any other director or executive officer.
SAND has entered into one arrangement pursuant to which a person referred
to above was selected as a director or as a member of senior management:
- On April 18, 2008, SAND entered into a Voting Agreement with Mr.
Arthur G. Ritchie and Mr. 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, whereby SAND
granted the right to holders of such debentures holding a majority of
the aggregate principal amount of the debentures outstanding to have
the right to designate one member to be nominated as director of SAND
and which provided that this member shall initially be Thomas M.
O'Donnell.
B. COMPENSATION
During the fiscal year ended July 31, 2008, each director, other than those
directors who are salaried or otherwise compensated officers of SAND, is paid a
basic annual retainer of $15,000 for serving as a director. The Chairman of the
Audit Committee is paid an additional amount of $5,000 per year.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation paid
to the Company'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 Company's three financial years ended July 31, 2008, July 31, 2007
and July 31, 2006:
"Named Executive Officers" or "NEOs" means the following individuals:
- each Chief Executive Officer;
-34-
<Page>
- each Chief Financial Officer;
- each of the Company's three most highly compensated 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 $150,000;
and
- any additional individuals for whom disclosure would have been provided
under (c) except that the individual was not serving as an officer of the
Company at the end of the most recently completed financial year-end.
Such information includes the following: the salary earned, the bonus, any
other compensation, including the specific benefits and other personal benefits,
the options granted under the stock option plan of the Company and any other
compensation which is not disclosed elsewhere.
As at July 31, 2008, the end of the most recently completed financial year
of the Company, the Company had two Named Executive Officers, whose names and
positions held within the Company are set out in the summary compensation table
below.
SUMMARY COMPENSATION TABLE
<Table>
<Caption>
LONG-TERM COMPENSATION
------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
-------------------------------- ------------------------------------
SECURITIES
UNDER RESTRICTED
OPTIONS / SHARES OR
NAME AND OTHER ANNUAL SARs RESTRICTED LTIP ALL OTHER
PRINCIPAL SALARY BONUS COMPENSATION GRANTED SHARE UNITS PAYOUTS COMPENSATION
POSITION YEAR ($) ($) ($) (#) ($) ($) ($)
- -------------------------------------------------------------------------------------------------------------------------
Arthur G. Ritchie 2008 212,153 - - - - - -
President and Chief 2007 150,000 - - - - - -
Executive Officer 2006 150,000 - - - - - -
- -------------------------------------------------------------------------------------------------------------------------
Jerome Shattner (3) 2008 - - - - - - -
Former Executive 2007 - - - - - - -
Vice President 2006 156,000 - - - - - -
- -------------------------------------------------------------------------------------------------------------------------
Zainab A. Schwartz (2)
Vice President, 2008 120,000 - - - - - -
Finance and 2007 - - - - - - -
Administration and 2006 - - - - - - -
Chief Financial
Officer
- -------------------------------------------------------------------------------------------------------------------------
</Table>
-35-
<Page>
<Table>
<Caption>
LONG-TERM COMPENSATION
------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
-------------------------------- ------------------------------------
SECURITIES
UNDER RESTRICTED
OPTIONS / SHARES OR
NAME AND OTHER ANNUAL SARs RESTRICTED LTIP ALL OTHER
PRINCIPAL SALARY BONUS COMPENSATION GRANTED SHARE UNITS PAYOUTS COMPENSATION
POSITION YEAR ($) ($) ($) (#) ($) ($) ($)
- -------------------------------------------------------------------------------------------------------------------------
Gilles Therrien (1)
Former Vice
President, Finance 2008 121,275 - - - - - 127,339
and Administration 2007 121,275 - - 40,000 - - -
and Chief Financial 2006 116,833 10,000 - - - - -
Officer
- -------------------------------------------------------------------------------------------------------------------------
</Table>
Notes:
(1) Mr. Therrien resigned on May 9, 2008.
(2) Ms. Schwartz was appointed on June 9, 2008.
(3) Mr. Shattner passed away on December 5, 2006.
No amounts have been set aside or accrued by the Company or its
subsidiaries to provide pension, retirement or similar benefits to its directors
or executive officers.
BONUS OR PROFIT-SHARING PLANS AND STOCK OPTIONS
OPTIONS / STOCK APPRECIATION RIGHTS ("SARs") GRANTED DURING THE MOST RECENT
FINANCIAL YEAR
The table below sets forth a summary of stock option grants made to the
Named Executive Officers under the Company's stock option plan during the
financial year ended July 31, 2008:
<Table>
<Caption>
MARKET VALUE OF
% OF TOTAL SECURITIES
OPTIONS/SARs UNDERLYING
SECURITIES UNDER GRANTED TO EXERCISE OR BASE OPTIONS ON THE
OPTIONS/SARs EMPLOYEES IN PRICE ($) / DATE OF GRANT ($)/
NAME GRANTED (#) 2008(2) COMMON SHARE COMMON SHARE EXPIRATION DATE
- ---------------------------------------------------------------------------------------------------------------------------
Arthur G. Ritchie
President and Chief Nil N/A N/A N/A N/A
Executive Officer
- ---------------------------------------------------------------------------------------------------------------------------
Zainab A. Schwartz
Vice President,
Finance and
Administration and Nil N/A N/A N/A N/A
Chief Financial
Officer
- ---------------------------------------------------------------------------------------------------------------------------
</Table>
-36-
<Page>
AGGREGATE OPTIONS EXERCISED DURING THE MOST RECENT FINANCIAL YEAR AND YEAR
END OPTION VALUE
There were no stock options exercised by a Named Executive Officer during
the financial year ended July 31, 2008. The table below sets out, on an
aggregate basis, the number and value of unexercised options as at July 31,
2008.
<Table>
<Caption>
VALUE OF UNEXERCISED IN-THE-
UNEXERCISED OPTIONS/SARs AS MONEY OPTIONS/SARs
AT JULY 31, 2008 AS AT JULY 31, 2008
(#) ($)(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 N/A 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
Company's Class A Common Shares 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 Company 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.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The following table summarizes as of November 18, 2008, the equity
compensation plans pursuant to which equity securities of the Company may be
issued:
EQUITY COMPENSATION PLAN INFORMATION
<Table>
<Caption>
NUMBER OF COMMON SHARES
NUMBER OF COMMON SHARES WEIGHTED AVERAGE EXERCISE REMAINING AVAILABLE FOR
TO BE ISSUED UPON EXERCISE PRICE OF OUTSTANDING FUTURE ISSUANCE UNDER THE
PLAN CATEGORY OF OUTSTANDING OPTION OPTIONS EQUITY COMPENSATION PLANS
- -------------------------------------------------------------------------------------------------------------------
Equity Compensation Plans of 963,500 1.05 2,036,500
the Company approved by the
shareholders
- -------------------------------------------------------------------------------------------------------------------
Equity Compensation Plans of
the Company not approved by 0 N/A 0
the shareholders
- -------------------------------------------------------------------------------------------------------------------
Total: 963,500 - 2,036,500
===================================================================================================================
</Table>
-37-
<Page>
C. BOARD PRACTICES
DATE OF EXPIRATION OF CURRENT TERM OF OFFICE
Pursuant to the CBCA, directors of the Company hold office until the close
of the next annual meeting of shareholders and until their successors are
elected and qualified or until their earlier resignation or removal. The CBCA
requires that twenty-five percent (25%) of the members of the Board of Directors
must be resident Canadians. In addition, the Board may not transact business at
a meeting unless one-quarter of the directors participating in the meeting are
Canadian residents. Officers serve at the pleasure of the Board of Directors,
subject to the terms of employment agreements, if any, and applicable employment
laws.
DIRECTORS' SERVICE CONTRACTS
The Company has entered into employment agreements with one of its Named
Executive Officers as described below.
Arthur G. Ritchie, President, Chief Executive Officer and Chairman of the
Board of Directors of SAND, entered into an employment agreement (the
"Employment Agreement") with SAND 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 unless SAND or Mr. Ritchie
shall have given the other a notice of termination of the Employment Agreement
not less than three (3) months prior to the end of its term. The Employment
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 Company. 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 Company. 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 Employment
Agreement of Mr. Ritchie (i) is resiliated by SAND for any reason other than for
Cause (as defined in the Employment Agreement) or death or (ii) is terminated by
Mr. Ritchie for Good Reason (as defined in the Employment Agreement), Mr.
Ritchie will be entitled to receive, among other things, a lump sum payment
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 SAND 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. Since no notice was given on October 1, 2008,
the employment of Mr. Ritchie will authomatically extend to January 1, 2010 on
terms similar to those in the Employment Agreement.
AUDIT COMMITTEE
AUDIT COMMITTEE CHARTER
The Audit Committee of the Board of Directors of SAND (the "Audit
Committee") has a formal charter setting out its mandate and responsibilities of
the Audit Committee that has been reviewed and adopted
-38-
<Page>
as amended on June 14, 2005, the text of which was included as Exhibit 15.1 of
the Annual Report on Form 20-F for the fiscal year ended July 31, 2005.
COMPOSITION OF AUDIT COMMITTEE
<Table>
<Caption>
NAME INDEPENDENT FINANCIALLY LITERATE
- --------------------------------------------------------------------------------
P. Wayne Musselman Yes Yes
- --------------------------------------------------------------------------------
Douglas S. Pryde Yes Yes
- --------------------------------------------------------------------------------
Martin Shindler Yes Yes
- --------------------------------------------------------------------------------
</Table>
The Audit Committee is comprised of three directors, each of whom is
independent under applicable Canadian requirements and the rules of the United
States Securities and Exchange Commission (the "S.E.C."). All the members of the
Committee are "financially literate" and have the ability to read and understand
a set of financial statements.
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. Wayne Musselman is the Chairman of the Audit Committee.
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.
The Audit Committee meets on a quarterly basis and holds special meetings
as circumstances require. During the year ended on July 31, 2008, the Audit
Committee held five meetings. All members attended the five meetings of the
Audit Committee held during the last fiscal year, with the exception of Martin
Shindler who was absent from the meeting held on April 10, 2008.
The Audit Committee assists the Board in its oversight functions as they
relate to the accounting, financial reporting, auditing, risk management and
internal controls of the Company. The Audit Committee has the following duties
and responsibilities: (a) reviewing the audited financial statements of the
Company and recommending whether such statements should be approved by the
Board; (b) reviewing and approving the unaudited interim financial statements of
the Company; (c) recommending to the Board the firm of independent auditors to
be nominated for appointment by shareholders at each annual general meeting of
the Company and, where necessary, the removal of the independent auditors of the
Company; (d) reviewing the scope and adequacy of audits to be conducted by the
independent auditors of the Company; (e) adopting and annually reassessing
formal terms of reference for the independent auditors of the Company; (f)
monitoring and evaluating the independence and performance of the independent
auditors of the Company; (g) pre-approving all non-audit services to be provided
to the Company by its independent auditors prior to the commencement of such
services; (h) reviewing all post-audit management letters containing the
recommendations of the independent auditors of the Company and the response or
follow-up thereto from
-39-
<Page>
management; (i) reviewing and monitoring the integrity, adequacy and timeliness
of the financial reporting and disclosure practices of the Company; (j)
reviewing and, if deemed advisable, approving all related party transactions as
defined in the governing legislation of the Company; (k) monitoring the
compliance of the Company with legal and regulatory requirements related to
financial reporting and disclosure; (l) monitoring and evaluating the adequacy
of the internal accounting and audit procedures of the Company; (m) reviewing
and ensuring the acceptability of the accounting principles of the Company; (n)
identifying the principal financial risks of the Company; (o) overseeing
reporting on internal controls of management and ensuring that management has
designed and implemented an effective system of internal controls; (p) annually
reviewing and reassessing the adequacy of the duties and responsibilities of the
Audit Committee; and (q) any other matters that the Audit Committee feels are
important to its mandate or that the Board chooses to delegate to it.
The Audit Committee has established procedures for the receipt, retention
and treatment of complaints regarding accounting, internal accounting controls
or auditing matters and the confidential, anonymous submission by employees of
complaints or concerns regarding questionable accounting or auditing matters.
Any employee of the Company or its affiliates may submit a good faith complaint
regarding accounting or auditing matters to the management of the Company
without fear of dismissal or retaliation of any kind.
It is the responsibility of the Audit Committee to maintain an open avenue
of communication between itself, the Auditor and Management of the Company. In
performing its role, the Audit Committee is empowered to investigate any matter
brought to its attention, with full access to all books, records, accounts,
facilities and personnel of the Company. The Audit Committee is also empowered
to instruct and retain outside counsel or other experts as necessary.
GOVERNANCE, NOMINATION, HUMAN RESOURCES AND COMPENSATION COMMITTEE
CHARTER OF THE GOVERNANCE, NOMINATION, HUMAN RESOURCES AND COMPENSATION
COMMITTEE
The Governance, Nomination, Human Resources and Compensation Committee of
the Board (the "Compensation Committee") is governed by a formal charter that
details its mandate, the text of which was included as Exhibit 15.2 of the
Annual Report on Form 20-F for the fiscal year ended July 31, 2005.
COMPOSITION OF THE COMPENSATION COMMITTEE
The Compensation Committee is composed of Messrs. Musselman, Pryde and
Wicker, all of whom are non-management and independent directors. They satisfy
the current requirements of the NASDAQ Stock Market relating to independence.
The Compensation Committee has the following duties and responsibilities:
(a) developing, monitoring and ensuring the effectiveness of the corporate
governance policies and practices of the Company; (b) identifying and selecting
nominees for election of the Board of Directors of the Company and identifying
and proposing to the Board of Directors candidates to fill in the vacancies on
the Board of Directors; (c) ensuring the independence of the Board of Directors;
(d) evaluating the effectiveness and performance of individual directors, the
Board of Directors and its committees; (e) assisting the Board in setting the
objectives for the Chief Executive Officer of the Company and evaluating his
performance; (f) establishing human resources policies and practices, including
compensation and recruitment policies and practices for senior management, as
well as establishing levels of salary, bonus, benefits and incentives provided
to executive officers of the Company and its affiliates; and (g) various other
matters related to the foregoing as set out in the Charter of the Committee.
-40-
<Page>
During the year ended July 31, 2008, the Compensation Committee met three
times in order to consider two potential nominees to be appointed as directors
of the Company. The Compensation Committee recommended to the Board the
appointment of one of the two nominees.
STATEMENT OF CORPORATE GOVERNANCE PRACTICES
The Company 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 Company'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
Company, 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 Company be approved by the Board, the Board retains
responsibility for significant changes in the Company's affairs such as approval
of major capital expenditures, debt and equity financing arrangements and
significant acquisitions and divestitures.
The Board oversees the identification of the principal risks of the
Company'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
Shindler and George Wicker.
Arthur G. Ritchie is not independent, as he is President and Chief
Executive Officer of SAND.
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 Company 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 Company.
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
Company's business will be necessary and relevant to each new director. Once
determined, one or more existing directors, who may be assisted by the Company's
management, provide the new director with the appropriate orientation through a
series of meetings, telephone calls and other correspondence.
-41-
<Page>
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 Company's operations are organized.
ETHICAL BUSINESS CONDUCT
The Company 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 Company are expected to act and to hold their
office within the best interests of the Company. The Company expects that all
directors shall act in compliance of all laws and regulations applicable to
their office as director of the Company.
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 Company 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.
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 Company, 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 Company's management. After sufficient review and analysis,
the Compensation Committee recommends the compensation of the directors and the
Company'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.
D. EMPLOYEES
On July 31, 2008, the Company had 42 employees, including 26 full-time
employees with SAND, and 5 full-time employees with Sand
-42-
<Page>
Technology Company ("Sand USA"), 3 full-time employees with Sand Technology
Limited ("Sand UK") and 7 full-time employees with Sand Technology Deutschland
GmbH ("Sand Germany"). Moreover, the Company had 1 part-time employee with Sand
Germany.
On July 31, 2007, the Company had 47 employees, including 27 full-time
employees with SAND, and 7 full-time employees with Sand USA, 4 full-time
employees with Sand UK and 9 full-time employees with Sand Germany. Moreover,
the Company had 1 part-time employee with Sand Germany.
On July 31, 2006, the Company had 56 employees, including 29 full-time
employees with SAND, and 7 full-time employees with Sand USA, 4 full-time
employees with Sand UK and 15 full-time employees with Sand Germany. Moreover,
the Company had 1 part-time employee with Sand Germany.
No employee of the Company is represented by a labour union or is covered
by a collective bargaining agreement. Since inception, the Company has not
suffered any disruptions as a result of labour problems or employee disputes.
E. SHARE OWNERSHIP
The shareholdings of the Named Executive Officer as well as the rest of the
directors and officers of the Company as at November 18, 2008 are as follows:
<Table>
<Caption>
NUMBER AND PERCENTAGE OF
NAME POSITION HELD OUTSTANDING COMMON SHARES OWNED
- --------------------------------------------------------------------------------------------------------------------
Wayne Musselman Director and Chairman of the Audit Nil (Nil)%
Committee
- --------------------------------------------------------------------------------------------------------------------
Thomas M. O'Donnell Director 384,700 (2.69)%
- --------------------------------------------------------------------------------------------------------------------
Douglas Pryde Director Nil (Nil)%
- --------------------------------------------------------------------------------------------------------------------
Arthur G. Ritchie President, Chief Executive Officer 3,598,388 (25.13)%
and Chairman of the Board of Directors
- --------------------------------------------------------------------------------------------------------------------
Martin Shindler Director 5,950 (0.04)%
- --------------------------------------------------------------------------------------------------------------------
Vice President, Finance and
Zainab A. Schwartz Administration and Chief Financial Nil (Nil)%
Officer
- --------------------------------------------------------------------------------------------------------------------
Sebastien Vezina Corporate Secretary Nil (Nil)%
- --------------------------------------------------------------------------------------------------------------------
George Wicker Director 274,950 (1.92)%
- --------------------------------------------------------------------------------------------------------------------
</Table>
The details of the stock options held by the Named Executive Officer as well as
the rest of the directors and officers of the Company as at November 18, 2008
are as follows:
<Table>
<Caption>
NAME GRANT DATE EXPIRY DATE EXERCISE PRICE NUMBER OF OPTIONS
- --------------------------------------------------------------------------------------------
Wayne Musselman N/A N/A N/A Nil
- --------------------------------------------------------------------------------------------
Thomas M. O'Donnell N/A N/A N/A Nil
- --------------------------------------------------------------------------------------------
Douglas Pryde N/A N/A N/A Nil
- --------------------------------------------------------------------------------------------
Arthur G. Ritchie N/A N/A N/A Nil
- --------------------------------------------------------------------------------------------
Martin Shindler N/A N/A N/A Nil
- --------------------------------------------------------------------------------------------
</Table>
-43-
<Page>
<Table>
<Caption>
NAME GRANT DATE EXPIRY DATE EXERCISE PRICE NUMBER OF OPTIONS
- --------------------------------------------------------------------------------------------
Zainab A. Schwartz N/A N/A N/A Nil
- --------------------------------------------------------------------------------------------
Sebastien Vezina N/A N/A N/A Nil
- --------------------------------------------------------------------------------------------
George Wicker N/A N/A N/A Nil
- --------------------------------------------------------------------------------------------
</Table>
ARRANGEMENTS INVOLVING THE EMPLOYEES IN THE CAPITAL OF THE COMPANY
The Company 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 Company at the annual and special meeting of the
shareholders held on December 17, 1996. On November 9, 1999, by resolution, the
directors of the Company 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 Company at the annual and special meeting of
the shareholders held on December 17, 1999. The total number of common shares of
the Company 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 Company.
