<Page>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13A-16 OR 15D-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the Month Ended December 31, 2008 Commission File Number 0-14884
SAND TECHNOLOGY INC.
(Translation of registrant's name in English)
215 REDFERN, SUITE 410
WESTMOUNT, QUEBEC, CANADA H3Z 3L5
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports
under cover Form 20-F or Form 40-F.
Form 20-F /X/ Form 40-F / /
Indicate by check mark if the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(1): _______
Indicate by check mark if the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(7): _______
Indicate by check mark whether by furnishing the information contained in this
Form, the registrant is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes / / No /X/
If "Yes" is marked, indicated below the file number assigned to the registrant
in connection with Rule 12g3-2(b): 82- N/A .
<Page>
Sand Technology Inc. (the "Company") incorporates this Form 6-K
Report by reference into the Prospectus contained in the Company's
Registration Statement on Form F-3 (333-51014).
2
<Page>
[SAND TECHNOLOGY LOGO]
<Table>
<Caption>
MEDIA NORTH AMERICA, GERMAN/CENTRAL EUROPEAN PRESS INVESTOR RELATIONS
Linda Arens UK/ WESTERN EUROPEAN Richard T. Lane de Jong & Associates
SAND Technology PRESS IMC International Marketing sndt@dejong.org
pr@sand.com Linda Arens Communications +1 760 943-9065
+1 650 726-7539 SAND Technology lane@imc-pr.de
+1 650 726-7539 +49 61 31 / 89 13 89
</Table>
SAND TECHNOLOGY ANNOUNCES FIRST QUARTER RESULTS FOR FISCAL 2009
MONTREAL, DECEMBER 30, 2008: SAND Technology Inc. (OTCBB:SNDTF), an
international provider of data management software and best practices, today
reported a loss for the three-month period ended October 31, 2008. The
Company reported a net loss for the first quarter of fiscal year 2009 of
$989,850 on revenues of $1,223,928 compared with a net loss of $304,920 on
revenues of $1,784,925 for the first quarter of fiscal year 2008. All figures
are in Canadian dollars.
"Our first quarter in fiscal 2009 has been a disappointing quarter for us,"
notes Arthur Ritchie, President and Chief Executive Officer of SAND. "Given
the current global financial crisis, the environment is more challenging than
we previously anticipated and customers have adopted a more cautious attitude
to spending by decreasing and/or delaying the placing of orders and
conserving their cash. While we are concerned about the uncertainties in the
macro-environment, we believe that the value of SAND/DNA products as an
enabling technology that increases efficiency and saves costs will remain
intact over the long-term. These strengths may prove to be real opportunities
in a time when budgets are being cut. Despite the macro factors affecting our
business, we continue to make positive strides in attracting new business
directly from customers and indirectly through our systems integrators and
application vendors."
About SAND Technology
SAND Technology provides Data Management Software and Best Practices for
storing, accessing, and analyzing large amounts of data on-demand while
lowering TCO, leveraging existing infrastructure and improving operational
performance.
SAND/DNA solutions include CRM analytics, and specialized applications for
government, healthcare, financial services, telecommunications, retail,
transportation, and other business sectors. SAND/DNA has achieved "Certified
for SAP NetWeaver" status and SAND Nearline Integration Controller has
achieved "Powered by SAP NetWeaver" status.
SAND Technology has offices in the United States, Canada, the United Kingdom
and Central Europe.
- -------------------------------------------------------------------------------
SAND Technology, Nucleus, N-Vector, and MPSO are registered trademarks, and
SAND/DNA, SAND/DNA Access, SAND/DNA Analytics, SAND/DNA aCRM, SAND Analytic
Server, SAND
www.sand.com
3
<Page>
Searchable Archive, SAND Extensible Warehouse, and all related SAND-, SAND/DNA,
and Nucleus-based marks and designs, are trademarks of SAND Technology Inc.
Other trademarks remain the property of their respective owners.
Certain statements contained in this press release 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 and the Private Securities
Litigation Reform Act of 1995 and following the Quebec Securities Act. The
forward-looking statements are intended to be subject to the safe harbour
protection provided by these Acts. We have based these forward-looking
statements on our current expectations and projections about future results,
levels of activity, events, trends or plans. Such forward-looking statements are
not guarantees and are subject to known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of
SAND to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. All
forward looking statements included in this press release are based on current
expectations and on information available to SAND on the date of this press
release. For a more detailed discussion of these risks and uncertainties and
other business risks, see SAND's current Annual Report and SAND's reports to the
Securities and Exchange Commission (filed on EDGAR at www.sec.gov) and the
Canadian securities authorities (filed on SEDAR at www.sedar.com). You are
cautioned not to place undue reliance on 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.
4
<Page>
FINANCIAL HIGHLIGHTS
The following data expressed in Canadian dollars are derived from the Financial
Statements for the three month period ended October 31, 2008, and 2007. The
information set forth below is not necessarily indicative of the results of
future operations and should be read in conjunction with, and is qualified in
its entirety by, the Financial Statements. All amounts are in Canadian dollars
in thousands (000's) except for Per Share Data.
<Table>
<Caption>
THREE MONTHS ENDED THREE MONTHS ENDED
OCTOBER 31, 2008 OCTOBER 31, 2007
RESULTS OF OPERATIONS
- ----------------------------------------------------------------------------------------------------------------------------
Net Sales $1,224 $1,785
---------------- -------------------
Cost of Sales and Product Support $321 $412
Research and Development Costs $522 $592
Selling, General and Administrative Expenses $1,266 $994
Amortization $17 $49
---------------- -------------------
Operating Income (Loss) ($902) ($262)
Other Income (Expenses) $88 $43
---------------- -------------------
Net Income (Loss) ($990) ($305)
</Table>
<Table>
<Caption>
OCTOBER 31, JULY 31,
FINANCIAL POSITION AS AT 2008 2008
- --------------------------------------------------------------------------------------------------------------------------------
Working Capital (a) ($710) $85
Total Assets $1,925 $2,803
Total Liabilities $4,158 $4,063
Shareholders' Equity (Deficiency) ($2,233) ($1,260)
Earnings (Loss) per Share ($0.07) ($0.02)
Weighted Average Number of Shares outstanding during each period (000's)
14,318 14,318
</Table>
(a) Working capital has been calculated by netting current assets and current
liabilities, excluding deferred revenue and deferred credits which are non-cash
items.
5
<Page>
[SAND TECHNOLOGY LOGO]
SAND TECHNOLOGY INC.
MANAGEMENT'S DISCUSSION & ANALYSIS
QUARTERLY REPORT
FIRST QUARTER ENDED OCTOBER 31, 2008
6
<Page>
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE-MONTH PERIOD ENDED OCTOBER 31, 2008
- -------------------------------------------------------------------------------
THIS MANAGEMENT'S DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH
THE ATTACHED OCTOBER 31, 2008 UNAUDITED CONSOLIDATED BALANCE SHEET,
CONSOLIDATED STATEMENTS OF OPERATIONS, COMPREHENSIVE INCOME AND DEFICIT,
CONSOLIDATED STATEMENT OF CASH FLOWS AND RELATED NOTES TO THE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS. READERS SHOULD REFER TO SAND TECHNOLOGY
INC'S ("SAND" OR THE "CORPORATION") 2008 MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ON PAGES 4 TO 40 OF SAND'S
2008 ANNUAL REPORT.
CERTAIN STATEMENTS CONTAINED IN THIS DISCUSSION ARE "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF THE UNITED STATES SECURITIES ACT OF 1933,
OF THE UNITED STATES SECURITIES EXCHANGE ACT OF 1934 AND THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995 AND OF REGULATION 51-102 RESPECTING
CONTINUOUS DISCLOSURE OBLIGATIONS. THE FORWARD-LOOKING STATEMENTS ARE
INTENDED TO BE SUBJECT TO THE SAFE HARBOUR PROTECTION PROVIDED BY THESE ACTS.
WE HAVE BASED THESE FORWARD-LOOKING STATEMENTS ON OUR CURRENT EXPECTATIONS
AND PROJECTIONS ABOUT FUTURE RESULTS, LEVELS OF ACTIVITY, EVENTS, TRENDS OR
PLANS. SUCH FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES AND ARE SUBJECT TO
KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE THE
ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF SAND TO BE MATERIALLY
DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR
IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. IN SOME CASES, YOU CAN IDENTIFY
FORWARD-LOOKING STATEMENTS BY TERMINOLOGY SUCH AS "GUIDANCE," "MAY," "WILL,"
"SHOULD," "COULD," "WOULD," "EXPECT," "PLAN," "ANTICIPATE," "BELIEVE,"
"ESTIMATE," "CONTINUE," OR THE NEGATIVE OF SUCH TERMS OR OTHER SIMILAR
EXPRESSIONS. ALL FORWARD-LOOKING STATEMENTS INCLUDED IN THIS DISCUSSION ARE
BASED ON CURRENT EXPECTATIONS AND ON INFORMATION AVAILABLE TO THE CORPORATION
ON DECEMBER 19, 2008. FOR A MORE DETAILED DISCUSSION OF THESE RISKS AND
UNCERTAINTIES AND OTHER BUSINESS RISKS, SEE "RISK FACTORS THAT MAY AFFECT
FUTURE RESULTS" BELOW AND THE CORPORATION'S REPORTS TO THE SECURITIES AND
EXCHANGE COMMISSION (FILED ON EDGAR AT www.sec.gov) AND THE CANADIAN
SECURITIES AUTHORITIES (FILED ON SEDAR AT www.sedar.com). READERS ARE
CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS,
WHICH SPEAK ONLY AS OF THE DATE MADE. EXCEPT AS REQUIRED BY APPLICABLE LAWS,
WE UNDERTAKE NO OBLIGATION TO PUBLICLY RELEASE THE RESULT OF ANY REVISION OF
THESE FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES AFTER THE
DATE THEY ARE MADE OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS.
ALL FIGURES GIVEN IN THIS DISCUSSION ARE IN CANADIAN DOLLARS UNLESS OTHERWISE
NOTED. SAND REPORTS ITS UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS IN CANADIAN
DOLLARS AND IN ACCORDANCE WITH CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(GAAP).
