EX-99.1 2 exhibit99-1.htm UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS Sand Technology Inc.: Exhibit 99.1 - Filed by newsfilecorp.com

SAND Technology Inc.

NOTICE TO READERS OF THE UNAUDITED CONENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS :

The unaudited condensed interim consolidated financial statements of SAND Technology Inc. as at and for the three-month and nine-month periods ended April 30, 2012 have not been reviewed by the Company’s external auditors.

SAND Technology Inc.
Quarterly Report
As at and for the Three-Month and Nine-Month Periods Ended April 30, 2012


 

 

SAND Technology Inc.

Unaudited Condensed Interim Consolidated
Financial Statements as at and for the Three-
Month and Nine-Month Periods
Ended April 30, 2012 and 2011

 

 


SAND Technology Inc.
Consolidated Balance Sheets
(Expressed in Canadian Dollars)
(Unaudited)

    As at     As at     As at  
    April 30,     July 31,     August 1,  
    2012     2011     2010  
ASSETS                  
Current Assets                  
   Cash $  2,964,770   $  810,745   $  579,270  
   Accounts receivable   612,329     541,959     739,144  
   Research and development tax credits receivable (Note 11)   500,014     663,857     660,000  
   Prepaid expenses   144,410     117,305     74,541  
    4,221,523     2,133,866     2,052,955  
                   
Other receivable (Note 13)   790,320     -     -  
Capital assets, net   262,258     81,361     64,488  
    5,274,101     2,215,227     2,117,443  
                   
LIABILITIES                  
Current Liabilities                  
   Accounts payable and accrued liabilities (Note 5)   746,655     776,623     984,149  
   Deferred revenue   1,333,463     1,179,652     1,135,814  
   Deferred lease inducements   -     -     19,558  
   Due to shareholders (Note 6)   33,666     1,425,945     896,369  
    2,113,784     3,382,220     3,035,890  
                   
Deferred revenue   451,294     696,275     106,124  
Due to shareholders (Note 6)   488,892     488,892     977,784  
Convertible debentures (Note 7)   795,088     696,961     647,321  
Other financial liabilities (Note 7)   303,595     315,213     342,927  
    4,152,653     5,579,561     5,110,046  
                   
SHAREHOLDERS' EQUITY (DEFICIENCY)                  
Share capital (Note 9)   39,710,065     39,706,665     38,976,108  
Contributed surplus   2,197,006     1,863,006     758,302  
Deficit   (40,785,623 )   (44,934,005 )   (42,727,013 )
    1,121,448     (3,364,334 )   (2,992,603 )
    5,274,101     2,215,227     2,117,443  

The accompanying notes are an integral part of the condensed interim consolidated financial statements.

The condensed interim consolidated financial statements for the period (including comparatives) were approved and authorized for issuance by the Board of Directors on July 31, 2012.

On behalf of the Board of Directors,

     
George Wicker, Director   P. Wayne Musselman, Director

3


SAND Technology Inc.
Consolidated Statement of Comprehensive Income (Loss)
(Expressed in Canadian Dollars, except for number of common shares)
(Unaudited)

    Three months     Three months     Nine months     Nine months  
    ended     ended     ended     ended  
    April 30,     April 30,     April 30,     April 30,  
    2012     2011     2012     2011  
                         
Revenue $  889,143   $  780,909   $  2,187,729   $  4,101,153  
Cost of sales and product support   303,687     242,957     820,398     762,727  
Gross profit   585,456     537,952     1,367,331     3,338,426  
                         
Operating expenses                        
 Research and development costs, net (Note 11)   374,571     287,763     1,068,660     902,517  
 Sellling, general and administrative   1,509,504     1,497,228     4,062,268     4,105,486  
    1,884,075     1,784,991     5,130,928     5,008,003  
Operating loss   (1,298,619 )   (1,247,039 )   (3,763,597 )   (1,669,577 )
Net finance expense (note 4)   7,117     151,259     570,250     376,925  
Loss from continuing operations   (1,305,736 )   (1,398,298 )   (4,333,847 )   (2,046,502 )
Gain on sale of discontinued operations (Note 13)   -     -     8,419,308     -  
Earnings from discontinued operations, net of tax (Note 13)   -     32,993     62,921     715,812  
Net income (loss) and comprehensive income (loss) $  (1,305,736 ) $  (1,365,305 ) $  4,148,382   $  (1,330,690 )
                         
Basic income (loss) per share $  (0.07 ) $  (0.09 ) $  0.22   $  (0.08 )
 From continuing operations $  (0.07 ) $  (0.09 ) $  (0.23 ) $  (0.12 )
 From discontinued operations $  -   $  0.00   $  0.45   $  0.04  
                         
Diluted income (loss) per share             $  0.20        
 From continuing operations             $  (0.23 )      
 From discontinued operations             $  0.43        
                         
Basic weighted average number of common shares   19,392,303     16,204,842     19,203,102     16,204,842  
Diluted weighted average number of common shares               19,632,674        

The accompanying notes are an integral part of the condensed interim consolidated financial statements.

4


SAND Technology Inc.
Consolidated Statement of Shareholders’ Equity (Deficiency
(Expressed in Canadian Dollars, except for number of common shares)
(Unaudited)

    Share Capital                       
    Number of                       Shareholders'  
    class "A"           Contributed           equity  
    common shares     Amount     surplus     Deficit     (deficiency)  
                               
Balance as at August 1, 2010   15,889,620   $  38,976,108   $  758,302   $  (42,727,014 ) $  (2,992,604 )
                               
Net income and total comprehensive income   -     -     -     (1,330,690 )   (1,330,690 )
Common shares issued as part of private placement
    (Note 8b))
  2,142,864     775,073     -     -     775,073  
Common shares issued in settlement of debt (Note 9)   411,152     143,903     -     -     143,903  
Warrants exercised (Note 7)   -     6,339     -     -     6,339  
Stock options exercised   10,000     100     -     -     100  
Stock-based compensation   -     -     677,736     -     677,736  
Balance as at April 30, 2011   18,453,636     39,901,523     1,436,038     (44,057,704 )   (2,720,143 )
                               
Balance as at July 31, 2011   19,116,636   $  39,706,665   $  1,863,006   $  (44,934,005 ) $  (3,364,334 )
                               
Net profit and total comprehensive income   -     -     -     4,148,382     4,148,382  
Issuance of common shares in settlement of
    employment obligations
  75,000     -     -     -     -  
Exercise of stock options   340,000     3,400     -     -     3,400  
Stock-based compensation               334,000     -     334,000  
Balance as at April 30, 2012   19,531,636   $  39,710,065   $  2,197,006   $  (40,785,623 ) $  1,121,448  

The accompanying notes are an integral part of the condensed interim consolidated financial statements.

5


SAND Technology Inc.
Consolidated Statement of Cash Flows
(Expressed in Canadian Dollars)
(Unaudited)

    Nine months     Nine months  
    ended     ended  
    April 30,     April 30,  
    2012     2011  
OPERATING ACTIVITIES            
Net income (loss) $  4,148,382   $  (1,330,690 )
Adjustment for non-cash and other items            
   Amortization of capital assets   37,736     33,588  
   Gain on sale of discontinued operations   (8,419,308 )   -  
   Stock-based compensation   334,000     677,735  
   Accretion of debt component of convertible debentures   86,509     95,683  
   Interest expenses on financial liabilities measured at amortized costs   61,812     206,578  
   Amortization of deferred lease inducement   -     (19,558 )
   Changes in working capital items            
     Accounts receivable   (75,609 )   (76,496 )
     Research and development tax credits receivable   163,844     78,643  
     Prepaid expenses   (26,693 )   (74,441 )
     Accounts payable and accrued liabilities   14,805     344,019  
     Deferred revenue   (105,930 )   890,179  
Cash flows from operating activities   (3,780,452 )   825,240  
             
INVESTING ACTIVITIES            
       Purchase of capital assets   (218,004 )   (19,219 )
       Proceeds from sale of discontinued operations   7,546,016     -  
Cash flows from investing activities   7,328,012     (19,219 )
             
FINANCING ACTIVITIES            
       Financing interest paid   (14,997 )   (9,588 )
       Due to shareholders   -     41,728  
       Repayments of due to shareholders   (1,397,894 )   -  
       Advances from shareholder and private investors   -     406,829  
       Proceeds from bridge loan   1,000,000     -  
       Repayment of bridge loan   (1,000,000 )   -  
       Exercise of stock options   3,400     10,672  
Cash flows from financing activities   (1,409,491 )   449,641  
Effect of exchange rate changes on cash   15,956     177  
Net increase in cash   2,154,025     1,255,839  
Cash, beginning of period   810,745     579,270  
Cash, end of period $ 2,964,770   $  1,835,109  

The accompanying notes are an integral part of the condensed interim consolidated financial statements.

6


SAND Technology Inc.
Notes to Consolidated Financial Statements
April 30, 2012 and 2011
(Expressed in Canadian Dollars, unless otherwise stated)
(Unaudited)

1 - NATURE AND GENERAL BUSINESS DESCRIPTION

Sand Technology Inc. (the “Company”) is the ultimate parent company. It is domiciled in Canada and is a federally incorporated company under the Canada Business Corporations Act. The Company maintains its registered office in Westmount, Quebec, Canada. Sand Technology Inc. is a publicly-traded company listed on the Over-the-Counter (“OTC”) Bulletin Board in the United States under the symbol ‘SNDTF’. The Company’s fiscal year end is July 31.

SAND Technology Inc. and its wholly-owned subsidiaries are involved in the design, development, marketing and support of software products and services that reduce large amounts of data into a small 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, easy and efficient inquiries of large databases without the intervention of specialist information technology professionals.

In April 2012, the Company announced that it had reduced its work force and had initiated a strategic review process. Additional information in this regard is provided in Note 17 “Subsequent Events”, describing events after the balance sheet date of these condensed interim consolidated financial statements.

2 - GOING CONCERN

The condensed interim consolidated financial statements have been prepared on a going concern basis. The going concern basis of presentation assumes that the Company will continue in operation for the foreseeable future and be able to realize its assets and discharge its liabilities and commitments in the normal course of business.

With the exception of the gain in the amount $8,419,308 realized from the sale of its SAP Information Lifecycle Management (ILM) Product Line, the Company has incurred operating losses in the past years and has accumulated a deficit of $40,785,623 as at April 30, 2012. The Company has also generated negative cash flows from operations. Historically, the Company financed its operating and capital requirements mainly through issuances of debt and equity. The Company’s continuation as a going concern is dependent upon, amongst other things, attaining a satisfactory revenue level, the support of its customers, a return to profitable operations and the generation of cash from operations, the ability to secure new financing arrangements and new capital. These matters are dependent on a number of items outside of the Company’s control and there is significant uncertainty about the Company’s ability to continue as a going concern.