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 Company 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 Company 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.
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 Company. 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
-44-
<Page>
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 Company may terminate the
Incentive Plan at any time, subject to vested rights.
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
Company at the annual and special meeting of the shareholders held on December
17, 1996. On November 9, 1999, by resolution, the directors of the Company
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 Company at the annual and special meeting of the
shareholders held on December 17, 1999. The total number of common shares of the
Company 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 Company.
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
Company 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 Company 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.
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 Company. 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 Company may terminate the
Option Plan at any time subject to vested rights.
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 under both plans.
During the fiscal year ended July 31, 2008, no options were granted.
577,000 options were cancelled due to the merger of ClarityBlue with Experian
Limited and 36,000 options expired. No options were exercised.
-45-
<Page>
During the period August 1, 2008 to November 18, 2008, no options were
granted, cancelled or exercised.
SHARE AWARD PLAN
On November 2, 2006, the Board of Directors of SAND established a Share
Award Plan pursuant to which up to 1,000,000 common shares of the Company 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 Company. The award
recipient shall obtain the rights and obligations of a shareholder of the
Company with respect to the common shares of the Company award under the Share
Award Agreement only upon vesting of the award.
On August 28, 2007, the Board of Directors of the Company authorized the
award of up to 665,000 common shares. As of November 18, 2008, the Company has
awarded 407,500 common shares including grants which are dependant on the award
recipients and achieving certain defined objectives.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
As of November 18, 2008, the Company had 14,318,189 Class A Common Shares
outstanding. Each Class A Common Share entitles its holder to one vote.
A. MAJOR SHAREHOLDERS
The following are the only persons who, to our knowledge, beneficially own
or exercise control or direction over shares carrying more than five percent
(5%) of the votes attached to Class A Common Shares of the Company at November
18, 2008:
<Table>
<Caption>
APPROXIMATE NUMBER OF CLASS A PERCENTAGE OF CLASS A
COMMON SHARES OWNED, CONTROLLED OR COMMON SHARES 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 7.31%
- ---------------------------------------------------------------------------------------------------------
</Table>
The total number of Class A Common Shares owned, controlled or directed by
the senior management and directors of SAND as a group, to our knowledge, is
5,910,988, or approximately 41.28%, at November 18, 2008.
The voting rights of the Class A Common Shares held by the persons
identified or referred to above are the same as the voting rights of the Class A
Common Shares held by all other shareholders.
-46-
<Page>
To our knowledge, as of November 18, 2008, 9,607,367 Class A Common Shares
were held of record by persons whose registered addresses were in the United
States. Many of our Class A Common Shares are held in the name of
intermediaries.
Except as set forth above, to our knowledge, the Company is not directly or
indirectly owned or controlled by another company, by any foreign government or
by any other national or legal person severally or jointly.
There are no known contractual arrangements which may result in a change of
control of the Company at a subsequent date.
B. RELATED PARTY TRANSACTIONS
SAND 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 them for a wrongful act, provided they acted honestly and in good
faith with a view to the best interests of SAND. 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 SAND and amounts to approximately US$140,000.
To the extent permitted by law, SAND has entered into an indemnification
agreement with each of its directors and senior officers.
In the fiscal year 2007, the Company formalized the conditions pertaining
to a loan that originated from amounts owed by the Company 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
Company also issued 103,061 share purchase warrants, each warrant entitling the
purchase of one class "A" common share of the Company 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 Company obtained an additional loan from
Arthur G. Ritchie in the amount of $165,000 which is repayable within 30 days of
the receipt of a written demand from Mr. Ritchie. The loan bears interest at the
rate of 15% per annum. Interest is payable on the last business day of each
calendar month.
On April 18, 2008, SAND 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 SAND granted the right to
holders of such debentures holding a majority of the aggregate principal amount
of the debentures outstanding to have the right to designate one member to be
nominated as director of SAND and which provided that this member shall
initially be Thomas M. O'Donnell.
Also on April 18, 2008, SAND 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 Company, 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, SAND shall remit
one Canadian dollar to Arthur G. Ritchie for the sums representing the principal
amount
-47-
<Page>
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 SAND.
C. INTERESTS OF EXPERTS AND COUNSELS
Not applicable.
ITEM 8. FINANCIAL INFORMATION
A. CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
The Company's consolidated financial statements are set out under Item 18.
LEGAL PROCEEDINGS
There are no on-going legal proceedings.
DIVIDEND RECORD AND POLICY
The Company has never paid any dividend on its common shares. The Company's
present policy is to retain any earnings to finance future growth. Dividends on
the common shares paid to non-residents of Canada will generally be subject to
withholding tax under the INCOME TAX ACT (Canada) at the rate of 25%. Such rate
may be subject to reduction under the provisions of a tax treaty between Canada
and the country in which the recipient is resident. The Canada-U.S. Income Tax
Convention (1980) (the "Convention") provides for a general reduction in the
rate of withholding tax to 15% on dividends paid on shares of a Company resident
in Canada (such as the Company) to a resident of the United States, and also
provides for a further reduction to 5% where the beneficial owner of the
dividend is a Company, resident in the United States, which owns at least 10% of
the voting shares of the Company paying the dividend.
B. SIGNIFICANT CHANGES
There have been no significant changes since the date of the consolidated
financial statements included in this Report.
ITEM 9. THE OFFER AND LISTING
A. OFFER AND LISTING DETAILS
The following table sets forth the price ranges and volume of common shares
during the periods indicated on the OTC-BB, or before August 5, 2005, on the
Nasdaq SmallCap Market System.
<Table>
<Caption>
PERIOD HIGH LOW VOLUME
- -----------------------------------------------------------------
MONTH ENDED
- -----------------------------------------------------------------
October 2008 0.79 0.48 159,700
- -----------------------------------------------------------------
September 2008 0.81 0.72 99,900
- -----------------------------------------------------------------
August 2008 0.77 0.65 85,800
- -----------------------------------------------------------------
July 2008 0.80 0.70 72,000
- -----------------------------------------------------------------
June 2008 0.85 0.74 104,300
- -----------------------------------------------------------------
May 2008 0.85 0.70 363,000
- -----------------------------------------------------------------
</Table>
-48-
<Page>
<Table>
<Caption>
PERIOD HIGH LOW VOLUME
- -----------------------------------------------------------------
QUARTER ENDED
- -----------------------------------------------------------------
October 31, 2008 0.81 0.48 345,400
- -----------------------------------------------------------------
July 31, 2008 0.85 0.70 539,300
- -----------------------------------------------------------------
April 30, 2008 0.55 0.31 648,500
- -----------------------------------------------------------------
January 31, 2008 0.50 0.31 578,400
- -----------------------------------------------------------------
October 31, 2007 0.55 0.40 599,400
- -----------------------------------------------------------------
July 31, 2007 0.58 0.35 667,400
- -----------------------------------------------------------------
April 30, 2007 0.65 0.40 361,600
- -----------------------------------------------------------------
January 31, 2007 0.70 0.40 460,900
- -----------------------------------------------------------------
October 31, 2006 0.48 0.38 348,500
- -----------------------------------------------------------------
</Table>
<Table>
<Caption>
PERIOD(1) HIGH LOW VOLUME
- -----------------------------------------------------------------
FISCAL YEAR ENDED
- -----------------------------------------------------------------
July 2008 0.85 0.31 2,365,600
- -----------------------------------------------------------------
July 2007 0.70 0.35 1,838,400
- -----------------------------------------------------------------
July 2006 0.85 0.22 3,228,200
- -----------------------------------------------------------------
July 2005(1) 1.08 0.43 3,702,500
- -----------------------------------------------------------------
July 2004(2) 1.61 0.75 8,921,600
- -----------------------------------------------------------------
</Table>
Notes:
(1) As traded on The Nasdaq SmallCap Market System or after August 9, 2005 on
the OTC-BB.
(2) As traded on The Nasdaq SmallCap Market System.
B. PLAN OF DISTRIBUTION
Not applicable.
C. MARKETS
The Company's common shares are listed and traded in the United States on
the OTC-BB since August 9, 2005, under the symbol "SNDTF". Before August 9,
2005, the Company's common shares were listed on the Nasdaq SmallCap Market
System.
In 2008, the management of SAND has learned that its common shares have
been listed for trading on the Berlin-Bremen Stock Exchange (the "Berlin
Exchange") under the symbol "SD1A", without the Company's prior knowledge,
consent or authorization. Any authorized broker may list a company on the
Berling Exchange by filing an application with the administration of the
exchange for a permit to trade a company's stock already listed on and regulated
by other markets. SAND does not anticipate that this will materially affect the
price of its common shares.
On January 30, 2008, SAND applied to the AUTORITE DES MARCHES FINANCIERS
(the "AMF"), the securities regulatory authority in the Province of Quebec in
Canada to become reporting issuer in the Province of Quebec in order to allow
its securities to be freely tradeable in the province (subject to applicable
resale restriction periods). On April 15, 2008, the application was granted and
SAND became reporting issuer in the Province of Quebec and is now subject to the
disclosure requirements of the AMF.
-49-
<Page>
D. SELLING SHAREHOLDERS
Not applicable.
E. DILUTION
Not applicable.
F. EXPENSES OF THE ISSUE
Not applicable.
ITEM 10. ADDITIONAL INFORMATION
A. SHARE CAPITAL
Not applicable.
B. MEMORANDUM AND ARTICLES OF INCORPORATION
SAND was incorporated on December 10, 1982 under the provisions of the
CBCA. The articles of the Company place no restrictions upon the Company's
objects and purposes.
DIRECTORS' POWERS
Pursuant to the articles and the by-laws of the Company and the
requirements of the CBCA, the board of directors must consist of not fewer than
three (3) and not more than eleven (11) directors. A majority of the number of
directors appointed constitutes a quorum at any meeting of directors, provided,
however, that no business may be transacted at a meeting of directors unless at
least one-quarter of the directors present are resident Canadians. The duty of
the directors is to manage or supervise the management of the business of the
Company.
There is no provision in the by-laws that imposes a requirement in respect
of a director's power to vote on a proposal, arrangement or contract in which
the director is materially interested. The CBCA provides that a director must
disclose to the Company, in writing or by requesting to have it entered in the
minutes of meetings of directors or of meetings of committees of directors, the
nature and extent of any interest that he or she has in a material contract or
material transaction, whether made or proposed, with the Company, if the
director (a) is a party to the contract or transaction; (b) is a director, or an
individual acting in a similar capacity of a party to the contract or
transaction; or (c) has a material interest in a party to the contract or
transaction.
The by-laws of the Company state that the directors may fix the
remuneration of the directors and that the directors shall be paid such
remuneration for their services as the board may from time to time determine.
The directors are also entitled to be reimbursed for travel and other expenses
properly incurred by them in attending meetings of the board or any committee of
the board of directors. Nothing in the by-laws precludes any director from
serving the Company in any other capacity and receiving remuneration for such
services.
The articles of the Company state that without limiting the borrowing
powers of the Company as set forth in the CBCA, the board may from time to time
on behalf of the Company without authorization of the shareholders (a) borrow
money upon the credit of the Company; (b) issue, reissue, sell or pledge debt
-50-
<Page>
obligations of the Company; (c) to the extent permitted by the CBCA, give a
guarantee on behalf of the Company to secure performance of an obligation of any
person; and (d) mortgage, hypothecate, pledge or otherwise create a security
interest in all or any property of the Company owned or subsequently acquired to
secure any obligation of the Company.
The directors may, by resolution, make, amend or repeal any by-laws that
regulate the business or affairs of the Company. Any resolution making, amending
or repealing any by-laws of the Company must be submitted to the next following
shareholders meeting for ratification by the shareholders who may by ordinary
resolution confirm, reject or amend the By-law, amendment or repeal.
The powers of the directors set forth in the articles of the Company may be
amended by special resolution. A special resolution is a resolution passed by a
majority of not less than two-thirds (2/3) of the votes cast by shareholders of
the Company who being entitled to do so, vote in person or by proxy at an annual
or special meeting of shareholders of the Company. Under the CBCA, an ordinary
resolution of shareholders requires approval by a majority of the votes cast at
a meeting of shareholders, present in person or represented by proxy.
ELECTION AND QUALIFICATIONS OF DIRECTORS
The directors of the Company stand for election at the annual meeting of
shareholders and there are no staggered terms. There is no cumulative voting for
directors of the Company. There is no provision in the articles or by-laws that
imposes a requirement for retirement or non-retirement of directors.
There is no provision in the Company's articles or by-laws that a director
be required to hold a share in the capital of the Company as a qualification for
his office, but he must be qualified to become or act as a director as required
by the CBCA. The CBCA provides that no person is qualified to act as a director
if that person is less than 18 years of age; is a person who has been found to
be a person of unsound mind by a court in Canada; a person who is not an
individual; or is a person who has the status of bankrupt.
The CBCA provides that a director of a Company may be removed if the
shareholders by ordinary resolution at a special meeting vote to remove a
director or directors from office.
MEETINGS
The CBCA provides that the Company must call an annual meeting of its
shareholders not later than 15 months after holding the last preceding annual
meeting but no later than 6 months after the end of the Company's preceding
financial year. The Company must give notice of any meeting to its shareholders
entitled to receive notice not more than 60 days prior to and not less than 21
days before the date of meeting. The CBCA requires the directors of a company to
provide with the notice of a general meeting a form of proxy for use by every
member entitled to vote at such meeting as well as an information circular
containing prescribed information regarding the matters to be dealt with and the
conduct of the meeting.
Under the CBCA, the directors of the Company may call a meeting of
shareholders and one or more shareholders holding not less than 5% of the issued
voting shares of the Company may give notice to the directors requiring them to
call and hold a meeting.
LIMITATIONS ON OWNERSHIP OF SECURITIES
Except as described below under "Exchange Controls", there are no
limitations on the right to own securities imposed by foreign law to the
Company's knowledge or by the articles of the Company.
-51-
<Page>
CHANGE IN CONTROL OF COMPANY
There are no provisions in the Company's articles or by-laws that would
have the effect of delaying, deferring, or preventing a change in control of the
Company and that would operate only with respect to a merger, acquisition or
corporate restructuring of the Company or its subsidiaries.
OWNERSHIP THRESHOLD
There are no provisions in the articles or by-laws governing the ownership
threshold above which shareholder ownership must be disclosed.
DESCRIPTION OF SHARE CAPITAL
The authorized share capital of the Company consists of an unlimited number
of Class A Common Shares, all without par value, and, an unlimited number of
Class B Shares, issuable in series, all without par value, of which Class B,
Series A Shares have been authorized.
CLASS A COMMON SHARES
The Class A Common Shares of the Company have the following rights,
privileges, restrictions and conditions:
- DIVIDENDS: Subject to the prior rights of the holders of the
Class B Shares and any other shares ranking senior to the Class A
Common Shares with respect to priority in the payment of
dividends, the holders of Class A Common Shares are entitled to
receive dividends and the Company must pay dividends thereon, as
and when declared by the Board of Directors of the Company out of
moneys properly applicable to the payment of dividends, in such
amount and in such form as the Board of Directors of the Company
may from time to time determine and all dividends which the Board
of Directors of the Company may declare on the Class A Common
Shares must be declared and paid in equal amounts per share on
all Class A Common Shares at the time outstanding.
- DISSOLUTION: In the event of the dissolution, liquidation or
winding-up of the Company, whether voluntary or involuntary, or
any other distribution of assets of the Company among its
shareholders for the purpose of winding-up its affairs, subject
to the prior rights of the holders of the Class B Shares and any
other shares ranking senior to the Class A Common Shares with
respect to priority in the distribution of assets upon
dissolution, liquidation, winding-up or distribution for the
purpose of winding-up, the holders of the Class A Common Shares
are entitled to receive the remaining property and assets of the
Company.
- VOTING RIGHTS: The holders of the Class A Common Shares are
entitled to receive notice of and to attend all meetings of the
shareholders of the Company and have one vote for each Class A
Common Share held at all meetings of the shareholders of the
Company, except meetings at which only holders of another
specified class or series of shares of the Company are entitled
to vote separately as a class or series.
There are no redemption or sinking fund provisions relating to the Class A
Common Shares and the Class A Common Shares are fully paid and non-assessable.
-52-
<Page>
CLASS B SHARES
The Class B Shares, as a class, have the following rights, privileges,
restrictions and conditions:
- DIRECTORS' AUTHORITY TO ISSUE IN ONE OR MORE SERIES: The Board of
Directors of the Company may issue the Class B Shares at any time and
from time to time in one or more series. Before the first shares of a
particular series are issued, the Board of Directors of the Company
must fix the limited or unlimited number of shares in such series and
must determine, subject to the limitations set out in the articles,
the designation, rights, privileges, restrictions and conditions to be
attached to the shares of such series including, without limitation,
the rate or rates, amount or method or methods of calculation of
dividends thereon, the time and place of payment of dividends, whether
cumulative or non-cumulative or partially cumulative and whether such
rate, amount or method of calculation shall be subject to change or
adjustment in the future, the currency or currencies of payment of
dividends, the consideration and the terms and conditions of any
purchase for cancellation, retraction or redemption rights (if any)
(but in no event shall the voting rights attributable to a Class B
Share exceed those attributable to a Class A Common Share), the
conversion or exchange rights attached thereto (if any), the voting
rights attached thereto (if any), and the terms and conditions of any
share purchase plan or sinking fund with respect thereto. Before the
issue of the first shares of a series, the Board of Directors of the
Company shall send to the Director (as defined in the CBCA) articles
of amendment containing a description of such series including the
designation, rights, privileges, restrictions and conditions
determined by the Board of Directors of the Company.