7
<Page>
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE-MONTH PERIOD ENDED OCTOBER 31, 2008
- -------------------------------------------------------------------------------
A. PROFILE & STRATEGY
CORPORATION PROFILE AND OVERALL PERFORMANCE
- -------------------------------------------
CORPORATION OVERVIEW
SAND provides data management software and best practices for storing,
accessing, and analyzing large amounts of data on-demand while lowering total
cost of ownership (TCO), leveraging existing infrastructure and improving
operational performance.
SAND/DNA solutions include CRM analytics, and specialized applications for
government, healthcare, financial services, telecommunications, retail,
transportation, and other business sectors. SAND/DNA has achieved "Certified for
SAP NetWeaver" status and SAND Nearline Integration Controller has achieved
"Powered by SAP NetWeaver" status.
SAND has offices in the United States, Canada, the United Kingdom and Central
Europe.
OVERALL PERFORMANCE
The worsening of the global financial crisis has significantly impacted our
business. Unfortunately, our sales were weaker-than-expected as customers
restrict their ordering patterns to place orders only to satisfy short term
demand. Given that a portion of our revenues are from maintenance services and
our increasing focus on providing professional services, we are partly insulated
from the reduction in sales of software licenses.
A) FINANCIAL CONDITION
During the three-month period ended October 31, 2008, the financial
condition of the Corporation weakened given its cash position at the end of
fiscal 2008. Total assets decreased by 31% from $2,803,032 as at July 31,
2008 to $1,924,833 as at October 31, 2008, mostly due to the decrease in
the cash balance and the accounts receivable balance. There was a reduction
in capital assets due to amortization of those assets. Total liabilities
increased by 2% from $4,063,491 as at July 31, 2008 to $4,157,602 as at
October 31, 2008, mostly due to the increase in the loan by a shareholder.
The additional financing obtained, through a shareholder, was expected in
order to fund operations.
B) RESULTS OF OPERATIONS
Our net loss in the first quarter in fiscal 2008 was $304,920, compared to
our net loss in the first quarter of fiscal 2009 of $989,850. There was an
increase in our net loss of 225%. A combination of factors resulted in this
negative impact.
First, there was a decrease in revenue of 31%. We achieved revenue of
$1,784,925 in the first quarter of fiscal 2008 compared to $1,223,928 in
the first quarter of fiscal 2009. The global financial crisis and worsening
economic outlook caused customers to reduce their budgets and hence reduce
or delay orders and conserve cash. This order decrease was abrupt and
substantial. In North America there was a decrease in revenue of 40% and in
Europe there was a decrease in revenue of 26%.
8
<Page>
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE-MONTH PERIOD ENDED OCTOBER 31, 2008
- -------------------------------------------------------------------------------
Second, there was an increase in operating expenses of 4%. The operating
expenses were $2,047,504 in the first quarter of fiscal 2008 compared to
$2,126,518 in the first quarter of fiscal 2009.There were some one-time
expenses incurred in the first quarter of fiscal 2009, some expenses for
marketing events that SAND did not participate in the first quarter of
fiscal 2008 and foreign exchange loss.
C) CASH FLOWS
For the three-month period ended October 31, 2007, the use of cash for
operations was $472,468, compared to the three-month period ended October
31, 2008 the use of cash for operations was $320,866. There was a decrease
in the use of cash for operations of 32% mainly due to the decrease in
accounts receivable, as there were collections during the current quarter
versus billings in the same quarter last year. For the three-month period
ended October 31, 2007 the use of cash for investing was nil compared to
the three-month period ended October 31, 2008 the use of cash for investing
was $17,294. There was an increase in the use of cash for investing of 100%
as a small amount of computer equipment was purchased during the quarter.
For the three month-period ended October 31, 2007 the source of cash from
financing was $234,704, compared to the three-month period ended October
31, 2008 the source of cash from financing was $122,852. There was a
decrease in the cash flows from financing of 48% as a major shareholder
loaned less to the Corporation for the three-month period ended October 31,
2008 than in the same period last quarter.
STRATEGY AND MARKETS
- --------------------
VISION AND STRATEGY
Since July 31, 2008, there were no significant changes to our vision and
strategy. Please refer to our 2008 Annual Report for more details.
DEVELOPMENTS FOR THE THREE-MONTH PERIOD ENDED OCTOBER 31, 2008
Since July 31, 2008, there were no significant developments made to our
products.
9
<Page>
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE-MONTH PERIOD ENDED OCTOBER 31, 2008
- -------------------------------------------------------------------------------
B. KEY RESOURCES
CASH AND FINANCING
- ------------------
LIQUIDITY AND CAPITAL RESOURCES
The Corporation used $320,866 to finance operating activities during the
three-month period ended October 31, 2008, including $943,802 in operating
losses and a decrease of $622,936 in non-cash operating working capital. This
result compares with the cash used in the same quarter last year of $472,468 to
finance operating activities including $255,851 in operating losses and an
increase of $216,617 in non-cash operating working capital. Lower accounts
receivable, lower accounts payable and higher deferred revenue accounted for the
changes in the non-cash working capital.
Accounts receivable was $804,288 as at October 31, 2008 compared to $1,573,867
as at July 31, 2008. The decrease of 49% is mainly due to the reduction in
revenue during the three-month period ended October 31, 2008 and amounts
collected from balances owing to SAND as at July 31, 2008.
Prepaid expenses were $193,069 as at October 31, 2008 compared to $86,224 as at
July 31, 2008. The increase of 124% is mainly due to the upfront payment for
insurance for the fiscal year 2009.
Accounts payable and accrued liabilities were $1,114,975 as at October 31, 2008
compared to $1,327,575 at July 31, 2008. The decrease of 16% is mainly due to
the payment of invoices.
At October 31, 2008, there was a working capital deficit of $710,186 compared to
a positive working capital of $85,442 as at July 31, 2008. Working capital has
been calculated by netting current assets and current liabilities, excluding
deferred revenue and deferred credits which are non-cash items. The decrease in
working capital is mainly due to the decrease in cash, decrease in accounts
receivable, and increase in the loan payable to shareholders.
During the three-month period ended October 31, 2008, the President and Chief
Executive Officer of the Corporation advanced an additional $114,827 to the
Corporation.
Capital expenditures for the three-month period ended October 31, 2008 were
$17,294, compared to nil for the same quarter last year. The expenditures were
mostly related to computer equipment. The Corporation does not anticipate any
significant further capital expenditures for the remaining fiscal year.
The following table provides a summary of the contractual commitments for the
next five years (there are no contractual commitments after 2011).
<Table>
<Caption>
$
-------
2009 283,260
2010 244,314
2011 162,876
-------
690,450
=======
</Table>
10
<Page>
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE-MONTH PERIOD ENDED OCTOBER 31, 2008
- -------------------------------------------------------------------------------
Our cash as at October 31, 2008 was $560,135 compared to our cash and
investments at the same quarter last year of $92,947. The increase is mainly due
to the issuance by the Corporation of convertible debentures for cash proceeds
of $1,009,819 during fiscal 2008 which impacted the opening cash balance for the
fiscal year 2009. Going forward, the cash required to sustain the business
operations will have to come from revenue growth and future financing. The cost
structure will remain stable as SAND has basically reached its optimal level
with respect to headcount and its related expenses. Given the current global
financial crisis it will be very difficult to raise additional funds through
private placements or the market except through an increase in loans from a
major shareholder. Another impact of the current global financial situation is
that customers are reducing their internal budgets to spend in order to conserve
the cash and if they do, they will want longer payment terms.
The Corporation believes that its current cash may not be sufficient to meet its
anticipated cash needs for ongoing operating expenses and working capital
expenditures. If cash generated from operations becomes insufficient to satisfy
its liquidity requirements, the Corporation may seek to sell additional equity
or debt securities. If additional funds are raised through the issuance of debt
securities, holders of these securities could have certain rights, preferences
and privileges senior to holders of its common shares and the terms of this debt
could restrict the Corporation's operations. The sale of additional equity or
convertible debt securities could result in additional dilution to the
Corporation's existing shareholders. The Corporation cannot be certain that
additional financing will be available in amounts or on terms acceptable to it,
if at all. If the Corporation is unable to obtain additional financing, it may
be required to reduce the scope of its operations, which could harm its
business, financial condition and operating results.
TRANSACTIONS WITH RELATED PARTIES
There are two types of loans that are due to a major shareholder who is also the
President and the Chief Executive Officer.
i. During the fiscal year 2008, the Corporation obtained an
additional loan from a significant shareholder who is also its
President and Chief Executive Officer. Under the loan
agreement, the maximum of $400,000 of funds is available. An
amount of $165,000 was used and is repayable within 30 days of
the receipt of a written demand from the shareholder. The loan
bears interest at 15% and is payable on the last business day
of each calendar month.
ii. Based on another agreement formalized in 2007, during the
three-month period ended October 31, 2008, the Corporation
obtained an additional loan of $114,827 from a significant
shareholder who is also its President and Chief Executive
Officer. The loan is repayable within 90 days of the receipt
of a written demand from the shareholder. The loan bears
interest at 15%. The loan originated from amounts owed by the
Company to the shareholder by virtue of his employment
contracts (amounts owed from services rendered, prior to
fiscal 2002 $429,461, in fiscal 2006 $320,683 and in fiscal
2008 $352,557).
11
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MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE-MONTH PERIOD ENDED OCTOBER 31, 2008
- -------------------------------------------------------------------------------
iii. In conjunction with the ratification of the loan agreement
formalized in 2007, the Corporation also issued 103,061 share
purchase warrants, each warrant entitling to purchase one
class "A" common share of the Corporation at a price of
US$0.44 per share and is valid for the term of the agreement.
The residual valuation method was used to allocate the
proceeds between the liability component and the equity
component. The value of the liability component was determined
to be the face value of the debt because there is no maturity
date and by difference, the value of the equity instrument was
determined to be nil.
The proceeds from the loan are being used to cover general expenses incurred by
SAND.
OUTSTANDING SHARE DATA
Since July 31, 2008, there have been no changes to the Corporation's outstanding
shares. Please refer to the 2008 Annual Report for more details.