During the 9 month period ended April 30, 2012, the Company addressed some of the uncertainties described above by the following transactions:

  1.

It successfully sold its SAP ILM Product Line and realized a gain of $8,419,308;

  2.

It successfully negotiated a bridge loan in the amount $1,000,000 which was subsequently reimbursed with the proceeds of the sale of the SAP ILM Product Line;

  3.

It reimbursed a portion of the due to a shareholder in the amount of $1,397,894;

  4.

Subsequent to the end of the quarter, the Company reduced its workforce eliminating 20 positions including executives in Canada, the United Kingdom, the U.S. and Germany in an effort to contain costs. This initiative allows the Company to further preserve capital while maintaining a core team to support the ongoing business;

7


SAND Technology Inc.
Notes to Consolidated Financial Statements
April 30, 2012 and 2011
(Expressed in Canadian Dollars, unless otherwise stated)
(Unaudited)

  5.

The Company’s board of directors and management team initiated a review of the business, including consideration of all available strategic options, with the objective of maximizing value for shareholders.

The Company can give no assurance that it will achieve profitability or be capable of sustaining profitable operations. These condensed interim consolidated financial statements do not include any adjustments relating to the recoverability and classification of the carrying amounts of assets or the amount and classification of liabilities that might result if the Company is unable to continue as a going concern.

3 - SIGNIFICANT ACCOUNTING POLICIES

a)

Basis of Presentation and Statement of Compliance

   

The condensed interim consolidated financial statements present the Company’s consolidated balance sheets as at April 30, 2012, July 31, 2011 and August 1, 2010, as well as its statements of consolidated comprehensive income (loss), changes in shareholders’ equity (deficiency) and cash flows for the three months and nine months ended April 30, 2012 and 2011. These financial statements have been prepared in accordance with International Accounting Standard (“IAS”) 34, Interim Financial Reporting, using the accounting policies the Company expects to adopt in its consolidated financial statements for the year ended July 31, 2012. Those accounting policies are based on the IFRS standards and interpretations of the International Financial Reporting Interpretations Committee (IFRIC) that the Company expects to be applicable as at July 31, 2012. These policies set out below have been consistently applied to all periods presented unless otherwise noted below. They are presented in Canadian dollars, which is the Company’s presentation currency.

   

As these condensed interim consolidated financial statements represent the Company’s initial reporting year of presentation of its results and financial position under International Financial Reporting Standards (“IFRS”), they have been prepared in accordance with IFRS 1, First-time Adoption of International Financial Reporting Standards. Further, the financial statements have been prepared in accordance with the accounting policies the Company expects to use in its annual financial statements for the year ending July 31, 2012. These policies set out below have been consistently applied to all periods presented unless otherwise noted below.

   

Until July 31, 2011, the Company’s consolidated financial statements were prepared in accordance with Canadian Generally Accepted Accounting Principles (“GAAP”) that applied prior to the convergence to IFRS. In preparing these condensed interim consolidated financial statements, management has amended certain recognition and measurement methods to comply with IFRS. The comparative figures for 2011 were restated to reflect these adjustments. The condensed interim consolidated financial statements should be read in conjunction with the Company’s Canadian GAAP annual financial statements for the year ended July 31, 2011. Further, information considered material to the understanding of the Company’s condensed interim consolidated financial statements and which is normally included in the annual consolidated financial statements prepared in accordance with IFRS is provided in Note 14. Note 14 includes only those notes where the information presented has changed significantly from the information presented in the most recent annual financial statements prepared under Canadian GAAP. For notes where the information has not significantly changed, the current condensed interim financial statements only provide an update of that information.

8


SAND Technology Inc.
Notes to Consolidated Financial Statements
April 30, 2012 and 2011
(Expressed in Canadian Dollars, unless otherwise stated)
(Unaudited)

An explanation of how the transition to IFRS has affected the reported financial position, financial performance and cash flows of the Company is provided in Note 15 to these condensed interim consolidated financial statements.

   
b)

Basis of Measurement

   

These condensed interim consolidated financial statements have been prepared on the historical cost basis except for financial assets defined under IFRS as assets measured at fair value through profit and loss (“FVTPL”) which are measured at fair value.

   
c)

Critical Accounting Estimates, Judgements and Assumptions

   

The preparation of these condensed interim consolidated financial statements in conformity with IFRS requires management to make certain critical accounting estimates, judgements and assumptions about the recognition and measurement of assets, liabilities, income and expenses. The carrying amount of assets, liabilities, accruals, provisions, contingent liabilities, other financial obligations, as well as the determination of fair values, reported income and expense in these consolidated financial statements depends on the use of estimates, judgements and assumptions. IFRS also requires management to exercise judgement in the process of applying the Company’s accounting policies. These estimates, judgements and assumptions are based on the circumstances and estimates at the date of the consolidated financial statements and affect the reported amounts of income and expenses during the reporting periods. Given the uncertainty regarding the determination of these factors, actual results may differ from these estimates.

   

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. Significant items impacted by such estimates and judgements are outlined below. The foregoing list is not exhaustive and other items may also be affected by estimates, judgements and assumptions.

   

Leases

In applying the classification of leases in IAS 17, Leases, management considers its leases of buildings and equipment as operating leases. In some cases, the lease transaction is not always conclusive, and management uses judgement in determining whether the lease is a finance lease agreement that transfers substantially all the risks and rewards incidental to ownership.

   

Research and development tax credits

The Company’s management monitors whether the recognition requirements for research and development tax credit receivable continue to be met. The Company has made estimates of the recoverable amounts but research and development tax credits must be examined and approved by the tax authorities and the amount allowed may differ from the amount recorded.

   

Useful lives of depreciable assets

Management reviews the useful lives of depreciable assets at each reporting date based on the expected utility of the assets to the Company. The carrying amounts are analysed based on management’s estimates, judgements and assumptions but actual results may vary due to technical obsolescence.

9


SAND Technology Inc.
Notes to Consolidated Financial Statements
April 30, 2012 and 2011
(Expressed in Canadian Dollars, unless otherwise stated)
(Unaudited)

Share-based payments

The estimation of share-based payment costs requires the selection of an appropriate valuation model and consideration as to the inputs necessary for the valuation model chosen. The Company has made estimates as to the volatility of its own shares, the life of stock options and warrants granted and the time-period of exercise of those stock options and warrants. The model used by the Company is the Black-Scholes valuation model.

   
d)

Basis of Consolidation

   

The consolidated financial statements include the accounts of the parent Company and its wholly-owned subsidiaries, Sand Technology Deutschland GmbH, located in Germany, Sand Technology Limited, located in the United Kingdom, Sand Technology Ireland Limited, located in Ireland, and Sand Technology Corp. and STSI Licensing, LLC, located in the United States and Sand Technology Pty Ltd, located in Australia.

   

All subsidiaries have a reporting date identical to that of the parent Company. Amounts reported in the financial statements of the subsidiaries follow the same accounting policies adopted by the parent Company.

   

All intercompany transactions and accounts have been eliminated on consolidation.

   
e)

Cash and Cash Equivalents

   

Cash includes cash on hand and demand deposits. The Company considers all highly liquid investments, with a maturity of three months or less, to be cash equivalents. There were no cash equivalents as of April 30, 2012, July 31, 2011 and August 1, 2010.

   
f)

Accounts Receivables

   

Impairment of trade receivables is constantly monitored. Evidence of impairment may occur when the financial difficulties of a debtor become known or payment delays occur. Impairments are based on historical values, observed customer solvency, the aging of trade receivables and customer-specific and industry risks. In addition, the Company reviews external credit ratings as well as bank and trade references when available. As at April 30, 2012, July 31, 2011 and August 1, 2010, the provision for doubtful accounts was nil.

   
g)

Capital Assets

   

Capital assets are recorded at cost less accumulated amortization and provisions for write-downs. When the cost of a part of an item of capital assets is significant in relation to the total cost of an item and the items have different useful lives, they are accounted for as separate items (major components) of capital assets.

   

Amortization is calculated using the straight-line method to write-down the cost to its estimated residual value, with a constant charge over the estimated useful lives of the assets as follows:


  Furniture and equipment 5 years
  Computer equipment 3 years

10


SAND Technology Inc.
Notes to Consolidated Financial Statements
April 30, 2012 and 2011
(Expressed in Canadian Dollars, unless otherwise stated)
(Unaudited)

  Research and development equipment 3 years
  Leasehold improvements Lease term of 10 years

Material residual value estimates and estimates of useful life are updated as required, but at least annually, whether or not the asset is revalued.

   
h)

Impairment of Capital Assets

   

Assets are tested for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Assets are assessed at the end of each reporting period to determine if any indication of impairment exists. If any such indication exists, the Company estimates the recoverable amount of the asset. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash flows of other assets. The recoverable amount is the higher of fair value less costs to sell (“FVLCS”) and value in use (“VIU”). Recoverability is measured by comparing the carrying amount of the asset to the higher of its FVLCS and its VIU. VIU is calculated using the estimated discounted future cash flows expected to be generated by the asset. The estimation and discounting of cash flows involves key assumptions that consider all information available on the respective testing date. Management uses its judgment, considering past and actual performance as well as expected developments in the respective markets and in the overall macro- economic environment and economic trends to model and discount future cash flows. The Company estimates FVLCS based upon current prices for similar assets. If the carrying amount of the asset exceeds its estimated recoverable amount, the difference is recognized as an impairment charge. With the exception of goodwill, all assets are subsequently reassessed for indications that an impairment loss previously recognized may no longer exist. An impairment charge is reversed if the cash-generating unit’s recoverable amount exceeds its carrying amount.

   
i)

Leased Assets

   

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments under an operating lease are charged to the consolidated statement of comprehensive income on a straight-line basis over the period of the lease. Related expenses, such as maintenance and insurance, are charged to income as incurred.

   
j)

Accounts Payable and Accrued Liabilities

   

Accounts payables are obligations to pay for goods or services that have been acquired in the normal course of business. Accounts payable and accrued liabilities are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities. Accounts payables and accrued liabilities are recognized initially at fair value plus transaction costs and subsequently measured at amortized cost using the effective interest method.

   
k)

Basic and Diluted Income (Loss) per Common Share

   

Basic net income (loss) per share (“Basic EPS”) is computed by dividing net income (loss) available to common shareholders of the parent company by the weighted average number of common shares outstanding for the period.