- RANKING OF CLASS B SHARES: No rights, privileges, restrictions or
conditions attached to a series of Class B Shares may confer upon a
series a priority in respect of dividends or return of capital over
any other series of Class B Shares then outstanding. The Class B
Shares are entitled to priority over the common shares of the Company
and over any other shares of the Company ranking junior to the Class B
Shares with respect to priority in the payment of dividends and the
distribution of assets in the event of the liquidation, dissolution or
winding-up of the Company, whether voluntary or involuntary, or any
other distribution of the assets of the Company among its shareholders
for the purpose of winding-up its affairs. If any cumulative dividends
or amounts payable on a return of capital in respect of a series of
Class B Shares are not paid in full, the Class B Shares of all series
must participate rateably in respect of such dividends, including
accumulations, if any, in accordance with the sums that would be
payable on such shares if all such dividends were declared and paid in
full, and in respect of any repayment of capital in accordance with
the sums that would be payable on such repayment of capital if all
sums so payable were paid in full; provided however, that in the event
of there being insufficient assets to satisfy in full all such claims
to dividends and return of capital, the claims of the holders of the
Class B Shares with respect to repayment of capital must first be paid
and satisfied and any assets remaining thereafter must be applied
towards the payment and satisfaction of claims in respect of
dividends. The Class B Shares of any series may also be given such
other preferences over the common shares and over any other shares
ranking junior to the Class B Shares as may be determined in the case
of such series of Class B Shares.
- VOTING RIGHTS: Except as otherwise required by law or in accordance
with any voting rights which may from time to time be attached to any
series of Class B Shares, the holders of the Class B Shares as a class
are not entitled as such to receive notice of, to attend or to vote at
any meeting of the shareholders of the Company.
-53-
<Page>
- APPROVAL OF HOLDERS OF CLASS B SHARES: The rights, privileges,
restrictions and conditions attaching to the Class B Shares as a class
may be added to, changed or removed but only with the approval of the
holders of the Class B Shares given as hereinafter specified.
The approval of the holders of Class B Shares to add to, change or remove
any right, privilege, restriction or condition attaching to the Class B Shares
as a class or to any other matter requiring the consent of the holders of the
Class B Shares as a class may be given in such manner as may then be required by
law, subject to a minimum requirement that such approval shall be given by
resolution passed by the affirmative vote of at least two-thirds of the votes
cast at a meeting of the holders of Class B Shares duly called for that purpose.
The formalities to be observed in respect of the giving of notice of any such
meeting or any adjourned meeting and the conduct thereof shall be those from
time to time required by the CBCA (as from time to time amended, varied or
replaced) and prescribed in the by-laws of the Company with respect to meetings
of shareholders. On every poll taken at a meeting of holders of Class B Shares
as a class, each holder entitled to vote thereat shall have one vote in respect
of each Class B Share held by him.
CLASS B, SERIES A SHARES
The first series of the Class B Shares of the Company consists of
20,000,000 shares and no more and is designated as the Class B, Series A Shares
(the "Class B, Series A Shares") and in addition to the preferences, rights,
privileges, restrictions and conditions attaching to all of the Class B Shares
as a class, the rights, privileges, restrictions and conditions attaching to the
Series A Shares are as follows:
VOTING RIGHTS
Each holder of Class B, Series A Shares shall be entitled to receive notice
of and to attend all meetings of shareholders of the Company, except meetings at
which only holders of other classes or series of shares are entitled to attend,
and at all such meetings shall be entitled to a number of votes equal to the
number of Class A Common Shares of the Company then issuable upon the conversion
of the Class B, Series A Shares into Class A Common Shares and to vote together
with the holders of Class A Common Shares of the Company.
CUMULATIVE DIVIDENDS
The holders of the Class B, Series A Shares shall be entitled to receive
and the Company shall pay to them, always in preference and priority to any
payment of dividends on the Class A Common Shares of the Company and any other
Shares of the Company ranking junior to the Class B, Series A Shares, as and
when declared by the board of directors of the Company out of moneys of the
Company properly applicable to the payment of dividends, fixed, cumulative cash
dividends at the annual rate per share of 7% of the amount equal to the amount
recorded in the stated capital account maintained in respect of the Class B,
Series A Shares outstanding payable quarterly, by cheque of the Company or in
kind. Such dividend on any particular Class B, Series A Share shall accrue and
be cumulative from the date of issue of such Class B, Series A Share. In the
event the price of the Common Shares of the Company is more than 200% of the
conversion price of the Class B, Series A Shares for thirty (30) consecutive
trading days, and provided that a Registration Statement has been declared
effective by the the S.E.C. or 365 days have passed since the initial issue of
the Class B, Series A Shares, the Company shall cease paying dividends.
-54-
<Page>
LIQUIDATION, DISSOLUTION OR WINDING-UP
In the event of the liquidation, dissolution or winding-up of the Company,
whether voluntary or involuntary, or any other distribution of assets of the
Company among its shareholders for the purpose of winding-up its affairs, the
holders of the Class B, Series A Shares shall be entitled to receive the amount
received by the Company upon initial issue in respect of each Class B, Series A
Share plus all accrued and unpaid cumulative dividends before any amount shall
be paid to the holders of the Common Shares or any other shares ranking junior
to the Class B, Series A Shares. Except as provided above, the holders of the
Class B, Series A Shares shall not be entitled to any further participation in
the assets of the Company.
MODIFICATION PROCEDURE
The rights, privileges, restrictions and conditions attached to the Class
B, Series A Shares may be added to, changed or removed only with the prior
approval of the holders of the Class B, Series A Shares given as specified
herein, in addition to any vote or authorization required by law or the articles
of the Company.
Any approval of the holders of Class B, Series A Shares with respect to the
modification of the rights, privileges, restrictions and conditions attached to
the Class B, Series A Shares or to any other matter requiring the consent of the
holders of the Class B, Series A Shares shall be given in such manner as may
then be required by law, subject to a minimum requirement that such approval be
given by resolution passed by the affirmative vote of at least two-thirds of the
votes cast by the holders of Class B, Series A Shares who voted in respect of
that resolution at a meeting of the holders of the Class B, Series A Shares duly
called for that purpose at which the holders of at least fifty per cent (50%) of
the outstanding Class B, Series A Shares are present in person or represented by
proxy, or, if such quorum is not present at such meeting, at an adjournment
thereof at which the holders of twenty-five per cent (25%) Class B, Series A
Shares then present in person or represented by proxy shall constitute a quorum
for all purposes. The formalities to be observed with respect to proxies, the
giving of notice and the conduct of any such meeting or any adjourned meeting
shall be those from time to time prescribed by the articles and by-laws of the
Company or otherwise prescribed by law with respect to meetings of shareholders.
On every poll taken at every meeting of holders of Class B, Series A Shares,
each holder entitled to vote thereat shall be entitled to one vote for each
Class B, Series A Share held by such holder.
CONVERSION RIGHTS
The holders of the Class B, Series A Shares shall have the right at any
time to convert the Class B, Series A Shares into a number of Class A Common
Shares of the Company equal to the amount received by the Company upon the
initial issue of each Class B, Series A Share plus all accrued and unpaid
cumulative dividends divided by the conversion price of $0.40 per Class B,
Series A Share (the "Conversion Price").
The conversion privilege herein provided for may be exercised by notice in
writing given to the Company at its registered office, accompanied by the
certificate or certificates representing the Class B, Series A Shares in respect
of which the holder thereof desires to exercise such right of conversion. Such
notice shall be signed by such holder or his duly authorized attorney and shall
specify the number of Class B, Series A Shares which the holder desires to have
converted. If less than all the Class B, Series A Shares represented by a
certificate or certificates accompanying any such notice are to be converted,
the holder shall be entitled to receive, at the expense of the Company, a new
certificate representing the number of Class B, Series A Shares comprised in the
certificate or certificates surrendered as aforesaid which are not to be
converted.
On any conversion of Class B, Series A Shares the share certificates for
Common Shares of the Company resulting therefrom shall be issued in the name of
the registered holder of the Class B, Series A Shares converted or in such name
or names as such registered holder may direct in writing, provided that such
-55-
<Page>
registered holder shall pay any applicable security transfer taxes. In either
instance the transfer form on the back of the certificates in question shall be
endorsed by the registered holder of the Class B, Series A Shares or his duly
authorized attorney, with signature guaranteed in a manner satisfactory to the
Company, provided that the Company may wave the requirement for any such
guarantee.
In the event that the Company issues Class A Common Shares, Class B Shares
or other securities at a price which is less than the then current conversion
price of the Class B, Series A Shares, the conversion price of the Class B,
Series A Shares shall be reduced to the price at which the Class A Common
Shares, Class B Shares or other securities are issued. The following issuances
of securities shall not bring about the foregoing reduction in the conversion
price: (i) securities issued upon the conversion of any Class B, Series A
Shares; (ii) securities issued upon the conversion of any debenture, warrant,
option or other convertible security; and (iii) Class A Common Shares of the
Company (or options or rights or purchase such Class A Common Shares) issued or
issuable to employees, directors, officers or consultants pursuant a plan
approved by the Board of Directors of the Company.
CHANGE OF RIGHTS OF SHAREHOLDERS
The CBCA requires the consent by special resolution of a majority of not
less than two thirds (2/3) of the votes cast by the shareholders entitled to
vote in order to change the rights of holders of shares, including the
designation of all or any shares, and any addition, change or removal of rights,
privileges, restrictions and conditions, including rights to accrued dividends,
in respect of all or any shares, whether issued or unissued.
C. MATERIAL CONTRACTS
The material contracts concluded by the Company for the two years
immediately preceding publication of this Report are as follows:
- - Voting Agreement entered into by and between SAND, Mr. Arthur G. Ritchie
and Mr. Bradley G. Griffith, on behalf of the Debentureholders dated April
18, 2008, whereby SAND granted the right to Debentureholders holding a
majority of the aggregate principal amount of the debentures outstanding to
have the right to designate one member to be nominated as director of SAND
and which provided that this member shall initially be Thomas M. O'Donnell;
- - Deed of Hypothec to Secure Payment of Debentures entered into by and
between SAND and Mr. Bradley G. Griffith, on behalf of the
Debentureholders, before Mr. Sandor Steinberg, Notary for the Province of
Quebec, on April 24, 2008, whereby SAND agreed for the purposes of securing
the payment of the debentures in principal and interest to hypothecate and
charge in favour of Mr. Griffith and each of the Debentureholders for the
sum of three million three hundred and ninety-eight thousand and six
hundred and forty-four Canadian dollars ($3,298,644), with interest at the
rate of eight percent (8%) per annum, the universality of all of its
property, movable and immovable, personal and real, corporeal and
incorporeal, tangible and intangible, present and future, of whatever
nature and wherever situated; and
D. EXCHANGE CONTROLS
Other than as provided in the INVESTMENT CANADA ACT (Canada) (the
"Investment Act"), there are currently no limitations imposed by Canadian laws,
decrees or regulations that restrict the import or export of capital, including
foreign exchange controls, or that affect the remittance of dividends to
non-resident holders of the Company's securities. However, any such remittances
of dividends paid to United States residents are
-56-
<Page>
subject to withholding tax at a rate equal to a maximum of 15% of the amount
paid (see Section E - Taxation under Item 10 - Additional Information).
The following discussion summarises the material features of the Investment
Act, in its present form, for a non-resident of Canada who proposes to acquire
common shares of the Company. The Investment Act regulates the acquisition of
control of a Canadian business by a non-Canadian as defined under the Investment
Act. With respect to the Company, an acquisition of control is considered to be
the acquisition of the majority of its common shares. However, if a non-Canadian
acquires more than one-third of the voting shares of the Company, but less than
a majority, there is a presumed acquisition of control unless it can be
established that the Company is not controlled in fact by the acquirer. All
acquisitions of control of a Canadian business are notifiable (which requires
that a notification form be submitted to Investment Canada within thirty days
after the implementation of the investment) unless the investment is reviewable.
If the investment is reviewable, the investment may not be implemented until the
Minister responsible for the Investment Act is, or has been deemed to be,
satisfied that the investment is likely to be of net benefit to Canada.
Where either the acquirer is, or the Company is presently controlled by, a
WTO investor (as that term is defined in the Investment Act), a direct
acquisition of control of the Company will only be reviewable if the value of
the Company's assets, as shown on its audited financial statements for the most
recently completed fiscal year, is equal to or greater than $223 million. This
amount varies each year based on the rate of growth in Canadian gross domestic
product. Other direct acquisitions of control are reviewable if the value of the
assets of the Company, as calculated above, is equal to or greater than $5
million. The $5 million threshold for review also applies with respect to the
acquisition of control of any Canadian business that provides any financial
services or transportation services, is a cultural business, or is engaged in
the production of uranium and owns an interest in or producing uranium property
in Canada.
Indirect acquisitions of control (acquisitions of control of an entity
which in turn controls the Company) are not reviewable under the Investment Act
if the acquirer is a WTO investor or if the Company is controlled by a WTO
investor. Otherwise, an indirect acquisition will be reviewable if the value of
the Company's assets is $50 million or more, or if the value of the Company's
assets acquired in the total transaction are in Canada or the acquisition is not
effected through the acquisition of control of a foreign Company.
Certain types of transactions are exempt from application of the Investment
Act including acquisitions of control of the Company:
(a) by the acquisition of voting shares or the voting interests by any
person in the ordinary course of that person's business as a trader or
dealer in securities;
(b) in connection with the realization of security granted for a loan or
other financial assistance and not for any purpose related to the
Investment Act;
(c) for facilitating its financing and not for any purpose related to the
Investment Act on the condition that the acquirer divest control
within two years after control was acquired; and
(d) by reason of an amalgamation, merger, consolidation or corporate
reorganization following which the ultimate or indirect control in
fact of the Company through the ownership of voting interests remains
unchanged.
-57-
<Page>
There are currently no limitations on the right of foreign or non-resident
owners of common shares to hold or vote such securities imposed by Canadian law
or the Company's charter or other constituent documents.
E. TAXATION
CERTAIN CANADIAN FEDERAL INCOME TAX CONSEQUENCES
The discussion under this heading summarises the material Canadian federal
income tax consequences of acquiring, holding and disposing of common shares of
the Company for a shareholder of the Company who is not resident in Canada but
is resident in the United States and who will acquire and hold common shares of
the Company as capital property for the purpose of the INCOME TAX ACT (Canada)
(the "Tax Act"). This summary does not apply to a shareholder who carries on
business in Canada through a "permanent establishment" situated in Canada or who
has a fixed tax base regularly available to him through which he or she performs
independent personal services in Canada if the shareholder's holding in the
Company is effectively connected with such permanent establishment or fixed
base. This summary is based on the provisions of the Tax Act and the regulations
thereunder and on the Company's understanding of the administrative practices of
the Canada Revenue Agency and takes into account all specific proposals to amend
the Tax Act or regulations made by the Minister of Finance of Canada to November
10, 2008. It has been assumed that there will be no other relevant amendment of
any governing law although no assurance can be given in this respect. This
discussion is general only and is not a substitute for independent advice from a
shareholder's own Canadian and U.S. tax advisors.
The provisions of the Tax Act are subject to income tax treaties to which
Canada is a party, including the Convention and the Protocols to the Convention.
DIVIDENDS ON COMMON SHARES
Under the Tax Act, a non-resident of Canada is generally subject to
Canadian withholding tax at the rate of 25% on dividends paid or deemed to have
been paid to him by a Company resident in Canada. The Convention limits the rate
to 15% if the shareholder is resident in the United States and the dividends are
beneficially owned by and paid to him, and to 5% if the shareholder is a company
that beneficially owns at least 10% of the voting shares of the payer company.
The Convention generally exempts from Canadian income tax dividends paid to a
religious, scientific, literary, educational or charitable organisation or to an
organisation constituted and operated exclusively to administer a pension,
retirement or employee benefit fund or plan, if the organisation is resident in
the United States and is exempt from income tax under the laws of the United
States.
DISPOSITION OF COMMON SHARES
Under the Tax Act, a taxpayer's capital gain or capital loss from a
disposition of common shares of the Company is the amount, if any, by which his
proceeds of disposition exceed (or are exceeded by, respectively) the aggregate
of his adjusted cost base of the share and reasonable expenses of disposition.
One-half of a capital gain (the "taxable capital gain") is included in income,
and one-half of a capital loss in a year (the "allowable capital loss") is
deductible from taxable capital gains realized in the same year. The amount by
which a shareholder's allowable capital loss exceeds the taxable capital gain in
a year may be deducted from a taxable capital gain realized by the shareholder
in the year or in the three previous or any subsequent year, subject to certain
restrictions in the case of a corporate shareholder.
-58-
<Page>
In the case of a shareholder that is a company, the amount of any capital
loss otherwise determined may be reduced, in certain circumstances, by the
amount of dividends previously received in respect of the shares disposed of,
unless the company owned the shares for at least 365 days prior to sustaining
the loss and (together with companies, persons and other entities with whom the
company was not dealing at arm's length) did not, at the time the dividends were
received, own more than 5% of the shares of any class of the capital stock of
the company from which the dividend was received. These loss limitation rules
may also apply where a company is a member of a partnership or a beneficiary of
a trust that owned the shares disposed of.
A non-resident of Canada is not subject to tax under the Tax Act in respect
of a capital gain realized upon the disposition of shares unless the shares
represent "taxable Canadian property". Common shares of the Company will not
generally constitute taxable Canadian property. Common shares of the Company
will constitute taxable Canadian property of a shareholder at a particular time
if the shareholder holds the shares as "capital property" and used the shares in
carrying on a business in Canada, or if at any time in the five years
immediately preceding the disposition the shareholder owned, either alone or
with persons with whom the shareholder did not deal at arm's length, 25% or more
of the issued shares of any class of the capital stock of the Company.