12
<Page>
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE-MONTH PERIOD ENDED OCTOBER 31, 2008
- -------------------------------------------------------------------------------
C. PERFORMANCE ANALYSIS
RESULTS OF OPERATIONS
- ---------------------
I. REVENUE - TOTAL AND VARIATION
The following table provides a summary of the revenue growth for the three-month
periods ended October 31, 2008 and 2007,
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------------------
Revenue - Total and Variation Q1-09 Q1-08
- ---------------------------------------------------------------------------------------------------------
Revenue
Revenue $1,223,928 $1,784,925
Variation year-over-year increase (decrease) in
revenue (31%) 21%
- ---------------------------------------------------------------------------------------------------------
</Table>
Our sales in the first quarter of fiscal 2009 were $1,223,928, a decrease of 31%
from sales of $1,784,925 in first quarter of fiscal 2008. The reduction is
mainly due to the global financial crisis and worsening economic outlook that
caused customers to reduce their budgets and hence reduce or delay orders and
conserve cash.
II. REVENUE - SEGMENT AND VARIATION
The Corporation has two geographical segments. Both North American and European
segments market SAND/DNA Product Suite. The following table provides a summary
of the revenue growth by geographical segments for the three-month periods ended
October 31, 2008 and 2007,
<Table>
<Caption>
- -------------------------------------------------------------------------------------------------------------------
North America Europe
- -------------------------------------------------------------------------------------------------------------------
Revenue - Segment and Variation Q1-09 Q1-08 Q1-09 Q1-08
- -------------------------------------------------------------------------------------------------------------------
Revenue
Revenue $428,152 $709,669 $795,776 $1,075,256
Variation year-over-year increase (decrease) in
revenue (40%) 20% (26%) 22%
</Table>
A) NORTH AMERICA
Our sales in North America were $428,152 in the first quarter of fiscal 2009, a
decrease of 40% from sales of $709,669 in the first quarter of fiscal 2008. The
reduction is due to the global financial crisis and worsening economic outlook
that caused customers to reduce their budgets and hence reduce or delay orders
and conserve cash.
13
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MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE-MONTH PERIOD ENDED OCTOBER 31, 2008
- -------------------------------------------------------------------------------
B) EUROPE
In Europe, sales were $795,776 in the first quarter of fiscal 2009, a decrease
of 26% from sales of $1,075,256 in the first quarter of fiscal 2008. The
reduction is due to the global financial crisis and worsening economic outlook
that caused customers to reduce their budgets and hence reduce or delay orders
and conserve cash.
III. OPERATING EXPENSES
The following table provides a summary of the operating expenses for the
three-month periods ended October 31, 2008 and 2007,
<Table>
<Caption>
- ------------------------------------------------------------------------------------------------------------------
As a % of As a % of
Q1-09 Q1-08
Q1-09 Q1-08 revenue revenue
- ------------------------------------------------------------------------------------------------------------------
Cost of sales and product support 321,388 412,164 26% 23%
Variation year-over-year increase (decrease) in
cost of sales and product support (22%) (5%)
Research and development, net 522,058 592,497 43% 33%
Variation year-over-year increase (decrease) in
research and development (12%) 3%
Amortization of capital assets and other assets 17,451 49,069 1% 3%
Selling, general and administrative expenses 1,265,621 993,774 103% 56%
Variation year-over-year increase (decrease) in
selling, general and administrative expenses 27% (20%)
- ------------------------------------------------------------------------------------------------------------------
</Table>
A) COST OF SALES AND PRODUCT SUPPORT
Cost of sales and product support consist 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 was $321,388 in the first quarter of fiscal 2009, a decrease
of 22% from cost of sales of $412,164 in the first quarter of fiscal 2008. The
reduction is due to the reduction in travel and related expenses, commissions
earned and the re-allocation of some of the payroll costs into the selling,
general and administration.
B) RESEARCH AND DEVELOPMENT
Research and development expenses consist mainly of salaries and other
personnel-related costs of technical and engineering personnel associated with
our research and product development activities, including the enhancement and
localization of existing products, quality assurance, and testing.
Our research and development expenses were $522,058 in the first quarter of
fiscal 2009, a decrease of 12% from $592,497 in the first quarter of fiscal
2008. The reduction is due to the maturity of SAND/DNA Analytics and SAND/DNA
Access products.
14
<Page>
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE-MONTH PERIOD ENDED OCTOBER 31, 2008
- -------------------------------------------------------------------------------
C) AMORTIZATION OF CAPITAL ASSETS AND OTHER ASSETS
Amortization of capital assets and other assets consists of the depreciation of
furniture and equipment, computer equipment and leasehold improvements and
contract costs over their estimated useful lives.
Our amortization was $17,451 in the first quarter of fiscal 2009, a decrease of
64% from amortization of $49,069 in the first quarter of fiscal 2007. The
reduction is due to the full amortization of the other assets by the end of
fiscal 2008. During the first quarter of fiscal 2009, there were acquisitions of
$17,294 for computer equipment.
D) SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (SG&A)
Selling, general and administrative expenses include salaries, commissions and
other personnel-related costs, the impact of foreign exchange gains and losses,
travel expenses, advertising programs and other promotional activities
associated with the selling and marketing of our products.
Our SG&A expenses were $1,265,621 in the first quarter of fiscal 2009, an
increase of 27% from SG&A expenses of $993,774 in the first quarter of fiscal
2008. The increase is mainly due to the expenses incurred during the first
quarter of fiscal 2009 on marketing events and one-time expenses, and foreign
exchange loss incurred during the same quarter.
IV. NET LOSS - TOTAL AND VARIATION
The following table provides a summary of the net loss for the three-month
periods ended October 31, 2008 and 2007,
<Table>
<Caption>
- -------------------------------------------------------------------------------------------------------------------
Net Loss - Total and Variation Q1-09 Q1-08
- -------------------------------------------------------------------------------------------------------------------
Net loss
Net loss ($989,850) ($304,920)
Variation year-over-year increase (decrease) in
net loss 225% (64%)
</Table>
Our net loss was $989,850 in the first quarter of fiscal 2009, an increase of
225% from net loss of $304,920 in the first quarter of fiscal 2008. The increase
is mainly due to the decrease in our sales and in an increase in our operating
costs.
V. NET LOSS - SEGMENT AND VARIATION
The following table provides a summary of net loss by geographical segments for
the three-month periods ended October 31, 2008 and 2007,
<Table>
<Caption>
-----------------------------------------------------------
North America Europe
-----------------------------------------------------------
Net earnings (loss) - Segment and Variation Q1-09 Q1-08 Q1-09 Q1-08
Profitability
Net earnings (loss) ($888,750) ($1,076,836) ($101,100) $771,916
Variation year-over-year increase (decrease) in
net earnings (loss) (17%) 22% (113%) 1576%
- ------------------------------------------------------------------------------------------------------------------------
</Table>
15
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MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE-MONTH PERIOD ENDED OCTOBER 31, 2008
- -------------------------------------------------------------------------------
A) NORTH AMERICA
In North America, net loss was $888,750 in the first quarter of fiscal 2009, a
decrease of 17% from net loss of $1,076,836 in the first quarter of fiscal 2008.
The reduction is mainly due to the overall reduction in North American business
operations.
B) EUROPE
In Europe, net loss was $101,100 in the first quarter of fiscal 2009, a decrease
of 113% from net earnings of $771,916 in the first quarter of fiscal 2008. The
reduction is mainly due to the reduction in revenues by 26%. This result was due
to the decrease and/or delay in sales of software licenses and services to
customers and increase in operating costs.
16
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MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE-MONTH PERIOD ENDED OCTOBER 31, 2008
- -------------------------------------------------------------------------------
SUMMARY OF QUARTERLY RESULTS
- ----------------------------
The following table shows selected consolidated financial data of SAND for the
eight most recently completed quarters. The information has been prepared on the
same basis as the annual consolidated financial statements, but is unaudited.
These operating results are not necessarily indicative of results for any future
period. You should not rely on them to predict our future performance.
<Table>
<Caption>
- ----------------------------------------------------------------------------------------------------------------------------------
Q1-09 Q4-08 Q3-08 Q2-08 Q1-08 Q4-07 Q3-07 Q2-07
- ----------------------------------------------------------------------------------------------------------------------------------
Revenue
Revenue $1,223,928 $1,888,042 $1,905,984 $1,419,521 $1,784,925 $1,837,068 $1,559,407 $1,861,658
Quarter-over-quarter
revenue growth (reduction) (35%) (1%) 34% (20%) (3%) 18% (16%) 27%
Cost of sales and
product support $321,388 336,960 333,900 387,191 412,164 $368,019 $398,322 $466,315
Gross margin 74% 82% 82% 73% 77% 80% 74% 75%
Total Research and development,
amortiztion of capital assets,
and selling, general and
administrative expenses and
net interest income or expense $1,892,390 $2,035,210 $1,563,643 $1,523,673 $1,677,681 $1,916,506 $1,914,525 $1,884,438
Profitability
Net earnings (loss) ($989,850) ($484,128) $8,441 ($491,343) ($304,920) ($447,457) ($753,440) ($489,095)
Basic and diluted earnings
(loss) per share ($0.07) ($0.03) $0.00 ($0.03) ($0.02) ($0.03) ($0.06) ($0.04)
Quarter-over-quarter
decrease (increase) in
net earnings (loss) (104%) 5835% 102% (61%) 32% 41% (54%) 42%
Net margin (81%) (26%) 0% (35%) (17%) (24%) (48%) (26%)
Weighted average number of shares
outstanding 14,318,189 14,318,189 14,318,189 14,318,189 14,318,189 13,094,288 12,818,189 12,818,189
- ----------------------------------------------------------------------------------------------------------------------------------
</Table>
CRITICAL ACCOUNTING POLICIES
- ----------------------------
The Corporation's significant accounting policies are described in Note 3 to the
July 31, 2008 audited consolidated financial statements.
These interim consolidated financial statements have been prepared using the
same accounting policies and methods of their application as the annual
consolidated financial statements for the year ended July 31, 2008, except for
new accounting policies that have been adopted effective August 1, 2008.
CHANGES IN ACCOUNTING POLICIES
- ------------------------------
The Canadian Institute of Chartered Accountants ("CICA") issued the following
new Handbook Sections, which were effective for interim periods beginning on or
after August 1, 2008,
FINANCIAL INSTRUMENT - 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 and Section 3863,
"FINANCIAL INSTRUMENTS - PRESENTATION" replaced Section 3861 "FINANCIAL
INSTRUMENTS - DISCLOSURE AND PRESENTATION".