11


SAND Technology Inc.
Notes to Consolidated Financial Statements
April 30, 2012 and 2011
(Expressed in Canadian Dollars, unless otherwise stated)
(Unaudited)

Diluted earnings per share is computed by dividing adjusted net income available to common shareholders of the parent company by the weighted average number of common shares outstanding adjusted for the effects of all dilutive common share issuances. Dilutive common share issuances shall be deemed to have been converted into ordinary shares at the beginning of the period.

For the purpose of calculating diluted loss per share, the Company shall assume the exercise of dilutive stock options, warrants, debt conversion and interest expense paid in kind. The assumed proceeds from these instruments shall be regarded as having been received from the issue of common shares at the average market price of common shares during the period. The convertible debenture is antidilutive whenever its interest (net of tax and other changes in income or expense) per common share obtainable on conversion exceeds basic earnings per share. A net loss was reported during the interim period of 2011, and accordingly, in that period, the denominator for the Basic EPS calculation was equal to the weighted average of outstanding shares with no consideration for stock options, warrants, debt conversion and interest paid in kind to acquire shares of the Company's common stock because to do so would have been anti-dilutive.

The following table shows the number of stock options, share awards, share warrants, shares issuable upon conversion of the convertible debentures and interest payable in kind for the periods presented. Only the options were taken into account in the computation of fully diluted earnings per shares for the nine-month period ended at April 30, 2012 as the other elements were not in the money. None of these instruments were included in the computation of diluted earnings per share for the three-month period ended April 30, 2012 and for the periods ended April 30, 2011 because to do so would have been anti-dilutive for the those periods.

      April 30,     July 31,     August 1,  
      2012     2011     2010  
                     
  Stock options   2,346,083     3,473,583     357,000  
  Share awards   -     -     302,500  
  Warrants   2,357,147     1,857,147     1,899,715  
  Convertible debentures, principal   2,228,000     2,228,000     2,228,000  
  Convertible debentures, interest   594,133     460,453     282,213  
      7,525,363     8,019,183     5,069,428  

l)

Income Taxes

   

The Company uses the liability method of accounting for income taxes under which deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. However, deferred tax is not provided on the initial recognition of goodwill or on the initial recognition of an asset or liability unless the related transaction is a business combination or affects tax or accounting profit. Deferred tax assets and liabilities are measured using enacted or substantially enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized as part of the provision for income taxes in the period that includes the enactment date. Deferred tax liabilities are always provided for in full. Deferred tax assets are recognized to the extent that it is probable that they will be able to be utilized against future taxable income. Deferred tax assets and liabilities are offset only when the Company has a right and intention to set off current tax assets and liabilities from the same taxation authority.

12


SAND Technology Inc.
Notes to Consolidated Financial Statements
April 30, 2012 and 2011
(Expressed in Canadian Dollars, unless otherwise stated)
(Unaudited)

m)

Deferred Lease Inducements

   

Deferred lease inducements are being amortized on a straight-line basis over the term of the lease as a reduction of lease expense.

   
n)

Convertible Debentures

   

The component parts of compound financial instruments (convertible debenture) issued by the Company are usually classified separately as financial liabilities and equity in accordance with the substance of the contractual arrangements. Usually, the conversion option that will be settled by the exchange of a fixed amount of cash for a fixed number of the Company’s own equity instruments is classified as an equity instrument. Since the instrument does not meet the fixed for fixed test, the conversion option is classified as a separate other financial liability.

   

At the date of issue, the debt component is recognized at fair value, which is estimated using the prevailing market interest rate for similar non-convertible instruments. Subsequently, the debt component is measured at fair value through profit and loss.

   

The value of the conversion option classified as other financial liability is determined at fair value at the date of issue. This amount is re-measured at every balance sheet date. When and if the conversion option is exercised, the liability component of convertible debentures will be transferred to share capital. If the conversion option remains unexercised at the maturity date of the convertible debenture, the liability component of the convertible debentures will be transferred to contributed surplus.

   

Transaction costs that relate to the issue of the convertible debenture such as legal fees, that are directly attributable to the incurrence of financial liabilities are recorded directly in profit and loss.

   
o)

Shareholders’ Equity (Deficiency)

   

Share capital represents the amount received on the issue of shares, less issuance costs, net of any underlying income tax benefit from these issuance costs

   

Contributed surplus includes amounts related to stock options and warrants until such equity instruments are exercised in which case the amounts are transferred to share capital. Contributed surplus also includes equity component of convertible debentures when the conversion option remains unexercised at the maturity date of the convertible debentures.

   

Deficit includes all current and prior period retained profits or losses.

   

Proceeds from unit placements are allocated between shares and warrants issued according to their relative fair value, using the Black-Scholes option pricing model to determine the fair value of the warrants, and using the quoted price of existing shares at the time of issuance to determine the fair value of the shares.

13


SAND Technology Inc.
Notes to Consolidated Financial Statements
April 30, 2012 and 2011
(Expressed in Canadian Dollars, unless otherwise stated)
(Unaudited)

p)

Foreign Currency Translation

   

The Company’s functional and reporting currency is the Canadian dollar. Transactions denominated in currencies other than the functional currency are converted into Canadian dollars using the exchange rate in effect at the date of the transaction or the average rate for the period in the case of recurring revenue and expense transactions. Monetary assets and liabilities are revalued into the functional currency at each balance sheet date using the exchange rate in effect at the balance sheet date, with any resulting exchange gains or losses being credited or charged to the in profit or loss. Non-monetary assets and liabilities are recorded in the functional currency using the exchange rate in effect at the date of the transaction and are not revalued for subsequent changes in exchange rates.

   
q)

Revenue Recognition

   

The Company generates revenues principally through the sale of software licences and services. Software licence revenues are normally generated from licensing the perpetual use of the Company’s software products. Service revenues are generated from sales of maintenance, implementation, consulting and training services performed for customers that licence the Company’s products.

   

Revenue from the sale of software licence agreements is recognized upon delivery of the software if persuasive evidence of an arrangement exists, collection is probable and the fee is fixed or determinable. Sale of software is recognised when the Company has transferred to the buyer the significant risk and rewards of ownership of the good supplied. Significant risks and rewards are generally considered to be transferred to the buyer when the customer has taken undisputed delivery of the goods.

   

Revenues from maintenance services for licences previously sold and implemented are recognized over the term of the contract.

   

Revenues from sales with extended payment terms are recognized when collectability is reasonably assured.

   

Revenues from consulting and training services not considered as a part of the implementation of software licences are recognized as the services are provided.

   

Amounts received in advance of the delivery of products or of the performance of services are classified as deferred revenue. Revenues recognized in advance of invoicing to the customer are recorded as unbilled receivables where the collection of the receivable is probable.

   
r)

Share Issuance Costs

   

Costs directly identifiable with the raising of share capital financing are charged against share capital. Share issuance costs incurred in advance of share subscriptions are recorded as non-current deferred assets. Share issuance costs related to uncompleted share subscriptions are charged to operations.

   
s)

Financing and Transaction Costs

   

Finance costs encompass interest expense on financial liabilities and accretion expense on convertible debentures. Finance costs that are directly attributable to the acquisition of a qualifying asset that necessarily take a substantial period of time to get ready for their intended use are capitalized as part of the cost of that purchase, until such time as the assets are substantially ready for their intended use.

14


SAND Technology Inc.
Notes to Consolidated Financial Statements
April 30, 2012 and 2011
(Expressed in Canadian Dollars, unless otherwise stated)
(Unaudited)

Transaction costs, such as legal fees, that are directly attributable to the acquisition of financial assets or incurrence of financial liabilities are recorded directly in profit and loss.

   
t)

Research and Development Costs

   

Research costs are charged to operations in the period in which they are incurred. Development costs are expensed as incurred unless a project meets the criteria under IFRS for deferral and amortization. The Company has not deferred any such development costs to date. Related tax credits are recorded in accordance with IAS 20 as a reduction of research and development costs in the year that they are earned. These tax credits are periodically examined by the tax authorities and, as a result of such examinations, the amounts ultimately granted may differ from the amounts recorded.

   
u)

Share-Based Payments

   

The Company operates equity-settled share-based payments plans for its eligible executive officers, directors, full-time employees and consultants. None of the company’s plans feature any options for a cash settlement.

   

All goods and services received in exchange for the grant of any share-based payments are measured at their fair values, unless that fair value cannot be estimated reliably. If the entity cannot estimate reliably the fair value of the goods or services received, the entity shall measure their value indirectly by reference to the fair value of the equity instruments granted.

   

All equity-settled share-based payments are ultimately recognized as an expense in the profit or loss with a corresponding credit to Contributed surplus, in equity.

   

If vesting periods or other vesting conditions apply, the expense is allocated over the vesting year, based on the best available estimate of the number of share options expected to vest. Non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable. Estimates are subsequently revised if there is any indication that the number of share options expected to vest differs from previous estimates. Any cumulative adjustment prior to vesting is recognized in the current period. No adjustment is made to any expense recognized in prior periods if share options ultimately exercised are different to that estimated on vesting.

   

The Company accounts for share-based compensation in accordance with IFRS 2, “Share-based Payment”, which requires companies to recognize the cost of such awards of equity instruments made to employees, officers and directors, including stock options and share awards related to employee stock purchase plans, on the date of grant using an option valuation model. The value of the award that is ultimately expected to vest is recognized as an expense, using graded vesting, over the requisite service periods, with a corresponding increase in equity. The Company uses the Black-Scholes option valuation model to determine the fair value of the stock-based compensation that it grants to employees and non- employees. The Black-Scholes option valuation model was developed for use in estimating the fair value of short-term traded options that have no vesting restrictions and are fully transferable. The Company is required to make certain assumptions in connection with this determination, the most important of which involves the calculation of volatility with respect to the price of its common stock, dividend yield and expected return. The computation of volatility is intended to produce a volatility value that is representative of the Company’s expectations about the future volatility of the price of its common stock over an expected term. The Company used its share price history to determine volatility and cannot predict how the price of its common shares of common stock will react on the open market in the future. As a result, the volatility value that the Company calculated may differ from the future volatility of the price of its shares of common stock.

15


SAND Technology Inc.
Notes to Consolidated Financial Statements
April 30, 2012 and 2011
(Expressed in Canadian Dollars, unless otherwise stated)
(Unaudited)

For amounts that have been recognized related to options not yet vested that are subsequently forfeited, the amounts recognized as expenses and equity are reversed.

   

Upon the exercise of stock options, any consideration received and the amounts previously recorded under stock-based compensation, within contributed surplus, are credited to share capital. Upon the issuance of shares resulting from share awards, amounts previously recorded under stock-based compensation, within contributed surplus, are credited to share capital.

   
v)

Guarantees

   

In the normal course of its operations, the Company enters into agreements that contain certain features which meet the definition of a guarantee.