Where a United States resident realises a capital gain on a disposition of
shares that constitute "taxable Canadian property", the Convention relieves the
United States resident from liability for Canadian tax on such capital gains
unless:
(a) the value of the shares is derived principally from "real property" in
Canada, including the right to explore for or exploit natural
resources and rights to amounts computed by reference to production,
(b) the shareholder was resident in Canada for 120 months during any
period of 20 consecutive years preceding the disposition, was resident
in Canada at any time during the 10 years immediately preceding the
disposition, the shares were owned by him when he ceased to be
resident in Canada and the shares were not property that the
shareholders was treated as having alienated by reason of ceasing to
be a resident of Canada, or
(c) the shares formed part of the business property of a "permanent
establishment" that the shareholder has or had in Canada within the 12
months preceding the disposition.
Notwithstanding the potential exemption from Canadian tax provided under
the Convention, where a non-resident of Canada disposes of common shares of the
Company that are "taxable Canadian property", the non-resident is required to
file a Canadian income tax return in respect of any such dispositions.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarises the material United States federal
income tax consequences to certain U.S. Holders (as defined below) of the
acquisition, ownership and disposition of the Company's common shares. This
discussion assumes such holders hold the common shares as capital assets for
United States Federal income tax purposes. This discussion does not address
consequences peculiar to persons subject to special provisions of federal income
tax law, such as tax-exempt organisations, qualified retirement plans, financial
institutions, life insurance companies, real estate investment trusts, regulated
investment companies, broker-dealers, non-resident alien individuals or foreign
companies, shareholders actually or constructively owning common shares
representing 10% of the vote and value of the Company, a person that holds
shares as part of a straddle or hedging or conversion transaction, or a person
liable for alternative minimum tax. In addition, this discussion does not
address any state, local or foreign tax consequences.
-59-
<Page>
The following discussion is based upon the Internal Revenue Code of 1986,
as amended (the "Code"), final, temporary and proposed Treasury Regulations
promulgated thereunder, published Internal Revenue Service ("IRS") rulings,
published administrative positions of the IRS and court decisions that are
currently applicable, any or all of which could be materially and adversely
changed, possibly on a retroactive basis. In addition, this discussion does not
consider the potential effects, both adverse and beneficial of recently proposed
legislation which, if enacted, could be applied, possibly on a retroactive
basis, at any time. The following discussion is for general information only and
is not intended to be, nor should it be construed to be, legal or tax advice to
any holder or prospective holder of the Company's common shares and no opinion
or representation with respect to the United States federal income tax
consequences, to any such holder or prospective holders is made. Accordingly,
holders and prospective holders of the Company's common shares should consult
their own tax advisors about the federal, state, local foreign tax consequences
of purchasing, owning and disposing of shares of common shares of the Company.
U.S. HOLDERS
As used in this Report, the term "U.S. Holder" means a beneficial owner of
common shares that is (i) a citizen or resident individual of the United States,
(ii) a corporation or partnership created or organised under the laws of the
United States, or any political subdivision thereof, (iii) an estate the income
of which is subject to United States federal income tax regardless of source, or
(iv) a trust subject to the primary supervision of a United States court and
which has one or more United States persons who have the authority to control
all substantial decisions of the trust.
DISTRIBUTIONS ON COMMON SHARES
Dividends (without reduction for Canadian income tax withheld) paid to a
noncorporate U.S. Holder in taxable years beginning before January 1, 2011 that
constitute qualified dividend income will be taxable to such holder at a maximum
tax rate of 15% provided that the noncorporate U.S. Holder holds shares for more
than 60 days during the 121 day period beginning 60 days before the ex-dividend
date and meets other holding period requirements. A U.S. Holder must include the
dividend in its taxable income when the holder receives the dividend, actually
or constructively. The dividend will not be eligible for the dividends-received
deduction generally allowed to U.S. corporations in respect of dividends
received from other U.S. corporations. The amount of the dividend distribution
that a U.S. Holder must include in its income will be the U.S. dollar value of
the payments made, determined at the spot rate on the date of the dividend
distribution, regardless of whether the payment is in fact converted into U.S.
dollars. Generally, any gain or loss resulting from currency exchange
fluctuations during the period from the date the U.S. Holder includes the
dividend payment in income to the date it converts the payment into U.S. dollars
will be treated as ordinary income or loss and will not be eligible for the
special tax rate applicable to qualified dividend income. The gain or loss
generally will be income or loss from sources within the U.S. for foreign tax
credit limitation purposes. Distributions in excess of current and accumulated
earnings and profits, as determined for U.S. federal income tax purposes, will
be treated as a non-taxable return of capital to the extent of U.S. Holder's
basis in the shares and thereafter as capital gain.
Subject to certain limitations, the Canadian tax withheld will be
creditable against a U.S. Holder's United States federal income tax liability.
Special rules apply in determining the foreign tax credit limitation with
respect to dividends that are subject to the maximum 15% tax rate. To the extent
a refund of the tax withheld is available to a U.S. Holder, the amount of tax
withheld that is refundable will not be eligible for credit against the U.S.
Holder United States federal income tax liability.
-60-
<Page>
DISPOSITION OF COMMON SHARES
A U.S. Holder will recognize United States source gain or loss upon the
sale of common shares equal to the difference, if any, between (i) the amount of
cash plus the fair market value of any property received, and (ii) the
shareholder's tax basis in the common shares. This gain or loss will be capital
gain or loss if the shares are a capital asset in the hands of the U.S. Holder,
and such gain or loss will be long-term capital gain or loss if the U.S. Holder
has held the common shares for more than one year. Gains and losses are netted
and combined according to special rules in arriving at the overall capital gain
or loss for a particular tax year. Prior to January 1, 2001, the net long-term
capital gain of non-corporate U.S. Holders generally will be subject to tax at a
maximum rate of 15%. Deductions for net capital losses are subject to
significant limitations.
OTHER CONSIDERATIONS
In the following circumstance, the above discussion may not describe the
United States federal income tax consequences resulting from the holding and
disposition of the Company's common shares:
PASSIVE FOREIGN INVESTMENT COMPANY
Special rules are applicable to U.S. Holders owning shares in a passive
foreign investment company (a "PFIC"). A foreign company will be classified as a
PFIC if at least 75% of its gross income for the taxable year is passive income
or if the value of assets held by it during the taxable year which produce
passive income represents at least 50% of the value of its assets. In
determining whether a foreign company is a PFIC, if the foreign company owns 25%
or more (by value) of the stock of another company, the foreign company is
treated as if it (i) held its proportionate share of the assets of such other
company, and (ii) received directly its proportionate share of the income of
such other company. In general, "passive income" includes the excess of gains
over losses from certain commodities transactions, including transactions
involving gold and other precious metals.
Based on the nature of the income, assets and activities of the Company, it
is not certain whether the Company could be classified as a PFIC for any taxable
year. While the Company believes that it presently not a PFIC, the application
of the relevant provisions of the Code and accompanying prior and current
regulations to the Company is not. Further, the operations and business plans of
the Company may change in subsequent taxable years. Therefore, no assurances can
be made regarding the present of future status of the Company.
If the Company was treated as a PFIC at any time during a U.S. Holder's
holding period for the common shares, such U.S. Holder might be subject to
additional tax as well as certain interest charges in respect of the deferral of
tax for the period during which such common shares were held. Any such
additional tax and interest charges would apply to the disposition of the common
shares or the receipt of certain dividends that are considered "excess
distributions" under the Code. Additionally, any gain realized on the
disposition of such common shares would be treated as ordinary income rather
than as capital gain and the tax basis of the common shares held by a U.S.
Holder generally would not be stepped up to fair market value at death. U.S.
Holders and prospective holders of common shares should consult their own tax
advisors regarding the possible application of the PFIC rules to the Company.
BACKUP WITHHOLDING
Certain non-corporate U.S. Holders may be subject to backup withholding at
a rate of 28% on taxable distributions with respect to the common shares and the
proceeds of a disposition of the common shares. Backup withholding will apply
only if the U.S. Holder (i) fails to furnish its Taxpayer Identification Number
("TIN") which, in the case of an individual, would be his or her social security
number, (ii) furnishes an
-61-
<Page>
incorrect TIN, (iii) is notified by the IRS that it has failed to properly
report payments of interest or dividends or (iv) under certain circumstances,
fails to certify, under the penalty of perjury, that it has furnished a correct
TIN and has not been notified by the IRS that it is subject to backup
withholding. Under newly issued U.S. Treasury regulations, in the case of
interest paid after December 31, 1999, a U.S. Holder generally will be subject
to backup withholding at a 28% rate unless certain IRS certification procedures
are complied with, directly or through an intermediary. U.S. Holders should
consult their tax advisors regarding their qualification for exemption from
backup withholding and the procedure for obtaining such an exemption if
applicable.
F. DIVIDENDS AND PAYING AGENTS
Not applicable.
G. STATEMENTS BY EXPERTS
Not applicable.
H. DOCUMENTS ON DISPLAY
The Company is subject to certain of the information requirements of the
Exchange Act, and in accordance therewith, files reports and other information
with the S.E.C. As a foreign private issuer, the Company is exempt from the
rules under the Exchange Act prescribing the furnishing and content of proxy
statements, and its officers, directors and principal shareholders are exempt
from the reporting and short-swing profit recovery provisions contained in
Section 16 of the Exchange Act. As a foreign private issuer, the Company is not
required to publish financial statements as frequently or as promptly as United
States companies.
We file annual reports and other information with the S.E.C. You may read
and copy any of these documents at the S.E.C.'s Public Reference Room at
Judiciary Plaza, 100 F Street N.E., Washington, D.C. 20549. You may obtain
information on the operation of the Public Reference Room by calling the S.E.C.
at (800) SEC-0330. The S.E.C. maintains an internet site that contains reports,
proxy and information statements and other information regarding issuers that
file electronically with the S.E.C. The address of that site is
http://www.sec.gov.
Any shareholder may also inspect any of the documents or Exhibits referred
to in this Report or any other disclosure by making a request to the Company in
writing.
I. SUBSIDIARY INFORMATION
Information relating to the Company's subsidiaries is described in -
Information on the Company - particularly under "Organizational Structure" in
Item 4 and in "Exhibit 8.1" hereof.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are not subject to material market risk exposures, except for risks
related to credit and concentrations of credit and foreign currency exchange
rates.
Since we currently earn revenues and incur expenses in United States
dollars, British pounds, Euros and Canadian dollars, exchange rates for these
and other local currencies in countries where we may operate in the future may
fluctuate in relation to the Canadian dollar and such fluctuations may have an
adverse effect on our earnings or assets when United States dollars, British
pounds, Euros or local currencies are exchanged for
-62-
<Page>
Canadian dollars. We have not entered into forward foreign exchange contracts.
Losses and gains resulting from the translation of revenue and expenses
denominated in United States dollars, British pounds, or Euros into Canadian
dollars have been included in our results of operations.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHT OF SECURITY HOLDERS AND USE OF
PROCEEDS
A shareholder rights plan (the "Rights Plan") was adopted by the Board of
Directors on November 12, 2003 and made effective on November 17, 2003. The
Rights Plan was ratified, confirmed and approved by the shareholders of SAND at
the annual and special meeting of the shareholders held on December 16, 2003.
The Board of Directors renewed and continued the Rights Plan on November 21,
2005 and the renewal and continuation of the Rights Plan was ratified, confirmed
and approved by the shareholders of SAND at the annual and special meeting of
the shareholders of SAND held on December 15, 2005. The Rights Plan expired at
the close of the annual meeting of shareholders of the Company held on January
29, 2008 and was not renewed.
ITEM 15. CONTROLS AND PROCEDURES
A. DISCLOSURE CONTROLS AND PROCEDURES
As of July 31, 2008, an evaluation was carried out, under the supervision
of and with the participation of management, including the President and Chief
Executive Officer (the "CEO") and the Vice President Finance and Administration
and Chief Financial Officer (the "CFO"), of the effectiveness of the Company's
disclosure controls and procedures as defined in National Instrument 52-109 -
CERTIFICATION OF DISCLOSURE IN ISSUERS' ANNUAL AND INTERIM FILING and in Rule
13a-15 or 15d-15 under the Exchange Act.
Based upon that evaluation, our CEO and our CFO concluded that our
disclosure controls and procedures were effective in ensuring that information
required to be disclosed by the Company in the reports that it files or submits
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the S.E.C.'s rules and forms, and that information
required to be disclosed by the Company in the reports that it files or submits
under the Exchange Act is accumulated and communicated to the Company's
management, including its CEO and CFO, or persons performing similar functions,
as appropriate to allow timely decisions regarding required disclosure.
B. MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate
internal control over financial reporting for the Company. Internal control over
financial reporting is a process designed to provide reasonable assurance
regarding the reliability of our financial reporting for external purposes in
accordance
-63-
<Page>
with Canadian generally accepted accounting principles. Internal control over
financial reporting includes maintaining records that in reasonable detail
accurately and fairly reflect the transactions and disposition of our assets;
providing reasonable assurance that transactions are recorded as necessary for
preparation of our financial statements; providing reasonable assurance that
receipts and expenditures of the Company are made in accordance with management
authorization; and providing reasonable assurance that unauthorized acquisition,
use or disposition of Company assets that could have a material effect on our
financial statements would be prevented or detected on a timely basis. Because
of its inherent limitations, internal control over financial reporting is not
intended to provide absolute assurance that a misstatement of our financial
statements would be prevented or detected. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Management conducted an evaluation of the effectiveness of our internal
control over financial reporting based on the framework in INTERNAL CONTROL -
INTEGRATED FRAMEWORK issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on this evaluation, management concluded that the
Company's internal control over financial reporting was effective as of July 31,
2008.
There have been no changes in our internal control over financial reporting
during the fiscal year ended July 31, 2008 that have materially affected, or are
reasonably likely to materially affect our internal control over financial
reporting.
This Report does not include an attestation report of the Company's
registered public accounting firm regarding internal control over financial
reporting. Management's report was not subject to attestation by the Company's
registered public accounting firm pursuant to temporary rules of the S.E.C. that
permit the Company to provide only management's report in this Report.
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
Messrs. Musselman, Pryde and Shindler, all of whom are non-management and
unrelated directors, currently comprise the Audit Committee of the Board of
Directors of the Company. Mr. Musselman is Chairman of the Audit Committee.
Messrs. Musselman, Pryde and Shindler satisfy the current requirements of the
OTC-BB, relating to the independence and the qualification of the members of the
Audit Committee.
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.
The Board of Directors of SAND has determined that Mr. Musselman qualifies
as an "audit committee financial expert". Mr. Musselman is independent as
defined under REGULATION 52-110 RESPECTING AUDIT COMMITTEES and under the rules
of The NASDAQ Stock Market.
The Audit Committee meets on a quarterly basis and holds special meetings
as circumstances require.
-64-
<Page>
ITEM 16B. CODE OF ETHICS
As part of its stewardship responsibilities, the Board of Directors has
approved formal "Standards of Ethical Conduct" that govern the behaviour of the
directors, officers and employees of the Company. The Board monitors compliance
with these standards and is responsible for the granting of any waivers from
these standards to directors or officers. Disclosure will be made by the Company
of any waiver from these standards granted to the directors or officers of the
Company in the quarterly report of the Comany that immediately follows the grant
of such waiver. No waiver has been granted to date. A copy of the "Standards of
Ethical Conduct" is filed as an exhibit to this Report.
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
(a) AUDIT FEES
The aggregate fees billed for professional services rendered by Raymond
Chabot Grant Thornton LLP, the principal accountant for the Company, for the
audit of the Company's annual financial statements and services normally
provided by such accountants in connection with the Company's statutory and
regulatory filings for the Company's fiscal year ended July 31, 2008, were
$90,960 ($85,000 in 2007).
(b) AUDIT-RELATED FEES
There were $4,572 in fees billed for assurance and related services by
Raymond Chabot Grant Thornton LLP that are reasonably related to the performance
of the audit or review of the Company's financial statements for the Company's
fiscal year ended July 31, 2008 ($14,800 in 2007).
(c) TAX FEES
The aggregate fees billed for products and services rendered by Raymond
Chabot Grant Thornton LLP for tax compliance, tax advice and tax planning for
the Company's fiscal ended July 31, 2008 were $7,540 ($19,270 in 2007).
(d) ALL OTHER FEES
There were no fees billed for professional services rendered by Raymond
Chabot Grant Thornton LLP other than the fees reported in this Item 16C above
for the Company's fiscal year ended July 31, 2008 ($nil in 2007).
(e) AUDIT COMMITTEE'S PRE-APPROVAL POLICIES
The Audit Committee approves the engagement terms for all audit and
non-audit services to be provided by the Company's accountants before such
services are provided to the Company or any of its subsidiaries.
The Audit Committee approved one hundred percent (100%) of the services
provided to the Company and its subsidiaries described in Items 16C (a) through
16C (d) above.
-65-
<Page>
(f) AUDITORS USE OF NON-PERMANENT EMPLOYEES
None of the hours expended by Raymond Chabot Grant Thornton LLP on its
engagement to audit the Company's financial statements for the fiscal year ended
July 31, 2008, were performed by persons other than fulltime permanent employees
of Raymond Chabot Grant Thornton LLP.
INTEREST OF AUDITORS
Raymond Chabot Grant Thornton LLP are the Independent Registered Chartered
Accountants of the Company and are independent within the meaning of the Code of
Ethics of the ORDRE DES COMPTABLES AGREES DU QUEBEC.
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
None.
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
None.
PART III
ITEM 17. FINANCIAL STATEMENTS
Not applicable.
ITEM 18. FINANCIAL STATEMENTS
The Audited Consolidated Financial Statements of the Company are included
in this Report beginning on page 68.
These financial statements were prepared in accordance with generally
accepted accounting principles in Canada and are expressed in Canadian dollars.
Such financial statements have been reconciled to U.S. GAAP in Note 16. For a
history of the exchange rates which were in effect for Canadian dollars against
U.S. dollars, see Section C - SELECTED FINANCIAL DATA under Item 3 "Key
Information" of this Report.
-66-
<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
<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
<Page>
SAND TECHNOLOGY INC.
CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2008, 2007 AND 2006
<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
=============== ===============
</Table>
Basis of presentation (Note 2)
Commitments (Note 12)
================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
On behalf of the Board,
- --------------------------------------- ---------------------------------------
Arthur G. Ritchie, Director Wayne Musselman, Director
<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.
<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.
<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.
<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.
<Page>
SAND TECHNOLOGY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2008, 2007 and 2006
(In Canadian dollars, unless otherwise noted)
================================================================================
3 - ACCOUNTING POLICIES (CONTINUED)
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.