17
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MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE-MONTH PERIOD ENDED OCTOBER 31, 2008
- -------------------------------------------------------------------------------
FINANCIAL INSTRUMENT - PRESENTATION
CICA Handbook Section 3863, "FINANCIAL INSTRUMENTS - PRESENTATION", establishes
standards for the presentation of financial instruments and non-financial
derivatives.
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.
The additional disclosures required as a result of the adoption of these
standards, have been included in Note 11 to the consolidated financial
statements for the quarter ended October 31, 2008.
FINANCIAL INSTRUMENTS AND OTHER INSTRUMENTS
- -------------------------------------------
Since July 31, 2008, there were no significant changes to the Corporation's use
of financial instruments.
18
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MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE-MONTH PERIOD ENDED OCTOBER 31, 2008
- -------------------------------------------------------------------------------
D. OUTLOOK
The outlook for the future remains relatively uncertain due to the turbulent
worldwide financial crisis and its impact on demand for goods and services.
Looking forward we see that the environment is more challenging than we
previously anticipated and customers have adopted a more cautious attitude to
place orders due to the uncertainty related to the current global economic
situation.
While we are concerned about uncertainties in the macro-economic environment, we
believe that the value of SAND/DNA products as an enabling technology that
increases efficiency and saves costs will remain intact over the long-term.
These strengths may prove to be real opportunities in a time when budgets are
being cut. Despite the macro factors affecting our business, we continue to make
positive strides in attracting new business directly from customers and
indirectly through our systems integrators and application vendors.
We will continue to focus on reducing operating costs rigorously, at the same
time making necessary investments to take advantage of this opportunity and grow
our sales. We will closely continue to monitor our cash needs. The financial
environment does not appear to be conducive to raising additional capital. We do
not plan on spending any significant amounts on capital assets.
E. RISK FACTORS
I. RISK FACTORS THAT COULD AFFECT FUTURE RESULTS:
In addition to the other information in this discussion and analysis of
financial conditions and results of operations, the following factors should be
considered in evaluating SAND and our business. The risks and uncertainties
described below are not the only ones facing us. Additional risks and
uncertainties of which we are not presently aware or that we currently consider
immaterial, may also impair our business, our operating results and financial
condition.
II. RISKS SPECIFIC TO THE CORPORATION:
The following risks are specific to SAND's operations as a whole.
A) FINANCIAL RISKS
1. HISTORY OF LOSSES - WE HAVE A HISTORY OF LOSSES AND MAY INCUR
FUTURE LOSSES.
RISK: We have incurred the following net losses between 2004 and 2008,
-----
<Table>
<Caption>
------------------------------ ---------------------------------
2004 ($7,129,930)
2005 ($7,363,054)
2006 ($3,926,921)
2007 ($2,526,524)
2008 ($1,271,950)
------------------------------ ---------------------------------
</Table>
Because we have not been profitable, we have had to fund our losses through
raising additional capital by way of a private placement of convertible
debentures and a loan from a major shareholder.
19
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MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE-MONTH PERIOD ENDED OCTOBER 31, 2008
- -------------------------------------------------------------------------------
FACTORS:
--------
i. Our losses could continue for the future years as we continue to
develop market awareness and acceptance of our products, expand the
scope of our operations, respond to competitive developments, continue
to attract, retain and motivate qualified personnel, and continue to
commercialize products incorporating advanced technologies.
ii. Our ability to achieve and maintain profitability and positive cash
flow is dependant upon our success in locating sufficient customers who
will purchase our products and use our services, and our capacity to
generate sufficient revenues.
IMPACT:
-------
i. If our revenue grows more slowly than anticipated or if our operating
expenses are higher than expected, we may not be able to achieve,
sustain or increase profitability, in which case our financial
condition will suffer. We cannot assure you that we will be successful
in addressing these risks, and the failure to do so would have a
material adverse effect on our business, operating results and
financial condition.
2. INSUFFICIENT CAPITAL - WE MAY NEED TO RAISE ADDITIONAL CAPITAL IN THE
FUTURE TO FUND OUR OPERATIONS
RISK: We need to raise additional capital to fund our operating expenses.
Our ability to obtain financing will depend, among other things, on the
Corporation's development efforts, business plan, operating performance and
the condition of the capital markets at the time we seek financing. There
can be no assurance that additional financing will be available on
favourable terms when required, or at all. In the event we raise additional
funds through the issuance of equity, equity-linked or debt securities,
those securities may have rights, preferences or privileges senior to the
rights of the Class A Common Shares, and shareholders may experience
dilution.
FACTORS:
--------
i. In order to help ensure that we would have sufficient capital to take
advantage of our core business opportunities, we have taken significant
actions to reduce our operating expenses. However, most of our
operating expenses, such as employee compensation and lease payments
for facilities and equipment, are relatively stable, and these expense
levels are based in part on our expectations regarding future revenues.
ii. As a result, any sustained shortfall in our revenues relative to our
expectations would negatively impact our financial results. We then
may not have sufficient capital to fund our operations.
IMPACT:
-------
i. Such outcome could adversely impact our ability to respond to
competitive pressures or could prevent us from conducting all or a
portion of our planned operations. We may need to undertake additional
measures to reduce our operating expenses in the future.
20
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MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE-MONTH PERIOD ENDED OCTOBER 31, 2008
- -------------------------------------------------------------------------------
ii. Our consolidated financial statements have been prepared on the
basis of the going concern assumption, meaning that it is reasonably
assumed that the Corporation will be able to realize its assets and
discharge its liabilities in the normal course of operations. In light
of operating losses suffered in the current and past years, the
Corporation's ability to realize its assets and discharge its
liabilities depends on the continued financial support of its
shareholders and creditors and its ability to obtain additional
financing. We cannot assure you that we will be successful in
addressing these risks, and the failure to do so would have a material
adverse effect on our business, operating results and financial
condition.
iii. The carrying amounts of assets, liabilities, revenues and expenses
presented in the financial statements and the balance sheet
classification have not been adjusted as it would be required if the
going concern assumption were not appropriate.
3. QUARTERLY FLUCTUATIONS - FLUCTUATIONS IN OUR REVENUES AND OPERATING
RESULTS MAY AFFECT OUR CASH RESOURCES AND RESULT IN WIDE FLUCTUATIONS
IN THE MARKET PRICE OF OUR SHARE.
RISK: Our quarterly and operating results are difficult to predict and
have fluctuated in the past, and may fluctuate in the future.
FACTORS:
--------
i. Our quarterly results are affected by a number of factors, many of
which are outside our control. In particular, we depend on customers to
demand our technology which may be dependant on their systems
integrators' roadmap for the enterprise-wide implementation of business
intelligence. In other circumstances, we depend on customers to adopt
our technology which may be delayed due to internal plans and budgets.
IMPACT:
-------
i. As a result, we may not be able to accurately predict our necessary
cash expenditures during each quarter or obtain timely financing to
cover any shortfalls.
ii. We also believe that period-to-period comparisons of our operating
results are not meaningful and that one should not rely on any such
comparisons as an indication of our future performance. It is possible
that our operating results in some quarters will be below market
expectations. This may cause the market price of our commons shares to
decline. When the market price of a company's share drops
significantly, shareholders often institute securities class action
lawsuits against that company. A lawsuit against us could cause us to
incur substantial costs and could divert management's attention from
our business.
B) OPERATIONAL RISKS
1. SALES CYCLE - OUR PRODUCT SALES CYCLE IS LENGTHY
RISK: The purchase of our products often requires significant,
executive-level investment and system design decisions by our customers.
Sales take a long time to conclude because we must provide a significant
level of education about the use and benefits of our products.
21
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MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE-MONTH PERIOD ENDED OCTOBER 31, 2008
- -------------------------------------------------------------------------------
FACTORS:
--------
i. We believe that many companies are not yet fully aware of the benefits
of enterprise-wide business intelligence solutions, nor have such
companies yet deployed business intelligence solutions on an
enterprise-wide basis.
ii. Accordingly, the sales cycle associated with the purchase of our
SAND/DNA Analytics products and our SAND/DNA Access products is
typically three to twelve months in length. During this period, a
potential sale is subject to a number of significant risks over which
we have little or no control, including customers' budgeting
constraints and internal acceptance review procedures including, in
some instances, approval by the board of directors of the customer.
IMPACT:
-------
i. Based in part upon, among other things, our lengthy sales cycle, the
timing of sales is difficult to predict and our earnings and operating
results could vary significantly from quarter to quarter during our
current fiscal year. As a result of the long sales cycle, it may take
us a substantial amount of time to generate revenue from our sales
effort.
2. MANAGING GROWTH - IF WE FAIL TO MANAGE OUR FUTURE GROWTH EFFECTIVELY,
WE MAY NOT BE ABLE TO MARKET AND SELL OUR PRODUCTS AND
SERVICES SUCCESSFULLY
RISK: Our future operating results depend to a large extent on our
management's ability to plan and direct our growth successfully, including
training our sales personnel to become productive and generate revenue,
forecasting revenue, controlling expenses, addressing new markets and
maintaining our research and development efforts.
FACTORS:
--------
i. We are moving to secure and maintain effective partnerships with
SYSTEMS INTEGRATORS AND APPLICATION VENDORS which may take some time to
mature into predictable revenue producers.
ii. Competition for qualified SALES PERSONNEL is strong. Many of our
competitors have substantially greater resources than we to hiring
qualified sales personnel. In addition, turnover among our sales force
tends to slow sales efforts until replacement personnel are recruited
and trained.
iii. Our success in maintaining our INDIRECT CHANNELS, including value-added
resellers, resellers and distributors is important to our ability to
achieve revenue growth and improved operating margins on product sales.
IMPACT:
-------
i. Our prospects with SYSTEMS INTEGRATORS AND APPLICATION VENDORS are
difficult to predict and may change rapidly. You should consider the
risks, expenses and difficulties that we may encounter or incur as a
company now operating in a rapidly evolving market. Our business
strategy may not be successful, and we may not successfully address
these risks.