   

Certain agreements with customers include intellectual-property indemnification obligations that are customary in the industry. These obligations would generally require the Company to compensate a third party for certain damages and losses incurred as a result of third-party intellectual-property claims arising from these agreements.

   

The nature of these obligations prevents the Company from making a reasonable estimate of the maximum potential amount it could be required to pay. Historically, the Company has not made any payments under such obligations.

   
w)

Financial Assets and Liabilities

   

Recognition, initial measurement and de-recognition

   

Financial assets and financial liabilities are recognised when the Company becomes a party to the contractual provisions of the financial instrument and are measured initially at fair value adjusted by transactions costs, except for those carried at fair value through profit or loss which are measured initially at fair value. Subsequent measurement of financial assets and financial liabilities are described below. Financial assets are derecognised when the contractual rights to the cash flows from the financial asset expire, or when the financial asset and all substantial risks and rewards are transferred. A financial liability is derecognised when it is extinguished, discharged, cancelled or expires.

   

Classification and subsequent measurement of financial assets

   

For the purpose of subsequent measurement, financial assets other than those designated and effective as hedging instruments are classified into the following categories upon initial recognition:
• loans and receivables
• financial assets at fair value through profit or loss (FVTPL)

All financial assets except for those at FVTPL are subject to review for impairment at least at each reporting date to identify whether there is any objective evidence that a financial asset or a group of financial assets is impaired. Different criteria to determine impairment are applied for each category of financial assets, which are described below. All income and expenses relating to financial assets that are recognised in profit or loss are presented within finance costs, finance income or other financial items, except for the impairment of trade receivables which is presented within other expenses.

16


SAND Technology Inc.
Notes to Consolidated Financial Statements
April 30, 2012 and 2011
(Expressed in Canadian Dollars, unless otherwise stated)
(Unaudited)

Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial recognition, these are measured at amortised cost using the effective interest method, less provision for impairment. Discounting is omitted where the effect of discounting is immaterial. The Company’s cash, trade and most other receivables fall into this category of financial instruments.

Individually significant receivables are considered for impairment when they are past due or when other objective evidence is received that a specific counterparty will default.

Financial assets at FVTPL
Financial assets at FVTPL include financial assets that are either classified as held for trading or that meet certain conditions and are designated at FVTPL upon initial recognition. All derivative financial instruments fall into this category, except for those designated and effective as hedging instruments, for which the hedge accounting requirements apply. Assets in this category are measured at fair value with gains or losses recognised in profit or loss. The fair values of financial assets in this category are determined by reference to active market transactions or using a valuation technique where no active market exists.

Classification and subsequent measurement of financial liabilities
The Company’s financial liabilities include accounts payable and accrued liabilities, except for sales tax payable, due to shareholders and convertible debentures. Financial liabilities are measured subsequently at amortised cost using the effective interest method. Non derivative financial assets and liabilities are measured as follows:

  (i)

Non-derivative financial assets


Financial Assets Initial Measurement Subsequent Measurement
Cash and cash equivalents Fair value Amortized cost
Accounts receivable Fair value Amortized cost

  (ii) Non-derivative financial liabilities

Financial Liabilities Initial Measurement Subsequent Measurement
Accounts payable and accrued liabilities Fair value Amortized cost
Due to shareholders Fair value Amortized cost
Convertible debentures Fair value Fair value
Other financial liabilities Fair value Fair value

x)

Fair Value Measurements

   

The Company determines fair value using a fair value hierarchy that distinguishes between market participant assumptions developed based on market data (observable inputs) obtained from sources independent of the reporting entity, and a reporting entity’s own assumptions (unobservable inputs) about market participant assumptions developed based on the best information available in the circumstances.

17


SAND Technology Inc.
Notes to Consolidated Financial Statements
April 30, 2012 and 2011
(Expressed in Canadian Dollars, unless otherwise stated)
(Unaudited)

Fair value is the price that would be received to sell an asset or paid to transfer a liability in the Company’s principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date, essentially the exit price.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. However, the determination of what constitutes “observable” requires significant judgment by the Company.

The levels of fair value hierarchy are as follows:

  Level one – Unadjusted quoted market prices in active markets for identical assets or liabilities;
  Level two – Inputs other than level one inputs that are either directly or indirectly observable; and
 

Level three – Unobservable inputs developed using estimates and assumptions, which are developed by the reporting entity and reflect those assumptions that a market participant would use.

Level 1 financial instruments are valued based on quoted market prices in active markets. Level 2 financial instruments are valued based on quoted prices in markets that are not active, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency.

y)

Standards, amendments and interpretations to existing standards that are not yet effective and have not been adopted early by the Company

At the date of authorization of these condensed interim consolidated financial statements, certain new standards, amendments and interpretations to existing standards have been published by the IASB but are not yet effective, and have not been adopted early by the Company.

Management anticipates that all of the relevant pronouncements will be adopted in the Company’s accounting policies for the first period beginning after the effective date of the pronouncement. Information on new standards, amendments and interpretations that are expected to be relevant to the Company’s financial statements is provided below. Certain other new standards and interpretations have been issued but are not expected to have a material impact on the Company’s financial statements.

Financial Instruments
IFRS 9 Financial Instruments (IFRS 9)
The IASB aims to replace IAS 39 Financial Instruments: Recognition and Measurement in its entirety. IFRS 9 is being issued in phases. To date, the chapters dealing with recognition, classification, measurement and de-recognition of financial assets and liabilities have been issued. These chapters are effective for annual periods beginning January 1, 2013. Further chapters dealing with impairment methodology and hedge accounting are still being developed. The Company’s management have yet to assess the impact of this new standard on the Group’s consolidated financial statements. However, they do not expect to implement IFRS 9 until all of its chapters have been published and they can comprehensively assess the impact of all changes.

18


SAND Technology Inc.
Notes to Consolidated Financial Statements
April 30, 2012 and 2011
(Expressed in Canadian Dollars, unless otherwise stated)
(Unaudited)

Consolidation Standards
A package of consolidation standards are effective for annual periods beginning or after 1 January 2013. Information on these new standards is presented below. The Company’s management have yet to assess the impact of these new and revised standards on the Company’s consolidated financial statements.

IFRS 10 Consolidated Financial Statements (IFRS 10)
IFRS 10 supersedes IAS 27 Consolidated and Separate Financial Statements (IAS 27) and SIC 12 Consolidation – Special Purpose Entities. It revised the definition of control together with accompanying guidance to identify an interest in a subsidiary. However, the requirements and mechanics of consolidation and the accounting for any non-controlling interests and changes in control remain the same.

IFRS 12 Disclosure of Interests in Other Entities (IFRS 12)
IFRS 12 integrates and makes consistent the disclosure requirements for various types of investments, including unconsolidated structured entities. It introduces new disclosure requirements about the risks to which an entity is exposed from its involvement with structured entities.

IFRS 13 Fair Value Measurement (IFRS 13)
IFRS 13 does not affect which items are required to be fair-valued, but clarifies the definition of fair value and provides related guidance and enhanced disclosures about fair value measurements. It is applicable for annual periods beginning on or after January 1, 2013. The Company’s management have yet to assess the impact of this new standard.

19


SAND Technology Inc.
Notes to Consolidated Financial Statements
April 30, 2012 and 2011
(Expressed in Canadian Dollars, unless otherwise stated)
(Unaudited)

4 – NET FINANCE EXPENSE

      Three months     Three months     Nine months     Nine months  
      ended     ended     ended     ended  
      April 30,     April 30,     April 30,     April 30,  
      2012     2011     2012     2011  
                           
  Finance expense                        
     Accreted interest on convertible debentures $  28,836   $  31,895   $  86,509   $  95,683  
     Interest expense - due to shareholders   -     64,436     46,815     196,990  
     Other Interest   5,734     2,976     14,997     9,587  
     Net foreign exchange loss (gain)   (27,453 )   51,952     421,929     74,665  
  Net finance expense $  7,117   $  151,259   $  570,250   $  376,925  

5 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

      April 30,     July 31,     August 1,  
      2012     2011     2010  
                     
  Trade accounts payable and accrued liabilities $  530,593   $  690,282   $  834,371  
  Salaries and commission payable   111,822     74,952     57,186  
  Sales tax payable   104,240     11,389     66,884  
  Advance from a private investor   -     -     25,708  
    $  746,655   $  776,623   $  984,149  

The advance from a private investor was settled as part of the private placement completed on March 17, 2011 (Note 8b)).

20


SAND Technology Inc.
Notes to Consolidated Financial Statements
April 30, 2012 and 2011
(Expressed in Canadian Dollars, unless otherwise stated)
(Unaudited)

6 - DUE TO SHAREHOLDERS

      April 30,     July 31,     August 1,  
      2012     2011     2010  
                     
  Loan from the Chief Executive Officer, repayable on demand, bearing interest at 10%, interest payable monthly (a) $  -   $  22,014   $  300,893  
  Loan from a significant shareholder, bearing interest at 15%, interest payable semi-annually, principle of $488,892 payable annually starting January 1, 2011 (b)   522,558     1,685,411     1,407,874  
  Compensation payable to a significant shareholder (d)   -     165,386     165,386  
  Due to a significant shareholder under a consulting agreement (c)   -     42,026     -  
      522,558     1,914,837     1,874,153  
  Less: Current portion   33,666     1,425,945     896,369  
    $  488,892   $  488,892   $  977,784  

(a)

During fiscal year 2011 and fiscal year 2010, the Company obtained various loans from the former Chief Executive Officer, who is also a shareholder, in the form of Promissory Notes for a total amount of $341,621 (US$325,000) of which $41,728 (US$40,000) was provided in 2011and $299,893 (US$285,000)) was provided in 2010. Under the terms of the Promissory Notes, the amounts are repayable within 30 days of receipt of a written demand from the noteholder. The Promissory Notes bear interest at 10% payable on the last business day of each calendar month. As at July 31, 2010, an amount of $300,893 (US$287,847), including accrued interest of $2,927 (US$2,847), was outstanding on the Promissory Notes. During the year ended July 31, 2011, a private placement was completed (Note 8) which converted the principal value amounting to $341,621 (US$325,000) of the Promissory Notes. As at April 30, 2012, an amount of accrued interest of nil was outstanding (July 31, 2011 - $22,014 (US$23,040); August 1, 2010 - nil).