Amount received in advance of the delivery of products or performance of
services are classified as deferred revenue.
<Page>
SAND TECHNOLOGY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2008, 2007 and 2006
(In Canadian dollars, unless otherwise noted)
================================================================================
3 - ACCOUNTING POLICIES (CONTINUED)
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:
<Table>
<Caption>
PERIODS
-------------------------------
Furniture and equipment 5 years
Computer equipment 3 years
Leasehold improvements Over the lease term of 10 years
</Table>
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.
<Page>
SAND TECHNOLOGY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2008, 2007 and 2006
(In Canadian dollars, unless otherwise noted)
================================================================================
3 - ACCOUNTING POLICIES (CONTINUED)
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.
<Page>
SAND TECHNOLOGY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2008, 2007 and 2006
(In Canadian dollars, unless otherwise noted)
================================================================================
3 - ACCOUNTING POLICIES (CONTINUED)
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;
<Page>
SAND TECHNOLOGY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2008, 2007 and 2006
(In Canadian dollars, unless otherwise noted)
================================================================================
3 - ACCOUNTING POLICIES (CONTINUED)
- - 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.)
<Page>
SAND TECHNOLOGY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2008, 2007 and 2006
(In Canadian dollars, unless otherwise noted)
================================================================================
3 - ACCOUNTING POLICIES (CONTINUED)
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.
<Page>
SAND TECHNOLOGY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2008, 2007 and 2006
(In Canadian dollars, unless otherwise noted)
================================================================================
3 - ACCOUNTING POLICIES (CONTINUED)
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.
<Page>
SAND TECHNOLOGY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2008, 2007 and 2006
(In Canadian dollars, unless otherwise noted)
================================================================================
4 - CAPITAL ASSETS
<Table>
<Caption>
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
============= ============= =============
</Table>
<Table>
<Caption>
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
============= ============= =============
</Table>
Amortization expense of capital assets amounted to $76,670 in 2008 ($90,428 in
2007).
5 - OTHER ASSETS
<Table>
<Caption>
2008
-----------------------------------------------
Accumulated
Cost Amortization Net
------------- ------------- -------------
$ $ $
Contract costs 471,100 471,100 -
============= ============= =============
</Table>
<Table>
<Caption>
2007
-----------------------------------------------
Accumulated
Cost Amortization Net
------------- ------------- -------------
$ $ $
Contract costs 471,100 360,253 110,847
============= ============= =============
</Table>
Amortization expense of contract costs amounted to $110,847 in 2008 ($110,846 in
2007).
6 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
<Table>
<Caption>
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
============= =============
</Table>
<Page>
SAND Technology Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2008, 2007 and 2006
(In Canadian dollars, unless otherwise noted)
================================================================================
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.
<Page>
SAND TECHNOLOGY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2008, 2007 and 2006
(In Canadian dollars, unless otherwise noted)
================================================================================
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;
<Page>
SAND TECHNOLOGY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2008, 2007 and 2006
(In Canadian dollars, unless otherwise noted)
================================================================================
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
$170,110. This amount was recorded as contributed surplus. The fair value of the
warrants at the time they were granted was estimated using the Black-Scholes
option pricing model with the following assumptions:
Dividend yield -
Expected volatility 90%
Risk-free interest rate 4.4%
Expected life 3 years
<Page>
SAND TECHNOLOGY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2008, 2007 and 2006
(In Canadian dollars, unless otherwise noted)
================================================================================
9 - SHARE CAPITAL (CONTINUED)
B) WARRANTS
The following table summarizes information about the Corporation's share
warrants described in Notes 7, 8 and 9a):
<Table>
<Caption>
2008
---------------------------------------------
Weighted
average Weighted
Number of remaining life average
warrants (years) exercise price
------------- -------------- --------------
US$
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.
<Page>
SAND TECHNOLOGY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2008, 2007 and 2006
(In Canadian dollars, unless otherwise noted)
================================================================================
9 - SHARE CAPITAL (CONTINUED)
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:
<Table>
<Caption>
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
</Table>
(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 Corporations 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.
<Page>
SAND TECHNOLOGY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2008, 2007 and 2006
(In Canadian dollars, unless otherwise noted)
================================================================================
9 - SHARE CAPITAL (CONTINUED)
OPTIONS GRANTED AFTER 2003 FISCAL YEAR
The following table summarizes information about the Corporations 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) $US
Outstanding, beginning of year 1,169 1.52 1,041 1.59 1,121 2.10
Granted - - 288 1.00 133 1.00
Forfeited (577) 1.92 (160) 1.00 (213) 3.95
Expired (36) 1.92 - -
------------ ------------ ------------
Outstanding, end of year 556 1.03 1,169 1.52 1,041 1.59
============ ============ ============
Options exercisable, end of year 359 1.05 728 1.79 609 1.84
============ ============ ============
</Table>
<Page>
SAND TECHNOLOGY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2008, 2007 and 2006
(In Canadian dollars, unless otherwise noted)
================================================================================
9 - SHARE CAPITAL (CONTINUED)
The following table summarizes significant ranges of exercise prices of
outstanding options held by directors, officers and employees as of July 31,
2008:
<Table>
<Caption>
Options Outstanding Options Exercisable
------------------------------------------- ----------------------------
Weighted
average Weighted Weighted
Number of remaining life average Number of average
Range of exercise prices options (years) exercise price options exercise price
- ------------------------------------------------ ------------ -------------- -------------- ------------ --------------
(000s) US$ (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:
<Table>
<Caption>
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
</Table>
(a) Weighted average assumptions.
<Page>
SAND TECHNOLOGY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2008, 2007 and 2006
(In Canadian dollars, unless otherwise noted)
================================================================================
9 - SHARE CAPITAL (CONTINUED)
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 Corporations
earnings would have been reported at the pro forma amounts indicated below:
<Table>
<Caption>
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)
============ ============
</Table>
The fair value of stock options granted during 2003 was estimated using the
Black-Scholes option pricing model using the following weighted average
assumptions:
<Table>
Dividend yield -
Expected volatility 87%
Risk-free interest rate 4.8%
Expected life 7 years
</Table>
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.
<Page>
SAND TECHNOLOGY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2008, 2007 and 2006
(In Canadian dollars, unless otherwise noted)
================================================================================
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:
<Table>
<Caption>
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
============ ============ ============
</Table>
(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:
<Table>
<Caption>
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
------------ ------------
Future income tax liabilities 16,885,000 18,173,000
Investment tax credits - 64,000
------------ ------------
16,885,000 18,109,000
Less: valuation allowance (16,885,000) (18,109,000)
------------ ------------
Net future income taxes - -
============ ============
</Table>
<Page>
SAND TECHNOLOGY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2008, 2007 and 2006
(In Canadian dollars, unless otherwise noted)
================================================================================
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, L700,000 and EURO3,800,000, 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:
<Table>
<Caption>
$
------------
2009 283,260
2010 244,314
2011 162,876
------------
690,450
============
</Table>
<Page>
SAND TECHNOLOGY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2008, 2007 and 2006
(In Canadian dollars, unless otherwise noted)
================================================================================
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.
<Table>
<Caption>
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
</Table>
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).
<Page>
SAND TECHNOLOGY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2008, 2007 and 2006
(In Canadian dollars, unless otherwise noted)
================================================================================
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 Corporations 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:
<Table>
<Caption>
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
</Table>
<Page>
SAND TECHNOLOGY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2008, 2007 and 2006
(In Canadian dollars, unless otherwise noted)
================================================================================
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:
<Table>
<Caption>
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) -
------------ ------------
Shareholder's deficiency - U.S. GAAP (2,584,443) (1,165,303)
============ ============
</Table>
<Page>
SAND TECHNOLOGY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2008, 2007 and 2006
(In Canadian dollars, unless otherwise noted)
================================================================================
16 - RECONCILIATION OF RESULTS REPORTED IN ACCORDANCE WITH CANADIAN GAAP TO
U.S. GAAP AND OTHER SUPPLEMENTARY U.S. GAAP DISCLOSURES (CONTINUED)
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.
<Page>
SAND TECHNOLOGY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2008, 2007 and 2006
(In Canadian dollars, unless otherwise noted)
================================================================================
16 - RECONCILIATION OF RESULTS REPORTED IN ACCORDANCE WITH CANADIAN GAAP TO
U.S. GAAP AND OTHER SUPPLEMENTARY U.S. GAAP DISCLOSURES (CONTINUED)
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.
<Page>
SAND TECHNOLOGY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2008, 2007 and 2006
(In Canadian dollars, unless otherwise noted)
================================================================================
16 - RECONCILIATION OF RESULTS REPORTED IN ACCORDANCE WITH CANADIAN GAAP TO
U.S. GAAP AND OTHER SUPPLEMENTARY U.S. GAAP DISCLOSURES (CONTINUED)
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.
<Page>
ITEM 19. EXHIBITS
EXHIBIT INDEX
<Table>
<Caption>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------
1.1 Articles of Incorporation, as amended on December 20, 1996 and December 31, 1996(A).
1.2 Amendment to Articles of Incorporation dated January 1, 2000(B).
1.3 By-Laws approved, confirmed and ratified by the shareholders on December 17, 2002(C).
4.1 SAND 1996 Stock Incentive Plan as amended(D).
4.2 SAND 1996 Stock Option Plan as amended(E).
4.3 SAND Share Award Plan dated November 2, 2006 and Share Award Agreement thereunder(F).
4.5 Voting Agreement by and between SAND, Arthur G. Ritchie and Bradley G. Griffith on behalf of
the Debentureholders dated April 18, 2008.
4.6 Inter-Creditor Priority Agreement by and between SAND, Arthur G. Ritchie and Bradley G.
Griffith on behalf of the Debentureholders, dated April 18, 2008.
4.7 Deed of Hypothec to Secure Payment of Debentures by and between SAND and Bradley G. Griffith on
behalf of the Debentureholders, dated April 24, 2008.
6.1 Statement detailing computation of per share earnings.
8.1 Subsidiaries.
11.1 Standards of Ethical Conduct(G).
12.1 Certification of the Chief Executive Officer of SAND pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
12.2 Certification of the Vice President Finance and Administration and Chief Financial Officer of
SAND pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
13.1 Certification of Chief Executive Officer of SAND pursuant to 18 U.S.C. Section 1350 as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
13.2 Certification of Vice President Finance and Administration of SAND pursuant to 18 U.S.C.
Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
15.1 Consent of Raymond Chabot Grant Thornton LLP.
15.2 Amended and Restated Audit Committee Charter(H).
15.3 Governance, Nomination, Human Resources and Compensation Committee Charter(I).
15.4 Board of Directors Charter(J).
</Table>
-101-
<Page>
NOTES TO EXHIBIT INDEX:
(A) Previously filed as exhibit to SAND's Annual Report on Form 20-F for
the year ended July 31, 1996 and incorporated herein by reference.
(B) Previously filed as exhibit to SAND's Amendment No. 1 to SAND's Form
F-2 Registration Statement (333-12216) filed on August 18, 2000 and
incorporated herein by reference.
(C) Previously filed as exhibit 3.3 to SAND's Annual Report on Form 20-F
for the year ended July 31, 2002 and incorporated herein by reference.
(D) Previously filed as exhibit 4.1 to SAND's Annual Report on Form 20-F
for the year ended July 31, 2005 and incorporated herein by reference.
(E) Previously filed as exhibit 4.2 to SAND's Annual Report on Form 20-F
for the year ended July 31, 1996 and incorporated herein by reference.
(F) Previously filed as exhibit 4.6 to SAND's Annual Report on Form 20-F
for the year ended July 31, 2007 and incorporated herein by reference.
(G) Previously filed as exhibit 11.1 to SAND's Annual Report on Form 20-F
for the year ended July 31, 2005 and incorporated herein by reference.
(H) Previously filed as exhibit 15.1 to SAND's Annual Report on Form 20-F
for the year ended July 31, 2005 and incorporated herein by reference.
(I) Previously filed as exhibit 15.2 to SAND's Annual Report on Form 20-F
for the year ended July 31, 1996 and incorporated herein by reference.
(J) Previously filed as exhibit 14.3 to SAND's Annual Report on Form 20-F
for the year ended July 31, 2003 and incorporated herein by reference.
-102-
<Page>
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for
filing on Form 20-F and that it has duly caused and authorized the undersigned
to sign this Annual Report on Form 20-F on its behalf.
SAND TECHNOLOGY INC.
Dated: November 18, 2008 By: (s) Arthur G. Ritchie
---------------------------------------
Arthur G. Ritchie,
President and Chief Executive Officer
-103-
<Page>
EXHIBIT 12.1
CERTIFICATIONS
I, Arthur G. Ritchie, certify that:
1. I have reviewed this annual report on Form 20-F of Sand Technology
Inc. (the "Company");
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the Company as of, and for, the periods presented in this report;
4. The Company's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the Company and have:
a. Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, to ensure that material information
relating to the Company, including it consolidated
subsidiaries, is made known to us by others within those
entities, particularly during the period in which this
report is being prepared;
b. Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting
and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
c. Evaluated the effectiveness of the Company disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
d. Disclosed in this report any change in the Company's
internal control over financial reporting that occurred
during the period covered by the annual report that has
materially affected, or is reasonably likely to materially
affect, the Company's internal control over financial
reporting; and
<Page>
5. The Company's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial
reporting, to the Company's auditors and the audit committee of the
Company's board of directors:
a. All significant deficiencies and material weaknesses in the
design or operation of internal control over financial
reporting which are reasonably likely to adversely affect
the Company's ability to record, process, summarize and
report financial information; and
b. Any fraud, whether or not material, that involves management
or other employees who has a significant role in the
Company's internal control over financial reporting.
Date: December 12, 2008
By: (s) Arthur G. Ritchie
-----------------------------------------------
Arthur G. Ritchie
President and Chief Executive Officer
<Page>
EXHIBIT 12.2
CERTIFICATIONS
I, Zainab Ahmed Schwartz, certify that:
1. I have reviewed this annual report on Form 20-F of Sand Technology
Inc. (the "Company");
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the Company as of, and for, the periods presented in this report;
4. The Company's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the Company and have:
a. Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, to ensure that material information
relating to the Company, including it consolidated
subsidiaries, is made known to us by others within those
entities, particularly during the period in which this
report is being prepared;
b. Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting
and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
c. Evaluated the effectiveness of the Company disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
d. Disclosed in this report any change in the Company's
internal control over financial reporting that occurred
during the period covered by the annual rport that has
materially affected, or is reasonably likely to materially
affect, the Company's internal control over financial
reporting; and
<Page>
5. The Company's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial
reporting, to the Company's auditors and the audit committee of the
Company's board of directors:
a. All significant deficiencies and material weaknesses in the
design or operation of internal control over financial
reporting which are reasonably likely to adversely affect
the Company's ability to record, process, summarize and
report financial information; and
b. Any fraud, whether or not material, that involves management
or other employees who has a significant role in the
Company's internal control over financial reporting.
Date: December 12, 2008
By: (s) Zainab Ahmed Schwartz
-------------------------------------
Zainab Ahmed Schwartz
Vice President, Finance and
Administration and Chief Financial
Officer
<Page>
EXHIBIT 13.1
CERTIFICATION
of
Periodic Financial Report
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C.
Section 1350
I, Arthur G. Ritchie, President and Chief Executive Officer of Sand Technology
Inc., hereby certify that the Annual Report on Form 20-F for the Fiscal Year
ended July 31, 2008 fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934 and that the information contained
in the periodic report fairly presents, in all material respects, the financial
condition and results of operations of Sand Technology Inc.
Date: December 12, 2008
By: (s) Arthur G. Ritchie
------------------------------------------
Arthur G. Ritchie
President and Chief Executive Officer
This certification is made solely for the purposes of 18 U.S.C. Section 1350,
subject to the knowledge standard set forth therein, and not for any other
purpose. It is not being filed as part of the Annual Report or as a separate
disclosure document.
<Page>
EXHIBIT 13.2
CERTIFICATION
of
Periodic Financial Report
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C.
Section 1350
I, Zainab Ahmed Schwartz, acting as Vice President, Finance and Administration
and Chief Financial Officer of Sand Technology Inc., hereby certify that the
Annual Report on Form 20-F for the Fiscal Year ended July 31, 2008 fully
complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 and that the information contained in the periodic report
fairly presents, in all material respects, the financial condition and results
of operations of Sand Technology Inc.
Date: December 12, 2008
By: (s) Zainab Ahmed Schwartz
---------------------------------------------------
Zainab Ahmed Schwartz
Vice-President, Finance and Administration and
Chief Financial Officer
This certification is made solely for the purposes of 18 U.S.C. Section 1350,
subject to the knowledge standard set forth therein, and not for any other
purpose. It is not being filed as part of the Annual Report or as a separate
disclosure document.
<Page>
Exhibit 15.1
[RAYMOND CHABOT GRANT THORNTON LOGO]
RAYMOND CHABOT GRANT THORNTON LLP
Suite 2000
National Bank Tower
600 De La Gauchetiere Street West
Montreal, Quebec H3B 4L8
CONSENT OF INDEPENDENT AUDITORS Telephone: 514-878-2691
Fax: 514-878-2127
www.rcgt.com
We have issued our report dated October 31, 2008, with respect to the
consolidated financial statements included in the Annual Report of Sand
Technology Inc. on Form 20-F for the year ended July 31, 2008 which are
incorporated by reference in the Registration Statements of Sand Technology Inc.
on Forms S-8 (File No. 333-8538, effective in March 1998 and File No. 333-7462,
effective in August 1997), Form F-2 (File No. 333-12216, effective November 30,
2000) and Form F-3 (File No. 333-51014, effective August 18, 2000). We consent
to the incorporation by reference in the Registration Statements of the
aforementioned report and of our Comments by Independent Auditors for U.S.
Readers on Canada-U.S. Reporting Differences dated October 31, 2008.
/S/ Raymond Chabot Grant Thornton LLP
Chartered Accountants
Montreal, Canada
December 8, 2008
CHARTERED ACCOUNTANTS
Member of Grant Thornton International Ltd
<Page>
Exhibit 4.5
VOTING AGREEMENT
THIS VOTING AGREEMENT (as amended restated, supplemented or otherwise
modified from time to time, this "AGREEMENT") is dated as of April 18, 2008 and
entered into by Bradley G. Griffith on behalf of the Debentureholders, and
Arthur G. Ritchie as shareholder of Sand Technology Inc. (in such capacity, the
"SHAREHOLDER"), and Sand Technology Inc. (the "CORPORATION").