22
<Page>
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE-MONTH PERIOD ENDED OCTOBER 31, 2008
- -------------------------------------------------------------------------------
ii. We may not be able to attract and retain the SALES AND MARKETING
PERSONNEL we desire, even after spending significant resources to do
so, and the failure to do so could have a material adverse effect on
our business, operating results and financial condition.
iii. Despite the fact that we continue to invest resources to develop our
INDIRECT CHANNELS, we may not be able to continue to attract and retain
additional companies in our indirect channels that will be able to
market our products effectively and will be qualified to provide timely
and cost-effective customer support and services. In addition, our
agreements with companies in our indirect channels do not restrict such
companies from distributing competing products, and in many cases,
these agreements may be terminated by either party without cause. We
may not be able to successfully expand our sales through indirect
channels, and failure to do so could have a material adverse effect on
our business, operating results and financial condition.
C) RISKS WHICH MAY AFFECT THE VALUE OF OUR SECURITIES
1. VOLATILITY IN SHARE PRICE - THE PRICE OF OUR CLASS A COMMON SHARES ON
THE OTC BULLETIN BOARD MAY BE VOLATILE AND COULD FLUCTUATE
SUBSTANTIALLY.
RISK: Our Class A common shares are currently listed on the OTC Bulletin
Board ("OTCBB") under the symbol SNDTF.OB. Our share price, which has
ranged from a low of US$0.31 to a high of US$0.83 during the past twelve
months, could continue to be subject to wide fluctuations.
FACTORS:
--------
i. The volume of trading in our Class A common shares on the OTCBB has not
been substantial. As a result, even small dispositions or acquisitions
of our Class A common shares in the public market could cause the
market price to fall or increase substantially.
ii. Our share price could also be subject to wide fluctuations in response
to broad market and industry factors, actual or anticipated variations
in quarterly operating results, volatile economic conditions, new
products offered by us or our competitors, changes in financial
estimates by securities analysts and other events or factors that may
be beyond our control.
IMPACT:
-------
i. When the market price of a company's share drops significantly,
shareholders often institute securities class action lawsuits against
that company. A lawsuit against us could cause us to incur substantial
costs and could divert management's attention from our business.
2. SALES OF SHARES - FUTURE SALES OF OUR COMMON SHARES IN THE PUBLIC
MARKET COULD ADVERSELY AFFECT OUR SHARE PRICE.
RISK: We are authorized to issue an unlimited number of Class A common
shares, of which 14,318,189 shares are outstanding as of December 19, 2008,
and we have reserved an additional 937,000 Class A common shares for future
issuance. We have granted rights to purchase 1,144,000 Class A common
shares to directors, officers, employees and consultants upon the exercise
of options at prices ranging
23
<Page>
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE-MONTH PERIOD ENDED OCTOBER 31, 2008
- -------------------------------------------------------------------------------
from US$0.69 to US$6.28 per share. In addition, we have reserved another
652,500 Class A Common Shares for future issuance at an exercise price of
$0.001 per share.
IMPACT:
-------
i. The issuance of these authorized or reserved shares could substantially
dilute the equity interest of our existing shareholders and could
result in a significant decrease to the market price of our Class A
common shares.
ii. The issuance of shares under the exercise of options could also dilute
the equity interest of our existing shareholders and could result in a
significant decrease to the market price of our Class A Common Shares.
3. CONCENTRATED OWNERSHIP - EXISTING SHAREHOLDERS CONTINUE TO EXERCISE
EFFECTIVE CONTROL OVER US.
RISK: Our senior management and directors, together with entities
affiliated with those individuals, beneficially own approximately 34.5% of
our Class A common shares. Arthur G. Ritchie, our Chairman of the Board,
President and Chief Executive Officer and a director of SAND, beneficially
owns approximately 25.1% of SAND's Class A common shares. The Estate of
Jerome Shattner (Jerome Shattner was the late Executive Vice President of
the Corporation), beneficially owns 7.3% of our Class A common shares,
while George Wicker, a director of SAND, beneficially owns 1.9% of our
Class A common shares. Other senior management or directors own
approximately 0.2% of our Class A common shares.
IMPACT:
-------
i. These shareholders may, as a practical matter, continue to be able to
control the election of a majority of the directors of SAND and the
determination of many corporate actions. This concentration of
ownership could have the effect of delaying or preventing a change in
control of SAND.
4. CLASS B SHARES - OUR ABILITY TO ISSUE CLASS B SHARES COULD MAKE IT MORE
DIFFICULT FOR A THIRD PARTY TO ACQUIRE US TO THE DETRIMENT OF HOLDERS
OF CLASS A COMMON SHARES.
RISK: Our articles of incorporation provide for an unlimited number of
Class B shares which, if ever they are issued, may make it difficult for a
third party to acquire control of us, even if a change in control would be
beneficial to our shareholders.
IMPACT:
-------
i. Our board has the authority to attach special rights, including voting
or dividend rights, to the Class B shares. However, the voting rights
of a Class B share cannot exceed those of a Class A common share. Class
B shareholders who possess these rights could make it more difficult
for a third party to acquire our Corporation.
III. RISKS COMMON TO THE INDUSTRY:
24
<Page>
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE-MONTH PERIOD ENDED OCTOBER 31, 2008
- -------------------------------------------------------------------------------
The following risks are common to companies of the same profile as SAND and in
the similar industry as the one that SAND operates in,
A) TECHNOLOGY RISKS
1. ADOPTION RISK - WE DEPEND ON ENTERPRISES TO ADOPT ENTERPRISE-WIDE
IMPLEMENTATION OF BUSINESS INTELLIGENCE.
RISK: We are focusing our selling efforts increasingly on larger,
enterprise-wide implementations of our SAND/DNA Product Suite and we expect
such sales to constitute an increasing portion of any future revenue
growth. To date, our selling efforts have resulted in limited
enterprise-wide implementations of our SAND/DNA Product Suite.
IMPACT: While we have devoted resources to promoting market awareness of
our products and the needs our products address (including training our
sales personnel and demonstrating our products at industry conferences and
trade shows), we cannot assure you that these efforts will be sufficient to
build market awareness of the need for the enterprise-wide implementations
for business intelligence or acceptance of our products. Failure of a
significant market for enterprise business intelligence products to fully
develop, or failure of enterprise-wide implementations of our products to
achieve broad market acceptance, could have a material adverse effect on
our business, operating results and financial condition.
2. RAPIDLY CHANGING TECHNOLOGY RISK - WE DEPEND ON ENTERPRISES TO ADOPT
OUR TECHNOLOGY.
RISK: The market for our products is characterized by rapidly changing
technology, evolving industry standards and customer requirements, emerging
competition, and frequent new product introductions. Our products
incorporate a number of advanced technologies, including a proprietary data
analysis engine, a distributed architecture, as well as Web access and
delivery technology. We may be required to change and improve our products
in response to changes in operating systems, applications, networking and
connectivity software, computer and communications hardware, programming
tools and computer language technology.
IMPACT:
-------
i. As a result, the life cycle of our products is difficult to estimate.
We attempt to establish and maintain partner alliances with influential
companies in a variety of core technology areas to help us successfully
respond to changing technology, identify new product opportunities, or
develop and bring new products to market in a timely and cost-effective
manner. Our failure to establish such alliances could have a material
adverse effect on our business, operating results and financial
condition.
ii. We have in the past experienced delays in software development and
there can be no assurance that we will not experience delays in
connection with our current or future product development activities.
Our failure, for technological or other reasons, to develop and
introduce new products and product enhancements on a timely basis could
have a material adverse effect on our business, operating results and
financial condition.
25
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MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE-MONTH PERIOD ENDED OCTOBER 31, 2008
- -------------------------------------------------------------------------------
iii. In addition, we or our competitors may announce enhancements to
existing products, or new products that have the potential to supplant
or provide lower cost alternatives to our existing products. The
introduction of such enhancements or new products could render our
existing products obsolete and unmarketable. Furthermore, introduction
by us of products with reliability, quality or compatibility problems
could result in reduced orders, delays in collecting accounts
receivable, and additional service costs. The failure to introduce a
new product or product enhancement on a timely basis could delay or
hinder market acceptance. Research and development efforts may require
us to expend significant capital and other resources. Any such event
could have a material adverse effect on our business, operating
results and financial condition.
3. COMPLEXITY OF PRODUCTS - OUR SOLUTIONS ARE HIGHLY TECHNICAL AND ANY
UNDETECTED SOFTWARE ERRORS, FAILURES OR VIRUSES IN OUR PRODUCTS MAY BE
SUBJECT TO PRODUCT LIABILITY CLAIMS FOR SUCH DEFECTS.
RISK: Despite our testing of new products and their use by current and
potential customers when first introduced or when new enhancements are
released, we cannot assure you that there will be no defects or errors in
new products or enhancements in our commercial shipments.
IMPACT:
-------
i. Although we have not experienced material adverse effects resulting
from any such defects and errors to date, we cannot assure you that
defects and errors will not be found in new products or enhancements,
resulting in loss of revenues, delay in market acceptance or damage to
our reputation, which could have a material adverse effect upon our
business, operating results and financial condition.
ii. While our license agreements with our customers typically contain
provisions designed to limit our exposure for potential claims based on
errors or malfunctions of our products, it is possible, however, that
these provisions may not be effective under the laws of certain
jurisdictions. Although we have not experienced any product liability
claims to date, the sale and support of our products entails the risk
of such claims. Although we carry insurance against product liability
risks, we cannot assure you that such insurance would be adequate to
cover a potential claim. A product liability claim brought against us
could have a material adverse effect on our business, operating results
and financial condition.
4. PROPRIETARY RIGHTS - THERE IS LIMITED PROTECTION OF OUR PROPRIETARY
RIGHTS.
RISK: We currently rely mainly on a combination of copyright and trademark
laws, patents, trade secrets, confidentiality procedures and contractual
provisions to protect our proprietary rights. We seek to protect our
software, documentation and other written materials under trade secret and
copyright laws, which afford only limited protection. We currently have
eight United States patents and thirty-two foreign patents. We cannot
assure you that our patents will not be invalidated, circumvented or
challenged, or that the rights granted under our patents will provide
competitive advantages to us. Others may develop technologies that are
similar or superior to our technology or design around any patent that may
be owned by us.