   
(b)

During fiscal year 2009, the Company formalized the conditions pertaining to a loan obtained from a significant shareholder. The loan originated from amounts owed by the Company to the shareholder by virtue of his previous employment contracts as President and Chief Executive Officer. The significant shareholder ceased to be President and Chief Executive Officer on October 31, 2009. The total amount owing under the loan agreement as at October 31, 2009 was $1,466,677. Under the terms of the loan agreement, the loan is repayable in three (3) principal annual instalments of $488,892 over 3 years on January 1, 2011, 2012 and 2013. The loan bears interest at 15% that is payable semi-annually on January 1 and June 30 of each year. The amount may be prepaid at any time by the Company without penalty. In the event of default to pay an amount when due, the significant shareholder shall have the right to convert all outstanding amounts owed to him hereunder into common shares of the Company based on the average closing price of the shares on the OTC Bulletin Board for the month immediately preceding the month in which such right is exercised. In addition and also upon default, the significant shareholder shall have the right to require the Company to purchase all common shares in the capital stock of the Company owned directly or indirectly by the significant shareholder at a purchase price per share equal to the greater of:

21


SAND Technology Inc.
Notes to Consolidated Financial Statements
April 30, 2012 and 2011
(Expressed in Canadian Dollars, unless otherwise stated)
(Unaudited)

  i)

the average closing price of the shares on the OTC Bulletin Board over the previous 30-day period plus 15%, or

     
  ii)

the book value of the shares as determined by the auditors of the Company.


As at July 31, 2011, the Company was in default as it did not make its January 1, 2011 installment. However, a Standstill Agreement was signed between the Company and the significant shareholder, effective February 1, 2011, and the default was cured during the three months ended October 31, 2011 as the Company paid the significant shareholder a pro-rata amount of $1,329,781 from the initial proceeds received on the transaction described in Note 13.

   

As at April 30, 2012, an amount of $522,558 (July 31, 2011 - $1,685,411), including accrued interest of $46,815 (July 31, 2011 - $481,751), was outstanding under the loan agreement.

   

In conjunction with the original loan agreement, the Company also issued 103,061 warrants to the significant shareholder, with each warrant entitling the holder to purchase one class "A" common share of the Company at a price of US$0.44 per share and each warrant being valid for the term of the agreement. The residual valuation method was used to allocate the proceeds between the debt and equity components of the shareholder loan. It was determined that the value of the debt component would comprise the entire face value of the loan since the loan had no maturity date. Hence, the value of the equity component was determined to be nil. These warrants expired during the fiscal year 2010.

   

Subsequent to the end of the quarter, the Company paid out $453,092 as a final settlement of an amount due a shareholder. The Company received a full release of the associated hypothec (note 17).

   
(c)

The Company, effective November 1, 2009, also signed a consulting agreement and a marketing and sales assistance agreement with the former President and Chief Executive Officer. The consulting agreement provides for a fixed payment on the first of each month in the amount of $21,013 and expired on October 31, 2011. Payments made under the consulting agreement during the three months ended October 31, 2011 amounted to $105,065 (three months ended October 31, 2010 - $93,039) with a balance owing at April 30, 2012 of nil. Payments made under the consulting agreement during the year ended July 31, 2011 amounted to $210,130 with a balance owing at July 31, 2011 of $42,026 (August 1, 2010 – nil).

   

Under the marketing and sales assistance agreement, the Company and the former President and Chief Executive Officer may identify prospective customers for the Company`s products and agree to designate such prospects as a registered opportunity. The marketing and sales assistance agreement provides for the payment of funds based on a percentage of sales proceeds received from a registered opportunity and which were received within a stipulated period following the date of registration of the opportunity. The marketing and sales assistance agreement expired on October 31, 2010. There were no payments made under the marketing and sales assistance agreement during fiscal year 2011 or fiscal year 2010.

   
(d)

The former President and Chief Executive Officer was entitled to, under his previous employment contracts, bonuses based on the achievement of gross revenues resulting from the licensing, sale or other disposition of the Company’s Nucleus software products. The bonuses terminated effective October 31, 2009 when he ceased to be the President and Chief Executive Officer. As at April 30, 2012, July 31, 2011 and August 1, 2010, bonuses payable amounted to nil, $165,386 and $165,386, respectively.

22


SAND Technology Inc.
Notes to Consolidated Financial Statements
April 30, 2012 and 2011
(Expressed in Canadian Dollars, unless otherwise stated)
(Unaudited)

During fiscal year 2008, an inter-creditor priority agreement was signed between the former President and Chief Executive Officer and significant shareholder (loans disclosed under b), c) and d) above) and the holders of the secured convertible debentures (collectively the “parties”), at the time when the Company issued the secured convertible debentures described in Note 7. The parties agreed that the sums owing under the secured convertible debentures will be paid by the Company to the convertible debenture holders in priority to the sums owed by the Company to the principal shareholder. Specifically, for every $2 paid to the convertible debenture holders, the Company shall remit $1 to the significant shareholder, representing the repayment of principal only. The inter-creditor priority agreement was amended on October 31, 2009 pursuant to which the parties agreed that the sums owing under the convertible debentures will be paid by the Company to the holders of the convertible debentures pari passu to the sums owing by the Company to the significant shareholder such that for every $1 paid to the convertible debenture holders, the Company shall remit $1 to the significant shareholder.

During the nine-month period ended April 30, 2012, an amount of $60,294 (US$60,000) was paid to Mr. O’Donnell as per his compensation agreement.

7 - CONVERTIBLE DEBENTURES

On April 18, 2008, the Company issued secured convertible debentures ("Convertible Debentures") on a private placement basis and received gross proceeds of $1,009,819 (US$1,002,600) representing a total of 1,114 units. Each unit consists of one 8% Convertible Debenture due December 31, 2017, having a nominal value of US$900, redeemable at the option of the Company if the bid price of the underlying common share has been above US$1.50 for 60 consecutive trading days, and convertible at the option of the holder into class "A" common shares at US$0.45 per share, and 1,000 share purchase warrants of the Company. Each warrant entitles the holder to purchase one additional common share (“Warrant Share”) of the Company at a price of US$0.70 per warrant share at any time until the earlier of the close of business day which is thirty six (36) months from April 18, 2008 or the date on which the bid price of the stock has been above US$1.50 for sixty (60) consecutive trading days. Interest is calculated at the rate of 8% per annum, payable in common shares at a rate of US$0.45 per share. The interest is due on each conversion date (date when the principal amount is being converted) subsequent to January 1, 2009 or on the maturity date. The financing is secured by a first rank hypothec on all of the Company’s property and assets, movable and immovable, corporeal and incorporeal, present and future, for the principal accrued interest amounts. The proceeds from the private placement were used for marketing and advertising and for expansion of the business.

Certain warrant holders exercised their Warrant Shares associated with the secured convertible debentures prior to their expiry date of April 18, 2011. As a result of ratchet provisions contained in the warrant security, the exercise price was reduced from US$0.70 per Warrant Share to CDN.$0.01 per Warrant Share. On May 5, 2011, the Company issued 613,000 common shares pursuant to the exercise of the Warrants for proceeds of $6,879 (US$6,130) while 501,000 warrants expired.

For accounting purposes, the debenture contains both a debt component and an other financial liability component being the share warrants, the conversion option and the interest payable in shares:

23


SAND Technology Inc.
Notes to Consolidated Financial Statements
April 30, 2012 and 2011
(Expressed in Canadian Dollars, unless otherwise stated)
(Unaudited)

 

The debt component of the Convertible Debentures was originally calculated at fair value. The effective interest rate determined at the time was 15%. The debt issuance costs were expensed directly against net income.

 

 

The amount calculated for the carrying amount of the other financial liabilities, at the issue date, was $545,312 determined by deducting the carrying amount of the debt component from the gross proceeds received. The value of the other financial liabilities component includes the fair value of the share warrants, the conversion option and the interest payable in shares.

8 – PRIVATE PLACEMENTS

a)

On November 6, 2009, the Company completed a Non-Brokered Private Placement Subscription Agreement (“Private Placement”) in the amount of $587,835 (US$550,000) for Units in the Company at a price of US$0.70 per Unit, resulting in the issuance of 785,715 Units. Each Unit consists of two class ”A” common shares and one share purchase warrant (“Warrant”) of the Company. Each Warrant entitles the holder to purchase one additional common share (“Warrant Share”) of the Company at a price of US$0.50 per Warrant Share at any time until the earlier of the close of business day which is either thirty six (36) months from the closing date, November 6, 2009, or the date on which the bid price of the stock has been above US$1.50 for sixty (60) consecutive trading days. The Company received $429,495 (US$400,000) from private investors and $158,340 (US$150,000) from the Chief Executive Officer. The Private Placement resulted in the issuance of 1,571,431 common shares and 785,715 warrants of the Company.

   

The Company allocated the proceeds from the issuance of the Units between the common shares and the warrants according to their relative fair value, using the Black-Scholes option pricing model to determine the fair value of the warrants. The fair value allocated to the common shares was estimated at $445,667 and was recorded in share capital. The fair value allocated to the warrants was estimated at $142,168 and was recorded in contributed surplus. The fair value of the warrants at the time of issue of the Private Placement was estimated using the Black-Scholes option pricing model with the following assumptions:


  Share price $0.50
  Dividend yield -
  Expected volatility 103%
  Risk free interest rate 1.81%
  Expected life 3 years

The underlying expected volatility was determined by reference to history data of the Company's share over a period of 24 months. No special features inherent to the warrants granted were incorporated into measurement of fair value.

   
b)

On March 17, 2011, the Company completed Non-Brokered Private Placement Subscription Agreement (“Private Placement”) in the amount of $775,073 (US$750,000) for Units in the Company at a price of US$0.70 per Unit, resulting in the issuance of 1,071,432 Units. Each Unit consists of two class ”A” common shares and one share purchase warrant (“Warrant”) of the Company. Each Warrant entitles the holder to purchase one additional common share (“Warrant Share”) of the Company at a price of US$0.50 per Warrant Share at any time until the earlier of the close of business day which is either thirty six (36) months from the closing date, March 17, 2011, or the date on which the bid price of the stock has been above US$1.50 for sixty (60) consecutive trading days. The Company received $448,558 (US$425,000) from private investors and $326,515 (US$325,000) from the Chief Executive Officer. The Private Placement resulted in the issuance of 2,142,864 common shares and 1,071,432 warrants of the Company.