W I T N E S S E T H:
WHEREAS, the Debentureholders are purchasing certain 8% Secured Convertible
Debentures due December 31, 2017 (the "DEBENTURES") of the Corporation pursuant
to that certain non-brokered private placement subscription agreement for Units
dated as of April 18, 2008 (as it may be amended from time to time in accordance
with the terms therein, the "SUBSCRIPTION AGREEMENT"); capitalized terms used
herein which are defined in the Subscription Agreement are used with the
definitions given such terms in the Subscription Agreement unless otherwise
expressly defined herein); and
WHEREAS, the Corporation and the Debentureholders have agreed in the
Subscription Agreement that they shall, as condition of Closing, enter into a
voting agreement with the Corporation and certain existing shareholders of the
Corporation, which shall provide that the Majority Holders will have the right
to designate one member of the Board of Directors of the Corporation; and
WHEREAS, the Debentureholders, the Corporation and the Shareholder desire
to set forth their understandings with respect to their rights and obligations.
NOW THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, and for other good and valuable
consideration, the receipt and adequacy of which is hereby acknowledged, the
parties hereto hereby agree as follows:
ARTICLE 1
VOTING AGREEMENT
The Shareholder hereby agrees that during the Voting Period (as defined below),
at any meeting of the shareholders of the Corporation, however called, or at any
adjournment or postponement thereof or in any other circumstances upon which a
vote, consent or other approval (including by written consent) is sought from
the shareholders of the Corporation in respect of the nomination or appointment
of the directors of the Corporation, the Shareholder shall (i) when a meeting is
held, appear at such meeting or otherwise cause the securities of the
Corporation that he owns (the "OWNED SHARES") to be counted as present thereat
for the purpose of establishing a quorum and (ii) vote (or cause to be voted) in
person or by proxy the Owned Shares in a manner as to provide the Majority
Holders with a representative on the board of directors of the Corporation and
to vote in favour of the appointment of the appointee designated by the Majority
Holders or any replacement thereof as identified in a written notice executed by
more than 50% of the Debentureholders to act as such representative for the
Debentureholders.
<Page>
ARTICLE 2
REPLACEMENT
The right to appoint a representative to the board of directors of the
Corporation shall include the right of the Debentureholders having appointed
such representative to require, at any time, the removal of such representative
and the replacement thereof by another of the choosing of the Majority Holders
and, as the case may be, the right to fill any vacancy created by the
resignation of the representative so appointed.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
The Shareholder hereby represents and warrants to the Debentureholders as
follows:
A) the Shareholder is of the full age of majority and is legally competent
to execute this Voting Agreement and to take all action pursuant hereto and
to do all acts and things and execute and deliver all documents as are
required hereunder to be done, observed, performed or executed and
delivered by it in accordance with the terms hereof; and
B) the execution and delivery of this Voting Agreement does not, and the
performance by the Shareholder of his obligations under this Voting
Agreement will not (i) conflict with or violate any law, ordinance or
regulation of any governmental entity applicable to the Shareholder, or
(ii) conflict with, result in any breach of or constitute a default (or an
event that with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration
or cancellation of, or result in the creation of any encumbrance on the
Owned Shares pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or
obligation to which the Shareholder is a party either individually or in
the aggregate, to materially impair the ability of the Shareholder to
perform his obligations hereunder or to consummate the transactions
contemplated hereby on a timely basis.
ARTICLE 4
OWNERSHIP OF SHARES
As of the date hereof, the Shareholder is the beneficial owner of the Owned
Shares set forth opposite the Shareholder's name on Schedule A hereto, free and
clear of all pledges, liens, proxies, claims, charges, security interests,
preemptive rights, voting trusts, voting agreements, options, rights of first
offer or refusal and any other encumbrances or arrangements whatsoever with
respect to the ownership transfer or other voting of the Owned Shares, other
than as created by this Voting Agreement and other than applicable resale
restrictions. None of the Owned Shares held by the Shareholder is the subject of
any commitment, undertaking or agreement, the terms of which would affect in any
way the ability of such Shareholder to perform his obligations as set out in
this Voting Agreement. As of the date hereof, no proceedings are pending which,
if adversely determined, will have an adverse effect on any ability to vote or
dispose of any of the Owned Shares. The Shareholder has not appointed or granted
any proxy inconsistent with this Voting Agreement with respect to the Owned
Shares.
<Page>
ARTICLE 5
MISCELLANEOUS
5.1 - TERMINATION - This Voting Agreement shall terminate and be of no further
force or effect upon the earliest to occur of (i) the date of termination of the
Subscription Agreement in accordance with its terms; (ii) the conversion of all
of the Debentures issued to the Debentureholders pursuant to the Subscription
Agreement; (iii) written notice of termination of this Voting Agreement by the
Majority Holders or (iv) December 31, 2017. Nothing in this Section 5.1 shall
relieve or otherwise limit any party of liability for wilful breach of this
Voting Agreement.
5.2 - NO OWNERSHIP INTEREST. Nothing contained in this Voting Agreement shall be
deemed to vest in the Debentureholders any direct or indirect ownership or
incidence of ownership of or with respect to any Owned Shares. All rights,
ownership and economic benefits of and relating to the Owned Shares shall remain
vested in and belong to, as the case may be, the Shareholders, and the
Debentureholders shall have no authority to direct the Shareholder in the voting
or disposition of any of the Owned Shares, except as otherwise provided herein.
5.3 - NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, telecopied (upon
telephonic confirmation of receipt), on the first Business Day following the
date of dispatch if delivered by a recognized next day courier service or on the
third Business Day following the date of mailing if delivered by registered or
certified mail, return receipt requested, post prepaid. All notices hereunder
shall be delivered as set forth below, or pursuant to such other instructions as
may be designated in writing by the party to receive such notice:
(a) if to Debentureholders to:
Bradley G. Griffith
Chicago Board Options Exchange
400 S. LaSalle Street
Chicago, IL 60605
Fax: (312) 786-7407
with a copy to:
Douglas J. Hatlestad
Bell, Boyd & Lloyd LLP
70 W. Madison St., 3100
Chicago, Illinois 60602
United States
Fax: (312) 345-9067
(b) if to the Shareholder to:
Arthur G. Ritchie
215 Redfern Avenue, Suite 410
Montreal, Quebec (Canada), H3Z 3L5
Fax: (514) 939-3477
<Page>
with a copy to:
Lavery, de Billy, L.L.P.
1 Place Ville Marie, Suite 4000
Montreal, Quebec (Canada) H3B 4M4
Attention: Sebastien Vezina
Fax: (514) 871-8977
5.4 - COUNTERPARTS. This Voting Agreement may be executed by facsimile and in
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each of the parties
and delivered to the other parties, it being understood that all parties need
not sign the same counterpart.
5.5 - ENTIRE AGREEMENT. This Voting Agreement and, to the extent referenced
herein, the Subscription Agreement, the Deed of Hypothec, the Inter-Creditor
Priority Agreement and the Intercreditor Collateral Agency Agreement, together
with the several agreements and other documents and instruments referred to
herein or therein or annexed hereto or thereto, constitute the entire agreement,
and supersede all prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof.
5.6. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the Province of Quebec without giving effect to the
principles of conflicts of law. Each of the parties hereto hereby irrevocably
and unconditionally consents to submit to the exclusive jurisdiction of the
courts of the Province of Quebec.
5.7. AMENDMENT; WAIVER. This Agreement may not be amended except by an
instrument in writing signed by the Debentureholders and the Shareholder. Each
party may waive any right of such party hereunder by an instrument in writing
signed by such party and delivered to the other party.
5.8. SEVERABILITY. Any term or provision of this Voting Agreement which is
determined by a court of competent jurisdiction to be invalid or unenforceable
in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent
of such invalidity or unenforceability without rendering invalid or
unenforceable the remaining terms and provisions of this Voting Agreement or
affecting the validity or enforceability of any of the terms or provisions of
this Voting Agreement in any other jurisdiction, and if any provision of this
Voting Agreement is determined to be so broad as to be unenforceable, the
provision shall be interpreted to be only so broad as is enforceable, in all
cases so long as neither the economic nor legal substance of the transactions
contemplated hereby is affected in any manner materially adverse to any party or
its stockholders. Upon any such determination, the parties shall negotiate in
good faith in an effort to agree upon a suitable and equitable substitute
provision to effect the original intent of the parties.
5.9. SUCCESSORS AND ASSIGNS; THIRD PARTY BENEFICIARIES. Neither this Agreement
nor any of the rights or obligations of any party under this Voting Agreement
shall be assigned, in whole or in part (by operation of law or otherwise), by
any party without the prior written consent of the other party. Subject to the
foregoing, this Voting Agreement shall bind and inure to the benefit of and be
enforceable by the parties hereto and their respective successors and permitted
assigns. Nothing in this Voting Agreement, express or implied, is intended to
confer on any Person other than the parties hereto or their respective
successors and permitted assigns any rights, remedies, obligations or
liabilities under or by reason of this Voting Agreement.
<Page>
IN WITNESS WHEREOF the parties hereto have duly executed this Voting Agreement
as of the date first written above.
ARTHUR G. RITCHIE
Per: (s) Arthur G. Ritchie
---------------------------------
SAND TECHNOLOGY INC.
Per: (s) Gilles Therrien
---------------------------------
Name: Gilles Therrien
Title: Vice President and Chief
Financial Officer
(s) Bradley G. Griffith
----------------------------------------
BRADLEY G. GRIFFITH, on behalf of the
DebentureHolders
<Page>
SCHEDULE "A"
SHAREHOLDER'S NAME NUMBER OF OWNED SHARES
-------------------- ------------------------
ARTHUR G. RITCHIE 3,598,788
<Page>
EXHIBIT 4.6
INTER-CREDITOR PRIORITY AGREEMENT
THIS AGREEMENT dated as of the 18th day of April 2008.
BETWEEN:
ARTHUR RITCHIE, residing and domiciled at 451, Strathcona Avenue,
Westmount, Quebec, H3Y 2X2;
(hereinafter called "RITCHIE")
OF THE FIRST PART
- and -
BRADLEY G. GRIFFITH, residing at 400 S. Lasalle Street, Chicago,
Illinois, United States, 60605;
(hereinafter called the "AGENT")
OF THE SECOND PART
- and -
SAND TECHNOLOGY INC., a corporation incorporated under the laws of
Canada, having a place of business at 215 Redfern, Suite 410,
Westmount, Quebec, H3Z 3L5
(hereinafter called "SAND")
OF THE THIRD PART
WHEREAS Ritchie has made advances to Sand for a total amount of
Cdn$1,030,611, as evidenced by a loan agreement by and between Sand and Ritchie
effective February 1, 2007 (the "LOAN AGREEMENT") and further evidenced by a
promissory note issued by Sand in favour of Ritchie for the same amount; (the
"PROMISSORY NOTE");
WHEREAS Ritchie has converted into Class A Common Shares a portion of the
loan for an amount of Cdn$568,835 on May 25, 2007;
WHEREAS Ritchie has made additional advances, including but not limited to
cash injection, unpaid compensation and unpaid earned interest, to Sand between
February 1, 2007 and February 29, 2008 for a total amount of Cdn$734,419 (the
"ADVANCES");
WHEREAS The total amount owed to Ritchie, including interest as at March
31, 2008 is Cdn$1,196,195;
<Page>
WHEREAS the Debentureholders have authorized the Agent to execute this
Agreement and to take such action on their behalf and to exercise all powers
under this Agreement together with any and all powers as are reasonably
incidental thereto in the subscription agreements entered into by Sand and each
of the DebentureHolders;
WHEREAS pursuant to a deed of hypothec dated April 18, 2008 (the "DEED OF
HYPOTHEC"), Sand granted a hypothec over all of its assets to and in favour of
the Agent, as FONDE DE POUVOIR (the "TRUSTEE") for the Debentureholders (as
hereafter defined);
WHEREAS the parties hereto have agreed upon certain priorities as
hereinafter described;
WHEREAS Sand has agreed that it will maintain and deal with its property,
assets and undertaking in accordance with the provisions hereof;
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the
premises, the mutual promises herein contained, and other good and valuable
consideration (the receipt and sufficiency of which is hereby acknowledged by
the parties hereto), the parties hereto agree as follows:
ARTICLE 1
INTERPRETATION
1.1 For the purposes of this Agreement, unless there is something in the
subject matter or context inconsistent therewith:
(a) "AGREEMENT" means this inter-creditor priority agreement dated as of
the date noted above;
(b) "BUSINESS DAY" means any day except Saturday, Sunday or a statutory
holiday;
(c) "ENCUMBRANCE" means any mortgage, lien, pledge, assignment, charge,
security interest, title retention agreement, lease, hypothec, levy,
execution, seizure, attachment, garnishment, right of distress, prior
claim or other claim in respect of property of any nature or kind
whatsoever howsoever arising (whether consensual, statutory or arising
by operation of law or otherwise) and includes any bond, debenture or
similar instrument issued under a deed of trust or similar instrument
which constitutes an Encumbrance;
(d) "DEBENTURES" shall have the meaning ascribed thereto in the Deed of
Hypothec;
(e) "DEBENTUREHOLDERS" means the holders of Debentures identified in
Schedule "A" of this Agreement and all persons and entities which
hereafter may become holders of Debentures;:
<Page>
(f) "INSOLVENCY LEGISLATION" means the BANKRUPTCY AND INSOLVENCY ACT, the
COMPANIES CREDITORS ARRANGEMENT ACT or other similar applicable
legislation;
(g) "LEGISLATION" means the CIVIL CODE OF QUEBEC, the PERSONAL PROPERTY
SECURITY ACT of any other Canadian province or territory, the UNIFORM
COMMERCIAL CODE, or any other similar law in any other- jurisdiction;
1.2 The division of this Agreement into articles, sections and subsections and
the insertion of headings exist only for convenience and shall not affect the
construction or interpretation hereof.
1.3 "THIS AGREEMENT", "HEREIN", "HEREOF', "HEREBY", "HEREUNDER" and similar
expressions mean and refer to this Agreement in its entirety and not to any
particular article, section, subsection or other subdivision hereof.
1.4 Words importing the singular number only include the plural and vice versa
and words importing gender shall include all genders and words importing persons
include individuals, partnerships, corporations, trusts, unincorporated
associations, joint ventures, governmental agencies and other entities.
ARTICLE 2
CONSENT
2.1 Ritchie consents to Sand to the issue or issuing of Debentures, including
the existing Debentures, according to the present terms of that certain
subscription agreement by and between Sand and all present and future
Debentureholders dated April 18, 2008 (the "SUBSCRIPTION AGREEMENT"), subject to
the terms and conditions of this Agreement.
2.2 The Debentureholders acknowledge, recognize and consent to, the
existence of the Loan Agreement, the Promissory Note and the Advances.
2.3 Sand concurs with and agrees to the terms and provisions of this
Agreement and shall maintain and deal with all its assets and undertaking in
accordance with this Agreement.
ARTICLE 3
SUBORDINATION, PRIORITY AND REPAYMENTS
3.1 The parties declare, covenant and agree that the sums owing under the
Debentures and the Deed of Hypothec (the "DEBENTURE DEBT") will be paid by Sand
to the Debentureholders and the Trustee, as the case may be, in priority to the
sums owing by Sand to Ritchie under the Loan Agreement and Promissory Note and
all other advances made by Ritchie to Sand, including without limitations, the
Advances (the "RITCHIE DEBT") 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 under the Debenture
Debt, Sand shall remit one Canadian dollar to Ritchie as repayment for the sums
representing the principal amount only
<Page>
(excluding specifically any interest) owing to Ritchie under the Ritchie Debt,
until all sums owing to the Debentureholders under the Debenture Debt or to
Ritchie under the Ritchie Debt have been repaid by Sand.
3.2 The order of priorities set out in Section 3.1 hereof shall apply in all
events and circumstances regardless of:
(a) the fact that the amounts owing to Ritchie under the Ritchie Debt are
presently unsecured;
(b) the date of execution, delivery, attachment, possession, registration
or perfection of the Deed of Hypothec or any other security in favour
of Ritchie, the Trustee, the Agent or the Debentureholders
(collectively the "CREDITORS");
(c) the date of any advance or advances or other extension of credit made
available to Sand by the Creditors;
(d) the date of any default, or the giving of any notice or demand, the
date of the commencement of any enforcement proceedings by the
Creditors, the dates of realization or attachment of any security
interests held by the Trustee or the Debentureholders, or the date of
crystallization of any floating charges contained in any security in
favour of the Trustee or the Debentureholders;
(e) any provision of the documents in favour of the Creditors;
(f) any priority granted by any principle of law or equity or any statute,
including, without limitation, the Legislation or any similar statute
governing the priority of security interests in jurisdictions other
than Quebec; or
(g) whether or not Sand is in default in respect of any of its obligations
under the Debenture Debt or the Ritchie Debt.
ARTICLE 4
COSTS,ETC.
4.1 Where any priority provided by this Agreement is expressed to be limited to
a stated principal amount, the priority shall, in addition to that amount,
extend to and include interest accruing thereon at the rate or rates applicable
thereto prior to default, up to the time of the giving of any notice pursuant to
Section 7.17 hereof.
<Page>
ARTICLE 5
NOTICE OF DEFAULT
5.1 Ritchie hereby agrees to provide forthwith the Trustee with written notice
of any default under the Ritchie Debt and of any intention to enforce its rights
thereunder (a "RITCHIE DEFAULT NOTICE"). The Trustee agrees to provide forthwith
Ritchie with notice of a default under the Debenture Debt and of any intention
to enforce its rights thereunder (a "TRUSTEE'S DEFAULT NOTICE"). Neither Ritchie
nor the Trustee shall be liable to the other for any accidental omission to
provide such notice.
5.2 Each of the Creditors agrees to cooperate with and assist the others in
respect of their realization on the assets of the Sand and the distribution of
proceeds thereof.
ARTICLE 6
DISCLOSURE
6.1 Each of the Creditors shall upon receipt of a written request from the
other, specifying in sufficient detail the information required from the other,
provide such other party with information and particulars as to amounts owing by
Sand and as to such other matters (including, without limitation, the business
and financial affairs of Sand) as may be reasonably requested and as may be set
out in the said request. Sand hereby irrevocably consents to the disclosure of
all such information among the parties hereto from time to time.