IMPACT:
-------
26
<Page>
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE-MONTH PERIOD ENDED OCTOBER 31, 2008
- -------------------------------------------------------------------------------
i. Despite our efforts to protect our proprietary rights, unauthorized
parties may attempt to copy aspects of our products or to obtain and
use information that we regard as proprietary. Policing unauthorized
use of our products is difficult, and while we are unable to determine
the extent to which piracy of our software products exists, we can
expect software piracy to be a persistent problem.
ii. In addition, the laws of some foreign countries do not protect our
proprietary rights as fully as do the laws of the United States and
Canada. There can be no assurance that our means of protecting our
proprietary rights in North America or abroad will be adequate. We
have entered into source code escrow agreements with a number of our
customers and indirect channel partners requiring release of source
code under certain conditions. The provision of source code escrows
may increase the likelihood of misappropriation by third parties.
Although we are not currently aware of any claims asserted by third
parties that we infringe on their intellectual property, we expect
that in the future software product developers will increasingly be
subject to infringement claims as the number of products and
competitors in our industry segment grows and the functionality of
products in different industry segments overlaps. Any such claims,
with or without merit, could be time consuming to defend, result in
costly litigation, divert management's attention and resources, cause
product shipment delays or require us to enter into royalty or
licensing agreements which may not be available on terms acceptable to
us, if at all. In the event of a successful claim of product
infringement against us and our failure or inability to license the
infringed or similar technology, our business, operating results and
financial condition could be materially adversely affected.
5. THIRD PARTY SOFTWARE USE - THERE MAY BE LIMITED SUPPORT OF THIRD PARTY
SOFTWARE
RISK: We may rely upon certain software that we license from third parties,
including software that may be integrated with our internally-developed
software and used in our products to perform key functions. We cannot
assure you that these third-party software licenses will be available to us
on terms acceptable to us or indeed that our suppliers will continue to
support their software or remain in business.
IMPACT:
-------
Our inability to obtain or maintain any such software licenses could result
in shipment delays or reductions until equivalent software could be
developed, identified, licensed and integrated, which could have a material
adverse effect on our business, operating results and financial condition.
B) BUSINESS RISKS
1. COMPETITIVE ENVIRONMENT - WE OPERATE IN A HIGHLY COMPETITIVE
ENVIRONMENT.
RISK: We compete in the highly competitive computer software industry as a
result of bringing our SAND/DNA Analytics products, SAND/DNA Access and
more recently our SAND/DNA for SAP BI products to market. The market in
which we operate is still developing and is intensively competitive, highly
fragmented, and characterized by rapidly changing technology and evolving
standards. Our current and potential competitors offer a variety of
solutions and generally fall within several categories:
27
<Page>
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE-MONTH PERIOD ENDED OCTOBER 31, 2008
- -------------------------------------------------------------------------------
o vendors that offer data warehouse appliances which operate specifically
with their proprietary platform such as Netezza, NCR Teradata and
DATAllegro;
o software vendors that offer products which focus on structured data
archiving such as FileTek and PBS;
o other companies that may in the future announce offerings of enterprise
information management solutions.
IMPACT:
-------
i. Our competitive position in our market is uncertain and
changing due principally to the variety of current and potential
competitors and the emerging nature of the market. Over the last year,
we have been able to establish ourselves as complementary to many of
the vendors that were seen as competitors with respect to SAND/DNA
Analytics. We now have offerings that complement SAP BI, Oracle, IBM
DB2 and Microsoft SQL warehouse. We expect additional competition as
other established and emerging companies enter into the intelligent
information management software market and new products and
technologies are introduced. Increased competition could result in
price reductions, fewer customer orders, reduced gross margins, longer
sales cycles, and loss of market share.
ii. Current and potential competitors may make strategic acquisitions or
establish cooperative relationships among themselves or with third
parties, thereby increasing the ability of their products to address
the needs of our prospective customers. Our current or future indirect
channel partners including systems integrators and application vendors
may establish cooperative relationships with our current or potential
competitors and limit our ability to sell products through particular
distribution channels. Such competition could have a material adverse
effect on our ability to enter into new licensing agreements, and
maintenance and support renewals for existing licensing agreements,
with respect to our products. Competitive pressures could also require
us to reduce the price of our products.
iii. We compete mainly on the basis of product features, lower Total Cost of
Ownership (TCO), Return on Investment (ROI), time to market, ease of
use, product performance, product quality, user scalability, open
architecture, customer support and price. While we believe we presently
compete favourably with respect to each of these factors, some
potential customers may be reluctant to work with us due to our share
price or our current financial situation.
iv. We cannot assure you that we will be able to compete successfully
against current and future competitors, and the failure to do so could
have a material adverse effect on our business, operating results and
financial condition.
2. INTERNATIONAL BUSINESS - THE INTERNATIONAL NATURE OF OUR BUSINESS
EXPOSES US TO FINANCIAL AND REGULATORY RISKS.
RISK: Revenues earned outside North America are expected to remain
significant in the future. We have sales offices in the United Kingdom and
Germany. The following table summarizes the percentage of sales generated
outside North America.
28
<Page>
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE-MONTH PERIOD ENDED OCTOBER 31, 2008
- -------------------------------------------------------------------------------
<Table>
<Caption>
---------------------------------- -----------------------------------
2005 52%
2006 70%
2007 71%
2008 66%
---------------------------------- -----------------------------------
</Table>
A key component of our strategy is our planned expansion into additional
international markets. To facilitate this international expansion, we need
to localize our products for the additional foreign markets.
IMPACT:
-------
i. If the revenues generated by these expanded international operations do
not offset the expense of establishing and maintaining these foreign
operations, there could be a material adverse effect on our business,
operating results and financial condition. To date, we have only
limited experience in developing localized versions of our products and
marketing and distributing our products internationally. We cannot
assure you that we will be able to successfully localize, market, sell
and deliver our products in these markets.
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.
3. KEY PERSONNEL - WE DEPEND ON KEY PERSONNEL.
RISK: Our success depends to a significant degree upon the continued
contributions of our research and development and sales and marketing
teams, as well as our management, some of whom would be difficult to
replace.
IMPACT:
-------
i. We believe that our future success will depend in large part upon our
ability to attract and retain highly skilled managerial, engineering,
sales and marketing, and finance personnel. Competition for qualified
personnel remains strong, and there can be no assurance that we will be
successful in attracting and retaining such personnel.
ii. We have in the past experienced difficulties in hiring highly qualified
sales and engineering personnel. The loss of the services of any of our
other key personnel, the inability to attract or retain qualified
personnel in the future or delays in either hiring required personnel
or the rate at which new people become productive, particularly sales
personnel and engineers, could have a material adverse effect on our
business, operating results and financial condition.
29
<Page>
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE-MONTH PERIOD ENDED OCTOBER 31, 2008
- -------------------------------------------------------------------------------
4. PRESSURES IN THE GLOBAL FINANCIAL SYSTEM MAY ADVERSELY AFFECT OUR
FINANCES AND OPERATIONS IN WAYS THAT MAY BE HARD TO PREDICT OR TO
DEFEND AGAINST
Recent events have demonstrated that business and industries throughout the
world are intertwined to a degree that we do not always realize. Thus,
events seemingly unrelated to us or to our industry may adversely affect us
over the course of time. For example, rapid changes to the foreign currency
exchange regime may adversely affect our financial results. Credit
contraction in financial markets may hurt our ability to access credit in
time of need. A reduction in credit, combined with reduced economic
activity, may adversely affect businesses and industries that collectively
constitute a significant portion of our customer base. As a result, these
customers may need to reduce their purchases of our products or services,
or we may experience greater difficulty in receiving payment for the
products or services that these customers purchase from us. Any of these
events, or any other events caused by turmoil in world financial markets,
may have a material adverse effect on our business, operating results, and
financial conditions.
F. CONTROLS AND PROCEDURES
No changes have been made to our internal controls over financial reporting
during the quarter ended October 31, 2008 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
G. ADDITIONAL INFORMATION AND CONTINOUS DISCLOSURE
This analysis of the Corporation's financial position and results of operations
was prepared as of December 19, 2008. Updated information on the Corporation can
be found on the SEDAR database at www.sedar.com.
30
<Page>
NOTICE TO READERS OF THE UNAUDITED INTERIM FINANCIAL STATEMENTS:
The unaudited interim financial statements of SAND Technology Inc. for the
three-month period ended October 31, 2008 have not been reviewed by the
Corporation's external auditors.
[SAND TECHNOLOGY LOGO]
SAND Technology Inc.
Quarterly Report
Third Quarter Ended October 31, 2008
31
<Page>
SAND TECHNOLOGY INC.
CONSOLIDATED BALANCE SHEETS
(In Canadian dollars, unless otherwise noted)
- -------------------------------------------------------------------------------
<Table>
<Caption>
As at October 31, As at July 31,
2008 2008
----------------- --------------
$ $
(unaudited) (audited)
ASSETS
Current assets
Cash 560,135 775,443
Accounts receivable 804,288 1,573,867
Unbilled receivable 245,184 245,184
Prepaid expenses 193,069 86,224
----------------- --------------
1,802,676 2,680,718
Capital assets (Note 4) 122,157 122,314
----------------- --------------
1,924,833 2,803,032
================= ==============
LIABILITIES
Current liabilities
Accounts payable and accrued liabilities 1,114,975 1,327,575
Deferred revenue 1,284,442 1,111,640
Due to a shareholders (Note 5) 1,397,887 1,267,701
----------------- --------------
3,797,304 3,706,916
Long-term liabilities
Deferred credits 70,898 78,232
Convertible debentures (Note 6) 289,400 278,343
----------------- --------------
4,157,602 4,063,491
SHAREHOLDERS' EQUITY (DEFICIENCY)
Share Capital (Note 7)
Authorized
An 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 6, 7) 446,027 446,027
Contributed surplus (Note 7b) 770,065 752,525
Deficit (41,979,302) (40,989,452)
----------------- --------------
(2,232,769) (1,260,459)
----------------- --------------
1,924,833 2,803,032
================= ==============
Basis of presentation (Note 2)
Commitments (Note 8)
- -------------------------------------------------------------------------------------------------------------------------
</Table>
See notes to the consolidated financial statements
32
<Page>
SAND TECHNOLOGY INC.