24


SAND Technology Inc.
Notes to Consolidated Financial Statements
April 30, 2012 and 2011
(Expressed in Canadian Dollars, unless otherwise stated)
(Unaudited)

The Company allocated the proceeds from the issuance of the Units between the common shares and the warrants according to their relative fair value, using the Black-Scholes option pricing model to determine the fair value of the warrants. The fair value allocated to the common shares was estimated at $579,175 and was recorded in share capital. The fair value allocated to the warrants was estimated at $195,898 and was recorded in contributed surplus. The fair value of the warrants at the time of issue of the Private Placement was estimated using the Black-Scholes option pricing model with the following assumptions:

  Share price $0.34
  Dividend yield -
  Expected volatility 131%
  Risk free interest rate 1.28%
  Expected life 3 years

The underlying expected volatility was determined by reference to history data of the Company's share over a period of 24 months. No special features inherent to the warrants granted were incorporated into measurement of fair value.

9 - SHARE CAPITAL

Authorized
         An unlimited number of class "A" common shares, without par value 
         An unlimited number of class "B" common shares, without par value

Issued and outstanding 
         19,531,636 class "A" common shares
         (July 31, 2011 - 19,116,636 common shares) 
         (August 1, 2010 – 15,889,620 common shares)

2012 transactions

On January 18, 2012 and January 27, 2012, the Company issued 50,000 and 25,000 common shares, respectively, to current and former employees in settlement of employment obligations for nil consideration.

During the nine months ended April 30, 2012, the Company issued 340,000 common shares upon the exercise of 340,000 stock options at an exercise price of $0.01 for proceeds of $3,400.

25


SAND Technology Inc.
Notes to Consolidated Financial Statements
April 30, 2012 and 2011
(Expressed in Canadian Dollars, unless otherwise stated)
(Unaudited)

2011 transactions

In February 2011, the Company issued 411,152 common shares to current and former Directors of the Company in settlement of debt in the amount of $143,903 owing to these individuals for past service as Directors.

On March 24, 2011, the Company issued 2,142,864 common shares to private investors including the Chief Executive Officer as part of a Non-Brokered Private Placement Subscription Agreement for proceeds of $775,073 (US$750,000) as described in Note 8.

During the nine months ended April 30, 2011, the Company issued 10,000 common shares upon the exercise of 10,000 stock options at an exercise price of $0.01 for proceeds of $100.

10 – STOCK OPTIONS, SHARE AWARDS AND WARRANTS

a)

Stock Option Plans

     

The Company has three stock option plans:

     
1.

Under the 1996 Stock Incentive Plan, the Company may grant options to full-time employees up to a maximum of 1,100,000 class "A" common shares;

     
2.

Under the 1996 Stock Option Plan, the Company may grant options to its full-time employees and non-employee directors up to a maximum of 900,000 class "A" common shares.

     
3.

Under the 2010 Stock Incentive Plan, the Company may grant options or share awards to its full-time employees, executive officers, directors and consultants up to a maximum of 4,000,000 class “A” common shares.

Under the 1996 Stock Incentive Plan, the exercise price of each option for common shares may not be less than the closing price of the Common Shares on the trading day prior to the day the option is granted or, if there was no transaction on that day, the average of the bid and ask prices on that day, less any discount as determined by the Board of Directors within the extent permitted by the applicable regulatory provisions

Under the 1996 Stock Option Plan, the exercise price of each option for common shares may not be less than the price of the common shares as determined by the Board of Directors within the extent permitted by the applicable regulatory provisions.

Under the 2010 Stock Incentive Plan, the exercise price of each option for common shares shall be determined by the Board of Directors on the date the option is granted, provided that such price may not be less than US$0.01 per common share.

Stock options vest as stipulated in the stock option agreement and, under the 2010 Stock Incentive Plan, have a maximum term of 10 years. Stock options issued under the 1996 Stock Incentive Plan and the 1996 Stock Option Plan have a maximum term of 20 years.

26


SAND Technology Inc.
Notes to Consolidated Financial Statements
April 30, 2012 and 2011
(Expressed in Canadian Dollars, unless otherwise stated)
(Unaudited)

The following table summarizes information about the Company’s stock options as of April 30, 2012:

      April 30, 2012     July 31, 2011     August 1, 2010  
            Weighted           Weighted           Weighted  
            average           average           average  
      Number of     exercise     Number of     exercise     Number of     exercise  
      options     price     options     price     options     price  
            (US dollars)           (US dollars)           (US dollars)  
                                       
  Options outstanding, beginning of period   3,473,583     0.11     357,000     1.00     551,000     0.98  
  Granted   482,500     0.01     3,295,756     0.01     -     -  
  Exercised   (340,000 )   (0.01 )   (60,000 )   (0.01 )   -     -  
  Expired   (1,100,000 )   (0.01 )   (27,310 )   (0.01 )   (21,000 )   (4.97 )
  Forfeited   (170,000 )   (0.01 )   (91,863 )   (0.01 )   (173,000 )   (1.00 )
  Options outstanding , end of period   2,346,083     0.16     3,473,583     0.11     357,000     1.00  
                                       
  Options exercisable, end of period   1,901,385     0.20     2,461,160     0.16     214,200     1.00  

During the nine-month period ended April 30, 2012, the weighted fair value of the stock options in the amount of $204,675 at the time of grant was estimated using the Black-Scholes option pricing model with the following assumptions:

  Weighted average share price at grant date $0.43
  Exercise price at grant date $0.01
  Dividend yield -
  Expected volatility 390%
  Risk free interest rate 1.35%
  Expected life 8 years

The underlying expected volatility was determined by reference to historical data of the Company's share price over a period of 24 months.

During the year ended July 31, 2011, the weighted fair value of the stock options in the amount of $1,283,897 at the time of grant was estimated using the Black-Scholes option pricing model with the following assumptions:

  Weighted average share price at grant date $0.39
  Exercise price at grant date $0.01
  Dividend yield -
  Expected volatility 204%
  Risk free interest rate 2.70%
  Expected life 8 years

The underlying expected volatility was determined by reference to historical data of the Company's share price over a period of 24 months.

The weighted average share price at the date of exercise for the year ended July 31, 2011 was $0.52.

27


SAND Technology Inc.
Notes to Consolidated Financial Statements
April 30, 2012 and 2011
(Expressed in Canadian Dollars, unless otherwise stated)
(Unaudited)

The following table summarizes significant ranges of exercise prices of outstanding and exercisable options held by employees, officers and directors as of April 30, 2012:

      April 30, 2012     April 30, 2012  
      Options Outstanding     Options Exercisable  
            Weighted     Weighted           Weighted     Weighted  
            average     average           average     average  
      Number of     remaining     exercise     Number of     remaining     exercise  
      options     life (years)     price     options     life (years)     price  
                  (US dollars)                 (US dollars)  
                                       
  U.S.$1.00   357,000     4.17     1.00     357,000     4.17     1.00  
  CDN.$0.01   1,989,083     6.70     0.01     1,544,385     6.70     0.01  
      2,346,083     6.30     0.16     1,901,385     5.60     0.16  

During the year ended July 31, 2011, 3,295,756 stock options were granted at an exercise price of US0.01, in accordance with the 2010 Stock Incentive Plan, which was below the market price of the Company’s class “A” common shares at the time the stock options were granted. Also, 60,000 were exercised, 27,310 options expired and 170,000 were forfeited.

During the nine months ended April 30, 2012, 482,500 stock options were granted at an exercise price of US0.01, in accordance with the 2010 Stock Incentive Plan, which was below the market price of the Company’s class “A” common shares at the time the stock options were granted, 340,000 were exercised, 170,000 were forfeited and 1,100,000 options had expired.

Stock-based compensation expense included in selling, general and administrative expenses for the three- month and nine-month periods ended April 30, 2012 and 2011 was $112,000 and $334,000, respectively, and $333,872 and $677,735, respectively.

28


SAND Technology Inc.
Notes to Consolidated Financial Statements
April 30, 2012 and 2011
(Expressed in Canadian Dollars, unless otherwise stated)
(Unaudited)

b)

Warrants

   

The following table summarizes information about the Company’s share warrants:


      April 30, 2012     July 31, 2011     August 1, 2010  
            Weighted     Weighted           Weighted     Weighted           Weighted     Weighted  
            average     average           average     average           average     average  
      Number of     remaining     exercise     Number of     remaining     exercise     Number of     remaining     exercise  
      warrants     life (years)       price     warrants     life (years)     price     warrants     life (years)       price  
                  (US dollars)                 (US dollars)                 (US dollars)  
                                                         
  Balance, beginning of year   1,857,147     1.88     0.50     1,899,715     1.40     0.61     1,967,061     1.30     0.65  
  Granted   500,000     2.35     0.50     1,071,432     2.63     0.50     785,715     3.00     0.50  
  Exercised   -     -     -     (613,000 )   -     (0.01 )   -     -     -  
  Expired   -     -     -     (501,000 )   -     (0.70 )   (853,061 )   -     (0.60 )
                                                         
  Balance, end of year   2,357,147     1.76     0.50     1,857,147     2.04     0.50     1,899,715     1.40     0.61  

c)

Share Awards

   

Under a Share Award Plan, the Company was eligible to grant class "A" common shares to its full-time employees up to a maximum of 1,000,000 class "A" common shares, at a value not to exceed the fair market value of the class "A" common shares at the time of grant and conditional upon a period of continued employment service with the Company by the employees.

   

The Share Award Plan is intended to promote the interests of the Company by (i) aiding the retention of employees and facilitating the recruitment of personnel by providing incentive compensation opportunities; and (ii) matching employees’ financial interests with those of the Company’s shareholders. The administrator of the Share Award Plan has the authority to determine the terms and conditions of each award granted. The Company granted 407,500 share awards on September 30, 2007 upon the one condition that the recipient remain employed with the Company for a period of 3 years. As at July 31, 2010, as a result of terminations and resignations, there remained 302,500 shares that may be issued, subject to continued employment by the employees until September 30, 2010, under the Share Award Plan. At September 30, 2010, as a result of terminations and resignations, there remained 277,500 shares that may be issued under the Share Award Plan. On December 17, 2010, in lieu of issuing common shares for such share awards, the Board of Directors issued 277,500 stock options from the 2010 Stock Incentive Plan.

   

The share award compensation expense included in selling, general and administrative expenses for the three-month and nine-month periods ended April 30, 2012 and 2012 was nil and nil, respectively, and nil and nil, respectively.

29


SAND Technology Inc.
Notes to Consolidated Financial Statements
April 30, 2012 and 2011
(Expressed in Canadian Dollars, unless otherwise stated)
(Unaudited)

11 - RESEARCH AND DEVELOPMENT COSTS

Research and development costs presented in the consolidated statements of operations and comprehensive loss have been determined as follows:

      Three months     Three months     Nine months     Nine months  
      ended     ended     ended     ended  
      April 30,     April 30,     April 30,     April 30,  
      2012     2011     2012     2011  
                           
  Research and development costs $  432,071   $  370,263   $  1,241,160   $  1,145,725  
  Government assistance                        
      Investment tax credits (a)   (57,500 )   (82,500 )   (172,500 )   (243,208 )
                           
    $  374,571   $  287,763   $  1,068,660   $  902,517  

(a)

Tax credits include an additional amount related to an enhanced program for tax credits offered by the Province of Quebec (Canada) and which came into effect in the fourth quarter of fiscal 2008. The tax credits for the three-month and nine-month periods ended April 30, 2012 and 2011 also include an accrual for benefits under the same enhanced program for tax credits relating to the years ended July 31, 2010 and 2009.