ARTICLE 7
GENERAL
7.1 The priorities established hereby and any payments received in respect
thereof shall apply in the event of:
(a) any dissolution, bankruptcy, receivership, winding up, liquidation or
other similar proceedings in respect of Sand;
(b) any proposal made by Sand under the Insolvency legislation;
(c) any proposed compromise or arrangement in respect of Sand under the
lnsolvency legislation, the CANADA BUSINESS CORPORATIONS ACT or any
other similar applicable legislation;
(d) any distribution of assets of Sand among its creditors in any manner
whatsoever; or
(e) any sale of all or substantially all of the assets of Sand.
<Page>
7.2 The parties hereto shall, from time to time and at all times hereafter,
upon every reasonable request of any Creditor and at the expense of Sand,
make or do such further acts and things and execute, deliver, register and
file such further deeds, documents and assurances as may be necessary in the
opinion of such party for more effectively implementing and carrying out the
true intent and purpose of this Agreement.
7.3 This Agreement shall constitute a continuing agreement, notwithstanding
that Sand may not be indebted to one of the Creditors at any time.
7.4 No provision of this Agreement shall be construed as obligating a
Creditor to advance any monies or otherwise extend credit to Sand at any
time, whether such amounts are to be used by Sand to pay all or any part of
the indebtedness to such Creditor or otherwise.
7.5 The indebtedness of Sand to each Creditor is not solidary and nothing
herein contained shall be construed as creating between the Creditors a
partnership, joint venture or other joint association.
7.6 Unless otherwise stated, amounts of currency expressed herein are in
lawful money of Canada.
7.7 This Agreement supersedes all prior agreements and understandings
relating to the subject matter hereof between any of the parties hereto and
represents the entire transaction between the parties with respect thereto.
Except as expressly set out herein, there are no representations, warranties
or conditions, written or oral, express or implied, statutory or otherwise,
concerning the subject matter hereof. No party hereto has relied on any
express or implied representation, written or oral, of any person as an
inducement to enter into this Agreement.
7.8 Neither this Agreement nor any provision hereof may be changed, waived,
discharged or terminated except by instrument in writing, signed by the
parties or by the party against whom enforcement of the change, waiver,
discharge or termination is sought. No consent of Sand shall be necessary to
any amendment to the terms hereof by any Creditor unless the interests of
Sand are directly affected thereby; provided that, following any amendment,
such Creditor shall notify Sand of the same.
7.9 No act or omission by any party hereto in any manner whatever in the
premises shall extend to or be taken to affect any provision hereof or any
subsequent breach or default or the rights resulting therefrom save only
express waiver in writing.
7.10 Nothing contained in this Agreement shall be construed as conferring any
rights or benefits of any kind whatsoever upon Sand, or any person who is not
a party to this Agreement, or as modifying any other agreement between any
Creditor and Sand, and any Creditor shall be entitled to enforce any
provision of this Agreement.
7.11 Time shall be in all respects of the essence hereof.
<Page>
7.12 Any provision of this Agreement which is invalid or unenforceable under the
laws of any jurisdiction in which this Agreement is sought to be enforced shall,
as to such jurisdiction and to the extent such provision is invalid or
unenforceable, be deemed severable and shall not affect any other provision of
this Agreement.
7.13 This Agreement has been made in Province of Quebec and shall be construed,
interpreted and performed in accordance with the laws of Quebec and the laws of
Canada applicable therein and shall in all respects be treated as a Quebec
contract.
7.14 In the event of any conflict between any provision of this Agreement and
any provision of any of the securities or any of the obligations of Sand to a
Creditor, then the terms, conditions or provisions of this Agreement shall
govern and prevail.
7.15 This Agreement may be executed in any number of counterparts each of which
when so executed shall be deemed to be an original and all of such counterparts
taken together shall be deemed to constitute one and the same agreement.
7.16 This Agreement shall enure and accrue to the benefit of and shall be
binding upon the parties hereto and their respective successors and assigns and
shall extend to such successors and assigns and every reference herein to a
party hereto shall extend to such successors and assigns as if specifically
named therein; provided that the Creditor (the "ASSIGNOR") assigning or
transferring any of loans or security shall first deliver to the remaining
Creditor(s) a written agreement by the proposed assignee or transferee in favour
of the said parties to be bound by the provisions hereof to the same extent as
the Assignor.
7.17 Any notice or other communication required or permitted to be given
hereunder shall be in writing and shall be given by prepaid first-class mail, by
facsimile or other means of electronic communication or by hand-delivery as
hereinafter provided. Any such notice or other communication, if mailed by
prepaid first-class mail at any time other than during a general discontinuance
of postal service due to strike, lockout or otherwise, shall be deemed to have
been received on the fourth Business Day after the post-marked date thereof, or
if sent by facsimile or other means of electronic communication, shall be deemed
to have been received on the Business Day following the sending, or if delivered
by hand shall be deemed to have been received at the time it is delivered to the
applicable address noted below to a person with apparent authority to accept
deliveries on behalf of the addressee. Notice of change of address shall also be
governed by this section. In the event of a general discontinuance of postal
service due to strike, lock-out or otherwise, notices or other communications
shall be delivered by hand or sent by facsimile or other means of electronic
communication and shall be deemed to have been received in accordance with this
section. Notices and other communications shall be addressed as follows:
(a) if to Ritchie:
451, Strathcona Avenue
Westmount, Quebec
H3Y 2X2
<Page>
Canada
Attention: Arthur G. Ritchie
Telecopier number: (514) 939-3477
(b) if to Trustee:
Bradley G. Griffith
Chicago Board Options Exchange
400 S. LaSalle Street
Chicago, IL 60605
Telecopier number: (312) 786-7407
(c) if to Sand:
215 Redfern
suite 410
Westmount, Quebec, H3Z 3L5
Attention: Arthur G. Ritchie
Telecopier number: (514) 906-4171
7.19 The parties hereby confirm their express wish that the Agreement and all
documents, notices and agreements related hereto be drawn up in English. LES
PARTIES RECONNAISSENT LEUR VOLONTE EXPRESSE QUE LE PRESENT ACTE AINSI QUE TOUS
LES DOCUMENTS,AVIS ET CONVENTIONS QUI S'Y RATTACHENT SOIENT REDIGES EN LANGUE
ANGLAISE.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.
SIGNATURE PAGES FOLLOW.]
<Page>
IN WITNESS WHEREOF the parties hereto have duly executed this Agreement.
ARTHUR RITCHIE
Per: /s/ Arthur Ritchie
---------------------------
/s/ Bradley G. Griffith
-----------------------------------
BRADLEY G. GRIFFITH
SAND TECHNOLOGY INC.
Per: /s/ Gilles Therrien
---------------------------
Name: Gilles Therrien
Title: Vice-President and Chief Financial
Officer
<Page>
SCHEDULE "A"
<Page>
Exhibit 4.7
DEED OF HYPOTHEC NO:13,006
[GRAPHIC]
DEED OF HYPOTHEC TO SECURE
PAYMENT OF DEBENTURES
BEFORE MTRE. SANDOR STEINBERG, the undersigned Notary for the Province of
Quebec, practising in the City of Montreal,
APPEARED:
SAND TECHNOLOGY INC., a legal person duly incorporated under the laws of Canada,
having its registered office at 215 Redfern Avenue, Suite 410, Montreal Quebec,
Canada, H3Z 3L5, herein acting and represented by Gilles Therrien, its
representative, hereunto duly authorized by a resolution of its board of
directors, a certified copy or duplicate of which resolution has been annexed
hereto after having been acknowledged true and signed for identification by the
said representative with and in the presence of the undersigned Notary,
(hereinafter called the "GRANTOR")
AND:
BRADLEY G. GRIFFITH, residing and domiciled at 1418 North Lake Shore Drive, Apt.
23, Chicago, Illinois, 60610, herein represented by David B. Kierans
(hereinafter called the "ATTORNEY")
RECITALS:
A) The Grantor has issued Debentures pursuant to certain Non-Brokered Private
Placement Subscription Agreements for Units dated as of April 18, 2008.
B) The Grantor intends to secure the payment of the Debentures issued by it.
THEREFORE, THE PARTIES AGREE AS FOLLOWS:
ARTICLE 1
INTERPRETATION
In this Deed, unless the context indicates otherwise:
1.1 "INTERCREDITOR AND COLLATERAL AGENCY AGREEMENT" means the intercreditor and
collateral agency agreement dated as of April 18, 2008 between, INTER ALIA,
the Attorney, as collateral agent for and on
<Page>
-2-
behalf of itself and the Holders (as such term is defined therein), the
Holders and the Grantor, as same may be amended, modified, supplemented or
restated from time to time;
1.2 "DEBENTUREHOLDER" or "HOLDER" means a person entered as a holder of
Debentures;
1.3 "DEBENTUREHOLDERS' INSTRUMENT" means any document signed by the Majority
Holders (as such term is defined in the Intercreditor and Collateral Agency
Agreement);
1.4 "DEBENTURES" means the 8% Secured Convertible Debentures due December 31,
2017 issued or to be issued by the Grantor to the Holders, as same may be
amended, modified, supplemented or restated from time to time;
1.5 "EVENT OF DEFAULT" means any of the events of default specified in Section
5.1;
1.6 "HYPOTHECATED PROPERTY" means all property and rights subjected to or
intended to be subjected to the security constituted under this Deed;
1.7 "SECURITIES" has the meaning set out in Section 2.1;
1.8 "SECURITY DOCUMENTS" has the meaning set out in the Intercreditor and
Collateral Agency Agreement.
ARTICLE 2
CHARGING PROVISIONS
2.1 For purposes of securing the payment of the Debentures in principal and
interest as well as the payment of all other sums, if any, due hereunder to
the Debentureholders or to the Attorney, the Grantor hereby hypothecates
and charges in favour of the Attorney, as fonde de pouvoir, for the
Debentureholders for the sum of three million two hundred and ninety-eight
thousand and six hundred and forty-four Canadian dollars (CDN $3,298,644),
with interest at the rate of eight percent (8%) per annum from the date
hereof the universality of all of its property, movable and immovable,
personal and real, corporeal and incorporeal, tangible and intangible,
present and future, of whatever nature and wherever situated the whole
including, without limitation, the following universalities of present and
future property:
<Page>
-3-
(a) Immovables
All present and future immovable property of the Grantor, and all rights of
the Grantor in any immovable property, together with all property which may
be or become incorporated therewith or permanently physically attached or
joined thereto so as to ensure the utility thereof or which is used by the
Grantor for the operation of its enterprise or the pursuit of its
activities (including heating and air conditioning apparatus and
watertanks) and all other property which becomes immovable by the effect of
law, including by way of accession, and all real rights relating to or
attaching to such immovable property, (collectively, the "Immovables")
including the immovable property, if any, described in ARTICLE 10 hereof;
(b) Rentals, Revenues and Leases of Immovables
All present and future leases, agreements to lease, offers to lease,
options to lease, sub-leases and other rights to occupy premises, use or
occupancy ("Leases") in or of the Immovables or any part thereof, and all
present and future rents, revenues, annuities and other claims arising out
of any Leases or other rights or contracts in respect of the Immovables,
including, without limitation, any indemnity which may be payable pursuant
to the Bankruptcy and Insolvency Act or analogous legislation or
proceedings in respect of any Lease, (collectively, "Rent") and the
continuing right to demand, sue for, recover, receive, and give receipts
for such Rent;
(c) Insurance
Indemnities or proceeds now or hereafter payable under any present or
future contract of insurance on or in respect of the Immovables, the Rent,
any of the property described above in Section (b) or any other of the
Hypothecated Property;
(d) Property in Stock
All present and future property in stock and inventory of any nature and
kind of the Grantor whether in its possession, in transit or held on its
behalf, including property in reserve, raw materials or other materials,
goods manufactured or transformed, or in the process of being so, by the
Grantor or by others, packaging materials, property held by a third party
under a lease, a leasing agreement, franchise or license agreement or any
other agreement entered into with or on behalf of the Grantor, property
evidenced by bill of lading, animals, wares, mineral substances,
hydrocarbons and other products of the soil and all fruits thereof from the
time of their extraction, as well as any other property held for sale,
lease or processing in the
<Page>
-4-
manufacture or transformation of property intended for sale, lease or use
in providing a product or service by the Grantor;
(e) Claims and Other Movable Property
(i) Claims, Receivables and Book Debts
All of the Grantor's present and future claims, debts, demands and choses
in action, whatever their cause or nature, whether or not they are certain,
liquid or exigible, whether or not evidenced by any title (and whether or
not such title is negotiable), bill of exchange or draft, whether litigious
or not, whether or not they have been previously or are to be invoiced,
whether or not they constitute book debts or trade accounts receivable,
including, without limitation, all customer accounts, accounts receivable,
rights of action, demands, judgments, contract rights, debts, tax refunds,
amounts on deposit, bank accounts, cash, proceeds of sale, assignment or
lease of any property, rights or titles, indemnities payable under any
contract of insurance of property, of Persons, or of liability insurance,
proceeds of expropriation, any sums owing to the Grantor in connection with
interest or currency exchange contracts and other treasury or hedging
instruments, management of risks or derivative instruments existing in
favour of the Grantor ("SWAPS") and the Grantor's rights in the credit
balance of accounts held for its benefit by any financial institution or
any other Person together with all judgments and all other rights,
benefits, securities, security agreements, collateral, guarantees,
suretyships, notes and accessories to the claims and rights mentioned above
and other rights relating thereto (including, without limitation, the
rights of the Grantor in its capacity as seller under an instalment sale or
a conditional sale, where the claims are the result of such sale, as well
as all movable property owned by the Grantor and covered by such instalment
or conditional sales);
(ii) No Exclusions
A right or a claim shall not be excluded from the Hypothecated Property by
reason of the fact that (i) the debtor thereof is domiciled outside the
Province of Quebec or (ii) the debtor thereof is an affiliate (as such term
is defined in the Canada Business Corporations Act) of the Grantor
(regardless of the law of the jurisdiction of its incorporation) or (iii)
such right or claim is not related to the operations of the Grantor or (iv)
such right or claim is not related to the ordinary course of business of
the Grantor;
<Page>
-5-
(f) Securities
All present and future share capital of a Person, all present and future
bonds, debentures, bills of exchange, promissory notes, negotiable
instruments and other evidences of indebtedness, and all present and future
options, warrants, investment certificates, mutual funds units, all
interests of the Grantor in any partnership, or any rights in respect to
any of the foregoing, and any other instrument or title generally called or
included as a security including without limitation that, if any, described
in ARTICLE 10 (hereinafter collectively referred to as "Securities"),
including, without limitation, all Securities issued or received in
substitution, renewal, addition or replacement of Securities, or issued or
received on the purchase, redemption, conversion, cancellation or other
transformation of Securities or issued or received by way of dividend or
otherwise to holders of Securities, and all present and future instruments,
bills of lading, warehouse receipts, documents or other evidences of title
of the Grantor;
(g) Equipment
All present and future machinery, equipment, implements, furniture, tools,
rolling stock (including aircraft and road vehicles), spare parts and
additions, including without limitation that, if any, described in ARTICLE
10;
(h) Intellectual Property Rights
All of the Grantor's present and future rights in any trade mark,
copyright, industrial design, patent, patent rights, goodwill, invention,
trade secret, know-how, plant breeders' right, topography of integrated
circuits and in any other intellectual property right (registered or not)
including, if any, improvements and modifications thereto as well as rights
in any action pertaining to the protection, in Canada or abroad, of any
such intellectual property rights, and all of the present and future
undertaking of the Grantor, including without limitation those, if any,
described in ARTICLE 10;
(i) Fruits and Revenues
All present and future fruits and revenues emanating from the above
Hypothecated Property, including without limitation, the proceeds of any
sale, assignment, lease or other disposition of any of the present and
future property of the Grantor, any claim resulting from such a sale,
assignment, lease or other disposition, as well as any property acquired in
replacement thereof (provided that nothing herein shall be interpreted as
permitting the Grantor to dispose of any of the
<Page>
-6-
Hypothecated Property in contravention of the provisions of this Deed or
the Subscription Agreement);
(j) Records and Other Documents
All present and future titles, documents, records, data, vouchers,
invoices, accounts and other documents evidencing or related to the
Hypothecated Property described above, including, without limitation,
computer programs, disks tapes and other means of electronic communications
as well as the rights of the Grantor to recover such property from third
parties, receipts, catalogues, client lists, directories and other similar
property.
All proceeds received by the Attorney following an Event of Default which
is continuing upon the sale, lease, other alienation or expropriation of
any Hypothecated Property and all insurance proceeds with respect to the
Hypothecated Property shall be held by it and invested in accordance with
the Intercreditor and Collateral Agency Agreement. The receipt and use by
the Attorney of such proceeds shall not constitute payment of the
Debentures or a reduction of the security constituted by this Deed,
notwithstanding any law, usage or custom to the contrary.
2.2 Where any of the claims are subject to the provisions of the Financial
Administration Act (Canada), the Grantor hereby sells, assigns and
transfers the same absolutely to the Attorney so that, upon a withdrawal of
authorization as referred to in Section 4.2 hereof, the Attorney shall be
free to complete the formalities required to make such assignment fully
enforceable.
2.3 The hypothec granted hereby will be suspended with respect to any
agreement, right, franchise, licence or permit (the "contractual rights")
to which the Grantor is a party or of which the Grantor has the benefit, to
the extent that the creation of the hypothecs herein would constitute a
breach of the terms of or permit any person to terminate the contractual
rights, but the Grantor must hold its interest therein as mandatary for the
Attorney until the consent of the other party thereto is obtained or upon
the applicable assumption agreement being entered into or notice being
given in the manner required by the contractual rights. The Grantor agrees
that it shall, upon the request of the Attorney, obtain any consent, enter
into any assumption agreement and/or give any notice required, in order to
permit any contractual rights to be subjected to the security created
hereby.
<Page>
-7-
ARTICLE 3
COVENANTS
3.1 The Grantor shall be liable and shall pay to the Attorney upon demand all
reasonable costs and expenses incurred by the Attorney in the performance
of its duties and in the enforcement of the security constituted hereunder.
3.2 The Grantor shall notify the Attorney without delay of:
(a) any change of its name or in the location of its head or chief
executive office;
(b) the details of any immovable property acquired after the date of this
Deed.