CONSOLIDATED OPERATIONS, COMPREHENSIVE INCOME AND DEFICIT
(In Canadian dollars, unless otherwise noted)
(unaudited)
- -------------------------------------------------------------------------------
<Table>
<Caption>
Three months Three months
ended October ended October
31, 2008 31, 2007
----------------- --------------
$ $
Revenue 1,223,928 1,784,925
----------------- --------------
Operating expenses
Cost of sales and product support (321,388) (412,164)
Research and development, net (522,058) (592,497)
Amortization of capital assets and other assets (17,451) (49,069)
(Note 4)
Selling, general and administrative expenses (1,265,621) (993,774)
----------------- --------------
(2,126,518) (2,047,504)
----------------- --------------
Loss from operations (902,590) (262,579)
Interest income (expenses)
Amortization of the debt component of the convertible
debentures (Note 6) (11,056) -
Interest expense - due to shareholders (51,537) (39,665)
Interest expense - other (24,667) (2,676)
----------------- --------------
Net loss and comprehensive income (989,850) (304,920)
Deficit at beginning of period (40,989,452) (39,717,502)
================= ==============
Deficit at end of period (41,979,302) (40,022,422)
Basic and diluted loss per share (Note 7) (0.07) (0.02)
================= ==============
Basic and diluted weighted average number of
common shares outstanding 14,318,189 14,318,189
================= ==============
- -------------------------------------------------------------------------------------------------------------------------
</Table>
See notes to the consolidated financial statements
33
<Page>
SAND TECHNOLOGY INC.
CONSOLIDATED CASH FLOWS
(In Canadian dollars, unless otherwise stated)
(unaudited)
- -------------------------------------------------------------------------------
<Table>
<Caption>
Three months Three months
ended October ended October
31, 2008 31, 2007
----------------- --------------
$ $
OPERATING ACTIVITIES
Net loss and comprehensive income (989,850) (304,920)
Non-cash items
Amortization of capital assets and other assets 17,451 49,069
Stock-based compensation 17,541 -
Amortization of the debt component of the
convertible debentures discount 11,056 -
Changes in working capital items
Accounts receivable 769,579 (111,579)
Unbilled receivable - -
Prepaid expenses (106,845) (63,160)
Accounts payable and accrued liabilities (212,600) (68,635)
Deferred revenue 172,802 26,757
----------------- --------------
Cash flow from operating activities (a) (320,866) (472,468)
INVESTING ACTIVITIES
Purchase of capital assets and cash flows from
investing activities (17,294) -
----------------- --------------
Cash flow from investing activities (17,294) -
FINANCING ACTIVITIES
Due to shareholder 130,186 242,038
Amortization of deferred credits (7,334) (7,334)
----------------- --------------
Cash flow from financing activities 122,852 234,704
NET INCREASE (DECREASE) IN CASH (215,308) (237,764)
Cash, beginning of year 775,443 330,711
----------------- --------------
Cash, end of year 560,135 92,947
================= ==============
(a) Additional information
Interest paid 24,667 42,341
================= ==============
- -------------------------------------------------------------------------------------------------------------------------
</Table>
See notes to the consolidated financial statements
34
<Page>
SAND TECHNOLOGY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in Canadian dollars)
(unaudited)
- -------------------------------------------------------------------------------
1. NATURE OF OPERATIONS
SAND Technology Inc. and subsidiaries (the "Corporation") is involved in the
design, development, marketing and support of software products and services
that reduce large amounts of data into a tiny footprint and 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. The Corporation is considered to have only
one reportable business segment.
2. BASIS OF PRESENTATION
The financial statements have been prepared in accordance with Canadian
generally accepted accounting principles ("GAAP") 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 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
The interim consolidated financial statements for the three months ended October
31, 2008 and 2007 are unaudited, and have been prepared in accordance with
Canadian GAAP applicable to interim consolidated financial statements. These
unaudited interim consolidated financial statements do not include all
disclosures required for annual financial statements and should be read in
conjunction with the Corporation's most recent annual consolidated financial
statements as at and for the year ended July 31, 2008.
These interim consolidated financial statements have been prepared using the
same accounting policies and methods of their application as the annual
consolidated financial statements for the year ended July 31, 2008, except for
new accounting policies that have been adopted effective August 1, 2008.
35
<Page>
SAND TECHNOLOGY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in Canadian dollars)
(unaudited)
- -------------------------------------------------------------------------------
CHANGES IN ACCOUNTING POLICIES
- ------------------------------
The Canadian Institute of Chartered Accountants ("CICA") issued the following
new Handbook Sections, which were effective for interim periods beginning on or
after August 1, 2008,
FINANCIAL INSTRUMENT - 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 and Section 3863,
"FINANCIAL INSTRUMENTS - PRESENTATION" replaced Section 3861 "FINANCIAL
INSTRUMENTS - DISCLOSURE AND PRESENTATION".
FINANCIAL INSTRUMENT - PRESENTATION
CICA Handbook Section 3863, "FINANCIAL INSTRUMENTS - PRESENTATION", establishes
standards for the presentation of financial instruments and non-financial
derivatives.
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.
The additional disclosures required as a result of the adoption of these
standards, have been included in Note 11 Financial and Capital Management.
4. CAPITAL ASSETS
<Table>
<Caption>
October 31, 2008 July 31, 2008
----------------------------------------------------------- ----------------
Accumulated
Cost amortization Net Book Value Net Book Value
----------------------------------------------------------- ----------------
$ $ $
Furniture and equipment 322,463 321,283 1,180 1,881
Computer equipment 660,560 607,651 52,909 45,008
Leasehold improvements 287,610 219,542 68,068 75,425
----------- ----------- ----------- --------------
1,270,633 1,148,476 122,157 122,314
=========== =========== =========== ==============
</Table>
36
<Page>
SAND TECHNOLOGY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in Canadian dollars)
(unaudited)
- -------------------------------------------------------------------------------
5. DUE TO 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, the maximum of $400,000 of funds is available. An
amount of $165,000 was used and is repayable within 30 days of the receipt of a
written demand from the shareholder. The loan bears interest at 15% and is
payable on the last business day of each calendar month.
Based on another agreement formalized in 2007, during the three months ended
October 31, 2008, the Corporation obtained an additional loan of $114,827 from a
significant shareholder who is also the President and Chief Executive Officer.
The loan is repayable within 90 days of the receipt of a written demand from the
shareholder. The loan bears interest at 15%. The loan originated from amounts
owed by the Company to the shareholder by virtue of his employment contracts.
In conjunction with the ratification of the loan agreement formalized in 2007,
the Corporation also issued 103,061 warrants, each warrant entitling to purchase
one class "A" common share of the Corporation at a price of US$0.44 per share
and is valid for the term of the agreement. The residual valuation method was
used to allocate the proceeds between the liability component and the equity
component. The value of the liability component was determined to be the face
value of the debt because there is no maturity date and by difference, the value
of the equity instrument was determined to be nil.
During the fiscal year 2008, an inter-creditor priority agreement was signed
when the Corporation issued the secured convertible debentures described in
Note 6. The parties agreed that the sums owing under the debentures will be
paid by the Corporation to 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.
6. CONVERTIBLE DEBENTURES
On April 18th 2008, the Corporation issued secured convertible debentures
("Convertible Debentures") on a private placement basis and received proceeds of
$1,009,819 (US$1,002,600) for a total of 1,114 units. Each unit consists of one
8% Secured Convertible Debenture due December 31st, 2017, redeemable and
convertible at the option of the Corporation if the bid price of the stock has
been above $1.50 for sixty consecutive trading days and convertible at the
option of the holder into class "A" common shares at $0.45 per share, and one
thousand share purchase warrants of the Corporation. Each warrant entitles its
holder to purchase one additional common share (warrant share) of the
Corporation at a price of $0.70 per warrant share at any time until the earlier
of the close of business on the day which is thirty-six months from April 18th
2008 or the sixtieth consecutive trading day in which the bid price of the
common shares has been above $1.50. Interest is calculated at the rate of 8% per
annum, payable in kind, i.e. in common shares at a rate of $0.45 per share. The
interest is due on each Conversion Date (date when that principal amount is
being converted) subsequent to January 1st, 2009, and on the Maturity Date. The
financing is secured by a first rank hypothec on all of the Corporation's
property and assets, movable and immovable, corporeal and incorporeal, present
and future, of ever kind and nature for the principal amount and accrued
interest. The proceeds from the private placement are being used to increase
marketing and advertising capital needs and expansion.
37
<Page>
SAND TECHNOLOGY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in Canadian dollars)
(unaudited)
- -------------------------------------------------------------------------------
6. CONVERTIBLE DEBENTURES (CONTINUED)
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 has been separately presented in the consolidated
balance sheet.
The liability component of the convertible secured debentures is calculated
using the present value of the expected future 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 three months
ended October 31, 2008 is $11,056 and has been included as part of interest
expenses on the consolidated operations and comprehensive income statement.
The carrying amount of the equity component, at the issued 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
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:
<Table>
<Caption>
Dividend yield -
Expected volatility 90%
Risk-free interest rate 3.25%
Expected life 3 years
</Table>
The remaining balance represents the fair value of the conversion option and
interest payable in shares in the amount of $446,027. This amount was recorded
as the equity component of the convertible debentures.
38
<Page>
SAND TECHNOLOGY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in Canadian dollars)
(unaudited)
- -------------------------------------------------------------------------------
7. SHARE CAPITAL
A) AUTHORIZED
Unlimited number of Class "A" common shares without par value.