12 – SEGMENTED INFORMATION

For purposes of segmented information, the Company has identified one reportable business segment and four main geographic areas. The geographic areas of Canada, United States, Europe and Australia market the SAND/DNA product suite. The accounting policies of the Company are consistently applied in the geographic areas of Canada, United States, Europe and Australia. Sales for each geographic area are based on the location of the third party customers with customers in areas other than Canada, United States, Europe and Australia included in the geographic area where the sales invoice is initiated. All intercompany transactions between areas have been eliminated.

30


SAND Technology Inc.
Notes to Consolidated Financial Statements
April 30, 2012 and 2011
(Expressed in Canadian Dollars, unless otherwise stated)
(Unaudited)

          United                    
      Canada     States     Europe     Australia     Total  
                                 
  Three months ended April 30, 2012                              
         Revenue $  80,131   $  69,398   $  738,828   $  786   $  889,143  
         Current assets   2,218,243     46,259     1,888,234     68,787     4,221,523  
         Net capital assets   228,585     3,330     29,474     869     262,258  
                                 
  Three months ended April 30, 2011                              
         Revenue   171,551     119,614     489,744     -     780,909  
         Current assets   1,371,112     107,446     1,902,342     -     3,380,900  
         Net capital assets   16,916     6,313     26,922     -     50,151  
                                 
  Nine months ended April 30, 2012                              
         Revenue $  410,543   $  256,047   $  1,461,010   $  60,129   $  2,187,729  
         Current assets   2,218,243     46,259     1,888,234     68,787     4,221,523  
         Net capital assets   228,585     3,330     29,474     869     262,258  
                                 
  Nine months ended April 30, 2011                              
         Revenue   743,182     415,428     2,942,543     -     4,101,153  
         Current assets   1,371,112     107,446     1,902,342     -     3,380,900  
         Net capital assets   16,916     6,313     26,922     -     50,151  

13 – DISCONTINUED OPERATIONS

On October 4, 2011, the Company completed the sale of its SAP Information Lifecycle Management (ILM) Product Line to a third party for a consideration of US$8,000,000. After deductions for earn-out milestones, customers’ consent holdback, an escrow amount relating to representations and warranties and other amounts, the Company received initial proceeds of US$4,172,465. The Company collected an additional US$3,000,000 during the nine months ended April 30, 2012. The Company anticipates it will be able to meet all its obligations under the asset purchase agreement governing this transaction to collect the remaining amount due from the sale and an amount $790,320 was recorded in other receivables.

As a result of this transaction, the Company recorded a gain of $8,419,308 taking into account the full proceeds from the sale that are expected to be recovered, reduced by a small amount of capital assets transferred and legal and personnel expenses incurred. The Company will not have any income taxes to pay on this transaction as it has sufficient income tax loss carryforwards from prior years to offset the gain.

As a result of the sale of its SAP Information Lifecycle Management (ILM) Product Line, the Company has presented, for the three-month and nine-month periods ended April 30, 2012, the net earnings from this business segment separately in the consolidated statement of operations. The net earnings are comprised of the revenues derived from and the direct costs associated with the business segment, as follows:

31


SAND Technology Inc.
Notes to Consolidated Financial Statements
April 30, 2012 and 2011
(Expressed in Canadian Dollars, unless otherwise stated)
(Unaudited)

      Three months     Three months     Nine months     Nine months  
      ended     ended     ended     ended  
      April 30,     April 30,     April 30,     April 30,  
      2012     2011     2012     2011  
                           
                           
  Revenue $  -   $  221,687   $  237,382   $  1,313,934  
  Direct costs   -     188,694     174,461     598,122  
  Earnings before income taxes   -     32,993     62,921     715,812  
  Income taxes   -     -     -     -  
  Net earnings and cashflow generated $  -   $  32,993   $  62,921   $  715,812  

14 – BRIDGE LOAN

On September 7, 2011, the Company completed a bridge loan in the amount of $1,000,000 from a group of investors. The bridge loan had a maturity date of November 30, 2011 with interest at 15% and warrants valued at $500,000 at a price of US$0.50 per warrant expiring September 7, 2014. Interest was prepaid from the proceeds of the bridge loan. The bridge loan was repaid in its entirety at the maturity date of November 30, 2011.

15 - TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS

As stated in Note 2a), this is the Company’s first year of consolidated financial statements being prepared in accordance with IFRS. Due to the mandate by the Canadian Institute of Chartered Accountants, the Company has adopted IFRS in accordance with IFRS 1, “First-time Adoption of International Financial Reporting Standards” (“IFRS 1”) with a transition date of August 1, 2010. The Company’s IFRS adoption date is August 1, 2011. The Company’s audited annual consolidated financial statements for the year ending July 31, 2012 will be the first audited annual consolidated financial statements that will be prepared in accordance with the requirements of International Financial Reporting Standards including the application of IFRS 1. Prior to the adoption of IFRS, the Company prepared its consolidated financial statements in accordance with Canadian GAAP.

The significant accounting policies described in Note 3 have been applied in preparing the unaudited condensed interim consolidated financial statements for the three-month and nine-month periods ended April 30, 2012 as well as for the comparative information presented for the three-month and nine-month periods ended April 30, 2011 and for the year ended July 31, 2011 and in the preparation of an opening IFRS consolidated balance sheet as at August 1, 2010.

In preparing the opening IFRS balance sheet as at August 1, 2010, the comparative information for the three-month and nine-month periods ended April 30, 2011 and the comparative information for the year ended July 31, 2011, the Company adjusted amounts previously reported in the consolidated financial statements prepared in accordance with Canadian GAAP based on IFRS 1, elections and exceptions and IFRS policy choices. An explanation of how the transition from Canadian GAAP to IFRS has affected the Company’s financial position and financial performance and cash flows is set out in the following reconciliations and explanatory notes that accompany the reconciliations. Reconciliations of the consolidated balance sheets, consolidated statements of operations and comprehensive income (loss) and consolidated cash flows for the respective periods are contained in this Note.

32


SAND Technology Inc.
Notes to Consolidated Financial Statements
April 30, 2012 and 2011
(Expressed in Canadian Dollars, unless otherwise stated)
(Unaudited)

IFRS 1 requires an entity to reconcile equity, net earnings and comprehensive income (loss) and cash flows from Canadian GAAP to IFRS for prior periods. The following represents the reconciliations for the respective periods noted for equity, net earnings and comprehensive income (loss) and cash flows.

IFRS 1 - FIRST-TIME ADOPTION OF IFRS

IFRS 1 requires retroactive application for all IFRS standards effective at the reporting date except for certain mandatory exceptions from retrospective application that are relevant to the Company, or optional exemptions from retrospective application that were elected by the Company. Accordingly, these condensed interim consolidated financial statements have been prepared based on the accounting policies described in Note 2. The applicable mandatory exceptions and optional exemptions from retrospective application are described in this section. The impact of these exceptions and exemptions and all other adjustments arising from IFRS policy choices and other requirements are described further below in section e), along with explanatory notes to the reconciliations of equity, net earnings and comprehensive income (loss) and balance sheet items in section f) below.

a)

Mandatory Exceptions

     

IFRS 1 prescribes mandatory exceptions to the retrospective application requirements of IFRS. The following mandatory exceptions apply to the Company:

     
i)

Estimates

     

Estimates made in accordance with IFRS at transition date, and in the comparative period of the first audited annual IFRS financial statements, shall remain consistent with those determined under Canadian GAAP with adjustments made only to reflect any differences in accounting policies. Under IFRS 1, the use of hindsight is not permitted to adjust estimates made in the past under Canadian GAAP that were based on the information that was available at the time the estimate was determined. Any additional estimates that are required under IFRS, that were not required under CGAAP, are based on the information and conditions that exist at the transition date and in the comparative period of the first audited annual IFRS financial statements.

     
ii)

De-recognition of Financial Assets and Financial Liabilities

     

Financial assets and liabilities that were de-recognized before August 1, 2010 pursuant to Canadian GAAP were not recognized under IFRS. The Company has early applied the change in IFRS 1 in this respect regarding the application date, as at August 1, 2010, of the exception.

     
b)

Optional Exemptions

     

In addition to the mandatory exceptions listed above, the Company has elected not to apply retroactively the following optional exemptions under IFRS 1.

   
  i) IFRS 3 - Business Combinations
     
   

The Company has elected to not apply the requirements of IFRS 3 retrospectively to business combinations that occurred prior to the transition date. Under the business combinations exemption, the carrying amounts of the assets acquired and liabilities assumed under Canadian GAAP at the date of the acquisition became their deemed carrying amounts under IFRS at that date. Notwithstanding this exemption, the Company was required at the transition date, to evaluate whether the assets acquired and liabilities assumed meet the recognition criteria in the relevant IFRS, and whether there are any assets acquired or liabilities assumed that were not recognized under Canadian GAAP for which recognition would be required under IFRS. The requirements of IFRS were then applied to the assets acquired and liabilities assumed from the date of acquisition to the transition date.

33


SAND Technology Inc.
Notes to Consolidated Financial Statements
April 30, 2012 and 2011
(Expressed in Canadian Dollars, unless otherwise stated)
(Unaudited)

  ii)

IAS 23 - Borrowing Costs

     
 

The Company has elected not to apply the requirements of IAS 23 retrospectively and will eliminate all previously capitalized interest costs as at the transition date through opening retained earnings. The Company will capitalize borrowing costs for qualifying assets for which the commencement date for capitalization is on or after the transition date.


c)

Retroactive Applications


  i)

Stock-Based Compensation

     
 

The Company has chosen not to apply IFRS 2, Share-based Payment, retrospectively to options granted on or before November 7, 2002 or granted after November 7, 2002 and vested before the date of transition to IFRS.

     
  ii)

Convertible Debenture

     
 

The Company has chosen to value the convertible debenture and its components at fair value, thereby removing the equity component of the convertible debenture and presenting it as a liability.


d)

Changes in Presentation

     
i)

Consolidated Cash Flow Statement

     

Under pre-change accounting standards, interest paid and received were presented through the notes. Under IFRS, interest is allocated to investing and financing activities where they can be identified with transactions within those categories. There are no other material adjustments to the consolidated statement of cash flows. The components of cash and cash equivalents under pre-change accounting standards are similar to those presented under IFRS.