3.3 Unless an Event of Default has occurred and has not been waived, the
Grantor is entitled to exercise, either directly or, if the Securities are
registered in the name of the Attorney or its nominee, by power of attorney
or proxy, all the rights and powers of a holder of such securities
including, without limitation, the right to vote from time to time
exercisable in respect of the Securities and to give proxies, consents and
waivers in respect thereof.
3.4 Upon the occurrence of an Event of Default that has not been waived, the
Attorney may give the Grantor a notice prohibiting the Grantor from
exercising the rights and powers of a holder of such Securities including,
without limitation, the right to vote the Securities, at which time all
such rights of the Grantor will cease immediately and the Attorney will
have the right to exercise the rights and powers related to such Securities
including, without limitation, the right to vote.
3.5 Unless an Event of Default has occurred and has not been waived:
(a) the Grantor is entitled to receive all dividend payments or other
distributions or interest payments in respect of the Securities; and
(b) if the Collateral has been registered in the name of the Attorney or
its nominee, the Attorney will execute and deliver (or cause to be
executed and delivered) to the Grantor all directions and other
instruments as the Grantor may request for the purpose of enabling the
Grantor to receive the dividends or other payments that the Grantor is
authorized to receive pursuant to Section 3.6(a) above.
<Page>
-8-
3.6 Upon the occurrence of an Event of Default that has not been waived, all
rights of the Grantor pursuant to Section 3.4 will cease and the Attorney
will have the sole and exclusive right and authority to receive and retain
all payments that the Grantor would otherwise be authorized to retain
pursuant to Section 3.6(a). All money and other property received by the
Attorney pursuant to the provisions of this Section may be applied on
account of the obligations secured by this Deed or may be retained by the
Attorney as additional Hypothecated Property hereunder and be applied in
accordance with the provisions of the Intercreditor and Collateral Agency
Agreement.
3.7 Except as otherwise permitted by a Debentureholders' Instrument, the
Grantor shall do all things and execute all documents necessary for the
security constituted hereunder to have full effect and be constantly
perfected and enforceable in all jurisdictions where the Hypothecated
Property may be located.
ARTICLE 4
POWERS OF THE TRUSTEE
4.1 The Attorney may, without being bound to do so, fulfil any or all of the
obligations of the Grantor hereunder if the Grantor fails to do so after
fifteen (15) days prior notice to the Grantor specifying the nature of such
failure.
4.2 After an Event of Default occurs which is continuing and has not been
waived or cured, the Attorney may give notice of this Deed and the security
interest and assignment granted hereby to any debtors of the Grantor or to
any other person liable to the Grantor and may give notice to any such
debtors or other person to make all further payments to the Attorney, and
any payment or other proceeds of the Hypothecated Property received by the
Grantor from debtors or from any other person liable to the Grantor after
any such notice is given by the Attorney shall be held by the Grantor in
trust for the Attorney and paid over to the Attorney on request.
4.3 After an Event of Default occurs which is continuing and has not been
waived or cured, the Attorney may have any Securities registered in its
name or in the name of its nominee and will be entitled but not bound or
required to exercise any of the rights that any holder of such Securities
may at any time have, including all voting power and other rights from time
to time exercisable in respect of such Securities and the right to receive
all dividends and other payments relating thereto. The Attorney shall not
be responsible for any loss occasioned by its exercise of any of such
<Page>
-9-
rights or by failure to exercise the same within the time limited for the
exercise thereof except for gross negligence or wilful misconduct. The
Grantor shall after an Event of Default occurs which is continuous and
forthwith upon the request of the Attorney deliver to the Attorney those
Securities requested by the Attorney duly endorsed in blank for transfer to
the Attorney or its nominee to be held by the Attorney subject to the terms
of this Deed.
ARTICLE 5
DEFAULT
5.1 Each of the following events shall be an event of default ("EVENT OF
DEFAULT"):
5.1.1 if the Guarantor fails to pay any Debenture on demand; or
5.1.2 if there occurs an "Event of Default" as such term is defined in the
Intercreditor and Collateral Agency Agreement.
ARTICLE 6
REMEDIES IN CASE OF DEFAULT
6.1 If an Event of Default occurs and provided same is continuing, the Attorney
may, if required by a Debentureholders' Instrument and subject to the terms
of the Intercreditor and Collateral Agency Agreement, declare the security
hereby constituted to have become enforceable. In such event, the principal
and interest on the Debentures and all other amounts owing hereunder shall
immediately become payable to the Attorney for the benefit of the
Debentureholders.
6.2 If the security hereby constituted becomes enforceable:
6.2.1 the Attorney may realize the security constituted hereunder and
exercise all rights and remedies of a hypothecary creditor under the
CIVIL CODE OF QUEBEC; and
6.2.2 the Attorney may also (without being required to do so) but subject
to any mandatory provision of applicable law take possession and
administer the Hypothecated Property or any part thereof, with full
power to use, protect, preserve and sell same and to receive all
revenue therefrom. The Attorney may also do all things necessary or
useful for the purpose of selling or realizing the Hypothecated
Property. The Attorney
<Page>
-10-
shall not be bound to continue to carry on the Grantor's enterprise
or to make the Hypothecated Property productive, or to maintain such
property in operating condition.
6.3 The Attorney may, if authorized by a Debentureholders' Instrument or any
Security Documents, waive in writing any default or any rights hereunder.
Any such action on the part of the Attorney shall not affect any subsequent
default or the remedies arising therefrom.
6.4 The remedies provided in this ARTICLE 6 may be exercised on all the
Hypothecated Property taken as a whole or in respect of any part thereof.
ARTICLE 7
GENERAL PROVISIONS
7.1 The security created hereby is in addition to and not in substitution for
any other security held by the Attorney or the Debentureholders.
7.2 This security is a continuing security and shall subsist notwithstanding
the payment from time to time, in whole or in part, of any of the
obligations secured hereby. The hypothec constituted hereunder is not a
"floating hypothec" and this is not intended to create a trust under the
laws of the Province of Quebec.
7.3 In each case provided in Section 5.1, the Grantor shall be in default by
the mere lapse of time, without the necessity of any notice or demand other
than as set forth in Section 5.1.
7.4 Unless otherwise provided in a Debentureholders' Instrument or this Deed,
any sum collected by the Attorney after an Event of Default which is
continuing may be held by the Attorney, as Hypothecated Property, provided
that any such sum shall be applied to the payment of the obligations
secured hereby and then due in accordance with the terms of Article 3 of
the Intercreditor and Collateral Agency Agreement.
7.5 The exercise by the Attorney of any recourse shall not preclude the
Attorney from exercising any other recourse provided hereunder or by law.
All the recourses of the Attorney are cumulative and not alternative. The
failure of or forbearance by the Attorney to exercise any recourse
hereunder does not constitute a renunciation to the later exercise of such
recourse. The Attorney may exercise its recourses hereunder without being
required to exercise any recourse against any other person liable for the
payment of the obligations secured
<Page>
-11-
hereby or to realize any other security held for the payment of such
obligations.
ARTICLE 8
THE TRUSTEE
8.1 The Attorney shall hold the hypothec, charge, security interest and
assignment granted pursuant to this Deed for the benefit of the
Debentureholders and shall act as their representative in the exercise of
the rights conferred on the Attorney hereunder. The Attorney is hereby
appointed and shall be considered a FONDE DE POUVOIR of the
Debentureholders within the meaning of Article 2692 of the CIVIL CODE OF
QUEBEC. The Attorney may perform any act necessary to the performance of
its duties.
8.2 Any person who becomes a Debentureholder shall benefit from the provisions
hereof and the appointment of the Attorney as agent and FONDE DE POUVOIR
for the Debentureholders and, upon becoming a Debentureholder, irrevocably
authorizes the Attorney to perform such functions.
8.3 No Debentureholder may exercise individually any rights conferred on the
Attorney.
8.4 The Attorney shall have the right to proceed in its name as Attorney
hereunder in the enforcement of the security hereby constituted by any
remedy provided by law. The Attorney may, before exercising any remedy,
require the Debentureholders to deposit the Debentures with the Attorney,
for which Debentures the Attorney shall issue a receipt.
8.5 No person dealing with the Attorney or its agents need inquire whether the
security hereby constituted has become enforceable or whether the powers
which the Attorney is purporting to exercise have become exercisable.
8.6 The Attorney is only required to exercise reasonable care in the exercise
of its rights and the performance of its obligations and, in any event, is
only liable for its intentional fault or gross negligence.
8.7 The Attorney may delegate the exercise of its rights or the performance of
its obligations hereunder to another person including a Debentureholder. In
that event, the Attorney may furnish that person with any information it
may have concerning the Grantor or the Hypothecated Property. The Attorney
shall not be responsible for damages resulting from such delegation or from
any fault
<Page>
-12-
committed by such delegate except for gross negligence or wilful
misconduct.
8.8 The rights of the Attorney hereunder shall benefit any assignee or
successor of the Attorney, including any person resulting from the
amalgamation of the Attorney with any other person.
8.9 The Attorney shall be under no duty to take any discretionary action
permitted to be taken by it hereunder or pursuant to applicable law unless
it shall be requested to do so by a Debentureholders' Instrument.
8.10 The Attorney may exercise all of its rights hereunder without possession of
the Debentures and without having to produce same in support of any
judicial proceeding or trial in connection therewith.
8.11 The Attorney may at any time resign hereunder upon not less than sixty (60)
day notice in writing to the Grantor and to the Debenture- holders, or upon
such shorter notice as the Debentureholders may accept; the
Debentureholders may then appoint a new Attorney which trustee shall be
acceptable to the Grantor, acting reasonably. The Debentureholders may also
remove the Attorney and appoint a new Attorney in its place and stead,
which trustee shall be acceptable to the Grantor, acting reasonably, upon
not less than sixty (60) day notice in writing to the Attorney and to the
Grantor. Notwithstanding the foregoing, if an Event of Default occurs and
same is continuing, the Grantor shall not have any rights whatsoever in the
appointment of a new Attorney. Such new Attorney, without further act,
shall be vested with and have the rights and powers granted to the Attorney
hereunder and shall be subject in all respects to the conditions and
provisions hereof.
8.12 Notwithstanding the provisions of Section 32 of AN ACT RESPECTING THE
SPECIAL POWERS OF LEGAL PERSONS (Quebec), the Attorney may acquire and be
the holder of any Debenture issued hereunder. Each of the Grantor and the
Attorney hereby acknowledges that each Debenture issued under the Guarantor
Deed of Hypothec constitutes a title of indebtedness, as such term is used
in Article 2692 of the CIVIL CODE OF QUEBEC.
ARTICLE 9
GOVERNING LAW
9.1 This Deed shall be governed by and construed in accordance with the laws of
the Province of Quebec and the federal laws of Canada applicable therein.
<Page>
-13-
9.2 In the event of inconsistency or contradiction between the provisions of
this Deed and those of the Intercreditor and Collateral Agency Agreement,
the provisions of the Intercreditor and Collateral Agency Agreement shall
prevail except that the provisions hereof shall prevail insofar as they
relate to the creation and publication of the hypothec created hereby.
ARTICLE 10
DETAILS OF CHARGED PROPERTY
10.1 The following are details of the Hypothecated Property:
10.2 1. Immovables: -
10.3 2. Securities: -
10.4 3. Equipment: -
10.5 4. Intellectual Property: See graph below.
SAND TECHNOLOGY INC./ TECHNOLOGIE SAND INC. LIST OF PATENTS AND
TRADEMARKS
PATENTS
<Table>
A Computer Implemented Compact 2519179 Sand Technology Systems Application filed
0-Complete Tree Dynamic Storage International, Inc. 2004/03/24
Structure and Method of Processing
Stored Data
Searchable Archive 2490212 Sand Technology Inc. Application filed
2004/12/15
N-Way Processing of Bit Strings in a 2281103 Sand Technology Systems Patent Issued
Dataflow Architecture International, Inc. 2006/09/05
Method and System for Performing A 2239157 Sand Technology Systems Patent Issued
Boolean Operation On Bit Strings International, Inc. 2006/08/01
Using A Maximal Bit Slice
Storage and Retrieval of Ordered Sets 2237161 Sand Technology Systems Patent Issued
of Keys in a Compact 0-Complete Tree International, Inc. 2006/01/10
Memory Management System and Method 2230859 Sand Technology Systems Patent Issued
International, Inc. 2002/12/31
Relational Database 1338601 Sand Technology Systems Patent issued
Representation With International, Inc. 1996/09/17
Relational Database
</Table>
<Page>
-14-
<Table>
Operation Capability
Bit String Compressor With Boolean 1311301 Sand Technology Systems Patent Issued
Operation Processing Capability International, Inc. 1992/12/08
</Table>
TRADEMARKS
<Table>
MPSO TMA 540,051 Sand Technology Inc. Reg. 2001/01/23
Vector TMA 549,522 Sand Technology Inc. Reg. 2001/08/08
Nucleus TMA595,973 Sand Technology Inc. Reg. 2003/11/27
NucleusE! TMA596,273 Sand Technology Inc. Reg. 2003/12/02
Nucleus Exploration Data Mart TMA577,140 Sand Technology Inc. Reg. 2003/03/07
Nucleus Exploration Data Warehouse TMA568,943 Sand Technology Inc. Reg. 2002/10/17
Nucleus Exploration Logo Design TMA577,081 Sand Technology Inc. Reg. 2003/03/07
Nucleus Exploration Mart TMA568,941 Sand Technology Inc. Reg. 2002/10/17
Nucleus Exploration Warehouse TMA568,942 Sand Technology Inc. Reg. 2002/10/17
Nucleus Octopus TMA568,987 Sand Technology Inc. Reg. 2002/10/17
Nucleus Powered! TMA595,980 Sand Technology Inc. Reg. 2003/11/28
Nucleus Server TMA596,140 Sand Technology Inc. Reg. 2003/12/01
Octopus TMA598,163 Sand Technology Inc. Reg. 2003/12/19
$ 2000 TMA425,371 Sand Technology Inc. Reg. 1994/03/18
Sand TMA661,437 Sand Technology Inc. Reg. 2006/03/24
Sand Technology & Design TMA549,521 Sand Technology Inc. Reg. 2001/08/08
Sand Technology TMA626,459 Sand Technology Inc. Reg. 2004/11/24
</Table>
<Page>
-15-
<Table>
Sand Technology Systems TMA306,103 Sand Technology Inc. Reg. 1985/08/23
Sandonline TMA600,792 Sand Technology Inc. Reg. 2004/01/28
STS & Design TMA306,102 Sand Technology Inc. Reg. 1985/08/23
</Table>
WHEREOF ACTE:
DONE AND PASSED at the City of Montreal, this twenty-fourth (24) day of April
Two thousand and eight (2008) and of record in the office of the undersigned
Notary, under the minute number thirteen : thousand and six (13,006) And, after
the parties declared that they have taken cognizance of these presents and to
have exempted the undersigned Notary from reading them or causing them to be
read, the said authorized representatives of the Grantor and the Attorney signed
these presents in the presence of the said Notary who has also signed.
SAND TECHNOLOGY INC.
By: /s/ Gilles Therrien
------------------------------
Gilles Therrien, Vice-President, Finance and
Administration
/s/ David B. Kierans
--------------------------------------------------
DAVID B. KIERANS for BRADLEY GRIFFITH
/s/ Sandor Steinberg
--------------------------------------------------
MTRE. Sandor STEINBERG, NOTARY
VRAIE COPIE DE LA MINUTE
DEMEUREE EN MON ETUDE
TRUE COPY OF THE ORIGINAL
HEREOF REMAINING OF RECORD
IN MY OFFICE
/s/ Sandor Steinberg
<Page>
No. 13,006
April 24, 2008
DEED OF HYPOTHEC
BY
SAND TECHNOLOGY INC.
TO
Bradley G. GRIFFITH
COPY FIRST COPIE
[GRAPHIC]
TITLE ATTORNEYS & NOTARIES
CONSEILLERS JURIDIQUES & NOTAIRES
SUITE 910
1130 SHERBROOKE STREET WEST
MONTREAL QUE. H3A 2M8
TELEPHONE: (514) 285-1226
<Page>
EXHIBIT 6.1
STATEMENT DETAILING
COMPUTATION OF PER SHARE EARNINGS
FOR THE YEAR ENDED JULY 31, 2008 PER AUDITED FINANCIAL STATEMENTS:
<Table>
Net loss: $ 1,271,950
Weighted Average Number of Shares Outstanding Calculated as
follows: 14,318,189
</Table>
<Table>
<Caption>
Number of Shares Weight Weighted Average
Number of Shares
14,318,189 1.000 14,318,189
</Table>
<Table>
Loss Per Share: $ (0.09)
</Table>
FOR THE YEAR ENDED JULY 31, 2007 PER AUDITED FINANCIAL STATEMENTS:
<Table>
Net loss: $ 2,526,524
Weighted Average Number of Shares Outstanding Calculated as
follows: 13,094,288
</Table>
<Table>
<Caption>
Number of Shares Weight Weighted Average
Number of Shares
12,818,189 0.814 10,430,143
14,318,189 0.186 2,664,145
----------------
13,318,189
</Table>
<Table>
Loss Per Share: $ (0.19)
</Table>
FOR THE YEAR ENDED JULY 31, 2006 PER AUDITED FINANCIAL STATEMENTS:
<Table>
Net loss: $ 3,926,921
Weighted Average Number of Shares Outstanding Calculated as
follows: 12,818,189
</Table>
<Table>
<Caption>
Number of Shares Weight Weighted Average
Number of Shares
12,818,189 1.000 12,818,189
</Table>
<Table>
Loss Per Share: $ (0.31)
</Table>
<Page>
EXHIBIT 8.1
SAND TECHNOLOGY INC.
SIGNIFICANT SUBSIDIARIES
For the Year ended July 31, 2008
The following significant subsidiaries are consolidated in the financial
statements submitted as a part of this report:
<Table>
<Caption>
Jurisdiction of Percentage of Voting
Incorporation Securities Owned
----------------- ----------------------
Controlled by Sand Technology Inc.:
Sand Technology Corporation Delaware 100%
United States
STSI Licensing, LLC New Jersey 100%
United Sates
Sand Technology (Ireland) Limited Ireland 100%
Controlled by Sand Technology (Ireland)
Limited
Sand Technology Deutschland GmBH Germany 100%
Sand Technology Limited England 100%
</Table>