B) WARRANTS
The following table summarizes information about the Corporation's share
warrants described in Notes 5 and 6:
<Table>
<Caption>
Three months ended October 31, 2008
-----------------------------------------------------
Weighted Weighted
average average
Number of remaining life exercise
warrants (years) price
-----------------------------------------------------
US$
Granted, outstanding and exercisable, end of year 1,967,061 2.1 0.65
=========
</Table>
<Table>
<Caption>
July 31, 2008
-----------------------------------------------------
Weighted Weighted
average average
remaining life exercise
# (years) price
-----------------------------------------------------
US$
Outstanding, beginning of year 853,061 2.8 0.58
Granted 1,114,000 2.7 0.70
---------
Granted, outstanding and exercisable, end of year 1,967,061 2.3 0.65
=========
</Table>
39
<Page>
SAND TECHNOLOGY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in Canadian dollars)
(unaudited)
- -------------------------------------------------------------------------------
7. SHARE CAPITAL (CONTINUED)
C) SHARE AWARD PLAN
For the three months ended October 31, 2008, an amount of $12,577 was recorded
as share based compensation expense included in selling, general and
administrative expenses. The following table 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>
Dividend yield -
Expected volatility (a) 90%
Risk-free interest rate (a) 4.0%
Expected life (a) 3 years
Vested period 3 years
Number of common shares granted but not yet issued 407,500
(a) Weighted average assumption
</Table>
D) STOCK OPTION PLANS
The Corporation has two stock option plans. The following table summarizes
information about the Corporation's stock options:
<Table>
<Caption>
Three months ended
October 31, 2008 July 31, 2008
---------------------------- ------------------------
Weighted
Weighted average
Number of average exercise
options exercise price
price
---------- ---------- --------- ----------
(000s) $ US (000s) $ US
Outstanding, beginning of year 556 1.03 1,169 1.52
Forfeited - (577) 1.92
Expired - (36) 1.92
---------- ---------
Outstanding, end of year 556 1.03 556 1.03
========== =========
Options exercisable, end of year 407 1.05 359 1.05
========== =========
</Table>
40
<Page>
SAND TECHNOLOGY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in Canadian dollars)
(unaudited)
- -------------------------------------------------------------------------------
7. SHARE CAPITAL (CONTINUED)
The following table summarizes significant ranges of exercise prices of
outstanding options held by directors, officers and employees as of October 31,
2008:
<Table>
<Caption>
Options outstanding Options exercisable
-------------------------------------- ---------------------------------
Weighted Weighted Weighted
Number of average average Number of average
Options remaining life exercise price options exercise price
Range of exercise prices (years)
- ------------------------ -------- -------------- -------------- --------- ---------------
(000s) (US$) (000s) (US$)
Less than US$1.00 160 7.72 0.69 160 0.69
US$1.00 to US$1.49 380 6.58 1.00 183 1.00
US$3.00 to US$3.99 5 9.15 4.00 5 4.00
US$4.00 to US$4.99 - - - - -
US$5.00 to US$5.99 5 1.92 5.00 5 5.00
US$6.00 to US$6.99 6 0.52 6.46 6 6.46
-------- -------------- -------------- --------- ---------------
556 6.82 1.33 359 1.05
======== ============== ============== ========= ===============
</Table>
For the three months ended October 31, 2008, an amount of $4,964 was recorded as
stock-based compensation expense included in selling, general and administrative
expenses. The following table presents the assumptions used to determine the
stock-based compensation expense using the Black-Scholes option-pricing model,
<Table>
<Caption>
2007 2006
---------- ----------
Dividend yield - -
Expected volatility (a) 90% 90%
Risk-free interest rate (a) 4.0% 3.5%
Expected life (a) 7 years 7 years
Number of options granted 287,500 133,000
(a) Weighted average assumption
</Table>
E) LOSS PER SHARE
Shares from the Share Award Plan, options and warrants described in Note 5, 6
and 7 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.
41
<Page>
SAND TECHNOLOGY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in Canadian dollars)
(unaudited)
- -------------------------------------------------------------------------------
8. 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>
9. SEGMENTED INFORMATION
The Corporation is considered to have only one reportable business segment in
two geographic areas. Both North America and Europe 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 their
performance based on income before taxes. Sales for each area are based on the
location of the third party customer. All intercompany transactions between
geographic areas have been eliminated.
As at and for the three months ended October 31,
<Table>
<Caption>
North America Europe Total
--------------- --------------- ---------------
$ $ $
2008
Revenue 428,152 795,776 1,223,928
Loss before income taxes (888,750) (101,100) (989,850)
Identifiable assets 1,364,846 572,146 1,936,992
2007
Revenue 709,669 1,075,256 1,784,925
Loss before income taxes (1,076,836) 771,916 (304,920)
Identifiable assets 1,272,613 972,441 2,245,054
</Table>
10. INCOME TAXES
There was no income tax accrued during the three month period ended October 31,
2008.
42
<Page>
SAND TECHNOLOGY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in Canadian dollars)
(unaudited)
- -------------------------------------------------------------------------------
11. FINANCIAL AND CAPITAL MANAGEMENT
FINANCIAL MANAGEMENT
Management's objective is to minimize the risk exposure to the Corporation
against various financial risks which include credit risk, currency risk and
liquidity risk. The Corporation does not use derivative financial instruments to
minimize such risk.
A) INTEREST RATE RISK
The Corporation is not exposed to interest rate risk.
B) CREDIT RISK
Credit risk is the risk that the customer will be unable to pay amounts in full
when due as well as the risk that there is a large amount due from a small
number of customers. With respect to the risk that the customer is unable to
pay, the Corporation sets up allowances for potential losses. However, since
most of the customers are relatively large companies with a history of payment
and all the accounts receivables are current and neither past due nor impaired,
the allowance is not significant. With respect to the concentration of credit
risk, the Corporation has accounts receivable from relatively large customers
engaged in various industries. As well, the Corporation minimizes its exposure
to credit risk by placing its cash with major banks. As such, management
assesses the Corporation's credit risk to be low.
C) 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. Management minimizes this risk by paying the
expenditures incurred in the local operations using the monies received in the
local currency.
The Corporation is mainly exposed to fluctuations in the U.S. dollar, the Pound
Sterling and the Euro. The following table details the Corporation's sensitivity
to a 23% strengthening of the U.S. dollar, a 21% strengthening of the Pound
Sterling and a 16% strengthening of the Euro on net earnings and comprehensive
income against the Canadian dollar. The sensitivity analysis includes foreign
currency denominated monetary items and adjusts their translation at period end
for the changes described above. For a weakening of the U.S. dollar, the Pound
Sterling and the Euro by the same percentages against the Canadian dollar, there
would be an equal and opposite impact on net loss and comprehensive income. The
sensitivity analysis was based on the fluctuations in foreign currency rate over
the last 3 years. As such, management assess the Corporation's currency risk to
be high.
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<Page>
SAND TECHNOLOGY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in Canadian dollars)
(unaudited)
- -------------------------------------------------------------------------------
11. FINANCIAL AND CAPITAL MANAGEMENT (CONTINUED)
<Table>
<Caption>
US Dollar UK Pound
Impact Sterling Euro Impact
Impact
----------- ---------- -------------
Net Loss and comprehensive income (5,826,319) (38,610) (1,124,153)
</Table>
As at October 31, 2008 and July 31, 2007, the Corporation's current assets
(liabilities) denominated in foreign currencies are as follows:
<Table>
<Caption>
October 31, 2008 July 31, 2008
-------------------------- --------------------------
Current Current Current Current
assets liabilities assets liabilities
--------- ----------- ---------- -----------
$ $ $ $
U.S. Dollars 118,286 205,997 245,573 293,213
Pounds Sterling 320,279 695,962 1,436,050 1,143,269
Euros 246,821 556,828 791,303 825,074
</Table>
D) LIQUIDITY RISK
Liquidity risk is the risk that the Corporation is not able to meet its
financial obligations as they fall due or can do so only at excessive cost.
SAND's growth is financed through a combination of the cash flow from operations
and raising additional capital through debt and equity. One of management's
primary goal is to ensure that is has the necessary funds to fulfill its
obligations through active management of assets and liabilities as well as the
cash flows by using budgets and cash estimates. As at October 31, 2008, there
has been no significant change to the maturities of financial liabilities as
disclosed in Note 8 Commitments. Based on Note 2, as such management assesses
the Corporation's liquidity risk to be high.
FAIR VALUE
Fair value is the amount that willing parties would accept to exchange a
financial instrument based on the current market for instruments with the same
risk, principal and remaining maturity. These estimates are affected by
assumptions made about the amount and timing of estimated future cash flows,
discount rates and terms of the contract. As a result, the fair values are not
necessarily the net amounts that would be realized if these instruments were
settled.
As at October 31, 2008, the carrying values of cash, accounts receivable,
unbilled receivable and accounts payable and accrued liabilities approximate
their fair values given the relatively short periods to maturity.
As at October 31, 2008, the fair value of the due to shareholders 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 October 31, 2008, the fair value of the debt component of the convertible
debentures, estimated by discounting expected cash flow, is not significantly
different from its respective carrying value.
44
<Page>
SAND TECHNOLOGY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in Canadian dollars)
(unaudited)
- -------------------------------------------------------------------------------
11. FINANCIAL AND CAPITAL MANAGEMENT (CONTINUED)
CAPITAL MANAGEMENT
The Corporation's capital management objectives are to ensure the Corporation's
ability to continue as a going concern and to provide an adequate return to
shareholders through the optimization of the debt and equity balance. The
capital structure of the Corporation consists of due to shareholders,
convertible debentures, shareholders' equity comprising of deficit and capital
stock and cash. The Corporation manages its capital structure and makes
adjustments to it in the light of its expected business growth and changes in
economic conditions. In order to maintain or adjust the capital structure, the
Corporation may return capital to the shareholders, issue new shares or issue
new debt.
<Table>
<Caption>
October 31, July 31,
2008 2008
------------ --------------
Due to shareholders 1,397,887 1,267,701
Convertible debentures 289,400 278,343
------------ --------------
Total Debt 1,687,287 1,546,044
Less Cash 560,135 775,443
------------ --------------
Net Debt 1,127,152 770,601
Shareholders' equity
Share capital 38,530,441 38,530,441
Equity component of convertible debentures 446,027 446,027
Contributed surplus (Note 9b) 770,065 752,525
Deficit (41,979,302) (40,989,452)
------------ --------------
(2,232,769) (1,260,459)
Adjusted Capital (1,105,617) (489,858)
</Table>
12. COMPARATIVE FIGURES
Certain figures for the prior period have been reclassified in order to conform
to the presentation adopted in the current period.
45
<Page>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report on Form 6-K to be signed on its behalf
by the undersigned, thereunto duly authorized.
SAND TECHNOLOGY INC.
December 30, 2008 /S/ ARTHUR G. RITCHIE
------------------------------------
Arthur G. Ritchie
Chairman of the Board, President
and Chief Executive Officer
46