34


SAND Technology Inc.
Notes to Consolidated Financial Statements
April 30, 2012 and 2011
(Expressed in Canadian Dollars, unless otherwise stated)
(Unaudited)

e)

Reconciliations between Canadian GAAP and IFRS

     

A reconciliation of how the transition from previous Canadian GAAP to IFRS has affected the Company’s financial position, financial performance and cash flows is set in the following tables and the notes that accompany the tables.

     

i)

Shareholders’ deficiency
     

In preparing its opening IFRS statement of financial position, The Company has adjusted amounts reported previously in the consolidated financial statements prepared in accordance with Canadian GAAP. The effects of the conversion which were netted against shareholders’ equity are as follows:


            July 31,     April 30,     August 1,  
      Note     2011     2011     2010  
 
  Shareholders' Deficiency in accordance with 
       Canadian GAAP -
      $  (2,894,831 ) $  (2,147,086 ) $  (2,450,664 )
  Adjustments:                        
         Stock-based compensation (Deficit)   15 f)   176,964     106,304     10,005  
         Stock-based compensation (Contributed surplus)   15 f)   (176,964 )   (106,304 )   (10,005 )
         Equity component of Convertible debenture   15 g)   (446,027 )   (446,027 )   (446,027 )
         Equity component of Convertible debenture (Deficit)   15 g)   282,124     178,570     209,688  
         Equity component of Convertible debenture 
               (Contributed surplus)
  15 g)   (305,600 )   (305,600 )   (305,600 )
  Shareholders' Deficiency in accordance with IFRS         (3,364,334 )   (2,720,143 )   (2,992,603 )

35


SAND Technology Inc.
Notes to Consolidated Financial Statements
April 30, 2012 and 2011
(Expressed in Canadian Dollars, unless otherwise stated)
(Unaudited)

  ii)

Reconciliation of the Balance Sheet under Canadian GAAP to IFRS as at August 1, 2010


            Previous     Effect of        
            Canadian     transition to        
      Note     GAAP     IFRS     IFRS  
                           
  ASSETS                        
  Current Assets                        
     Cash       $  579,270   $  -   $  579,270  
     Accounts receivable         739,144     -     739,144  
     Research and development tax credits receivable         660,000     -     660,000  
     Prepaid expenses         74,541     -     74,541  
            2,052,955     -     2,052,955  
                           
  Capital assets, net         64,488     -     64,488  
            2,117,443     -     2,117,443  
                           
  LIABILITIES                        
  Current Liabilities                        
     Accounts payable and accrued liabilities         984,149     -     984,149  
     Deferred revenue         1,135,814     -     1,135,814  
     Deferred lease inducements         19,558     -     19,558  
     Due to shareholders         896,369     -     896,369  
            3,035,890     -     3,035,890  
                           
  Deferred revenue         106,124     -     106,124  
  Due to shareholders         977,784     -     977,784  
  Convertible debentures   15 g)   448,309     199,012     647,321  
  Other financial liabilities   15 g)   -     342,927     342,927  
            4,568,107     541,939     5,110,046  
                           
  SHAREHOLDERS' DEFICIENCY                        
  Share capital         38,976,108     -     38,976,108  
  Equity component of convertible debentures   15 g)   446,027     (446,027 )   -  
  Contributed surplus   15 f)   1,053,897     (295,595 )   758,302  
  Deficit   15 f) g)   (42,926,696 )   199,683     (42,727,013 )
            (2,450,664 )   (541,939 )   (2,992,603 )
          $  2,117,443   $  -   $  2,117,443  

36


SAND Technology Inc.
Notes to Consolidated Financial Statements
April 30, 2012 and 2011
(Expressed in Canadian Dollars, unless otherwise stated)
(Unaudited)

  iii)

Reconciliation of the Balance Sheet under Canadian GAAP to IFRS as at July 31, 2011


            Previous     Effect of        
            Canadian     transition to        
      Note     GAAP     IFRS     IFRS  
                           
  ASSETS                        
  Current Assets                        
     Cash       $  810,745   $  -   $  810,745  
     Accounts receivable         541,959     -     541,959  
     Research and development tax credits receivable         663,857     -     663,857  
     Prepaid expenses         117,305     -     117,305  
            2,133,866     -     2,133,866  
                           
  Capital assets, net         81,361     -     81,361  
            2,215,227     -     2,215,227  
                           
  LIABILITIES                        
  Current Liabilities                        
     Accounts payable and accrued liabilities         776,623     -     776,623  
     Deferred revenue         1,179,652     -     1,179,652  
     Due to shareholders         1,425,945     -     1,425,945  
            3,382,220     -     3,382,220  
                           
  Deferred revenue         696,275     -     696,275  
  Due to shareholders         488,892     -     488,892  
  Convertible debentures   15 g)   542,671     154,290     696,961  
  Other financial liabilities   15 g)   -     315,213     315,213  
            5,110,058     469,503     5,579,561  
                           
  SHAREHOLDERS' DEFICIENCY                        
  Share capital         39,706,665     -     39,706,665  
  Equity component of convertible debentures   15 g)   446,027     (446,027 )   -  
  Contributed surplus   15 f)   1,991,642     (128,636 )   1,863,006  
  Deficit   15 f) g)   (45,039,165 )   105,160     (44,934,005 )
            (2,894,831 )   (469,503 )   (3,364,334 )
          $  2,215,227   $  -   $  2,215,227  

37


SAND Technology Inc.
Notes to Consolidated Financial Statements
April 30, 2012 and 2011
(Expressed in Canadian Dollars, unless otherwise stated)
(Unaudited)

  iv)

Reconciliation of the Statement of Comprehensive Loss under Canadian GAAP to IFRS for the year ended July 31, 2011


            Previous     Effect of        
            Canadian     transition to        
      Note     GAAP     IFRS     IFRS  
                           
  Revenue     $ 4,633,693   $  -   $  4,633,693  
                           
  Cost of sales and product support         1,092,995     -     1,092,995  
  Gross profit         3,540,698     -     3,540,698  
                           
  Operating expenses                        
     Research and development costs, net         1,223,963     -     1,223,963  
     Sellling, general and administrative   15 f     5,440,109     166,959     5,607,068  
            6,664,072     166,959     6,831,031  
  Operating loss         (3,123,374 )   (166,959 )   (3,290,333 )
     Net finance expense   15 g     442,459     (72,436 )   370,023  
  Loss from continuing operations         (3,565,833 )   (94,523 )   (3,660,356 )
  Gain on sale of discontinued operations         -     -     -  
  Earnings from discontinued operations         1,453,364     -     1,453,364  
  Net loss and comprehensive loss     $ (2,112,469 ) $  (94,523 ) $  (2,206,992 )
                           
  Basic and diluted loss per share     $ (0.12 ) $  (0.01 ) $  (0.13 )
     From continuing operations     $ (0.21 ) $  (0.01 ) $  (0.22 )
     From discontinued operations     $ 0.09   $  -   $  0.09  
                           
  Basic and diluted weighted average number of
   common shares
      17,009,173     17,009,173     17,009,173  

38


SAND Technology Inc.
Notes to Consolidated Financial Statements
April 30, 2012 and 2011
(Expressed in Canadian Dollars, unless otherwise stated)
(Unaudited)

  v)

Reconciliation of the Balance Sheet under Canadian GAAP to IFRS as at April 30, 2011


            Previous     Effect of        
            Canadian     transition to        
      Note     GAAP     IFRS     IFRS  
                           
  ASSETS                        
  Current Assets                        
     Cash       $  1,835,109   $  -   $  1,835,109  
     Accounts receivable         815,522     -     815,522  
     Research and development tax credits receivable         581,357     -     581,357  
     Prepaid expenses         148,912     -     148,912  
            3,380,900     -     3,380,900  
                           
  Capital assets, net         50,151     -     50,151  
            3,431,051     -     3,431,051  
                           
  LIABILITIES                        
  Current Liabilities                        
     Accounts payable and accrued liabilities         1,124,397     -     1,124,397  
     Deferred revenue         1,138,973     -     1,138,973  
     Due to shareholders         830,497     -     830,497  
            3,093,867     -     3,093,867  
                           
  Deferred revenue         993,612     -     993,612  
  Due to shareholders         977,784     -     977,784  
  Convertible debentures   15 g)     512,874     282,214     795,088  
  Other financial liabilities   15 g)         290,843     290,843  
            5,578,137     573,057     6,151,194  
                           
  SHAREHOLDERS' DEFICIENCY                        
  Share capital         39,901,523     -     39,901,523  
  Equity component of convertible debentures   15 g)   446,027     (446,027 )   -  
  Contributed surplus   15 f)   1,625,329     (189,291 )   1,436,038  
  Deficit   15 f) g)     (44,119,965 )   62,261     (44,057,704 )
            (2,147,086 )   (573,057 )   (2,720,143 )
          $  3,431,051   $  -   $  3,431,051  

39


SAND Technology Inc.
Notes to Consolidated Financial Statements
April 30, 2012 and 2011
(Expressed in Canadian Dollars, unless otherwise stated)
(Unaudited)

  vi)

Reconciliation of the Statement of Comprehensive Loss under Canadian GAAP to IFRS for the three months ended April 30, 2011


            Previous     Effect of        
            Canadian     transition to        
      Note     GAAP     IFRS     IFRS  
                           
  Revenue     $ 780,909   $  -   $  780,909  
  Cost of sales and product support         242,957     -     242,957  
  Gross profit         537,952     -     537,952  
                           
  Operating expenses                        
     Research and development costs, net         287,763     -     287,763  
     Sellling, general and administrative   15 f)     1,436,572     60,656     1,497,228  
            1,724,335     60,656     1,784,991  
  Operating loss         (1,186,383 )   (60,656 )   (1,247,039 )
     Net finance expense   15 g)     140,886     10,373     151,259  
  Loss from continuing operations         (1,327,269 )   (71,029 )   (1,398,298 )
  Gain on sale of discontinued operations         -     -     -  
  Earnings from discontinued operations, net of tax         32,993     -     32,993  
  Net loss and comprehensive loss     $ (1,294,276 ) $  (71,029 ) $  (1,365,305 )
                           
  Basic and diluted loss per share     $ (0.08 ) $  (0.00 ) $  (0.09 )
     From continuing operations     $ (0.08 ) $  (0.00 ) $  (0.09 )
     From discontinued operations     $ 0.00   $  -   $  0.00  
                           
  Basic and diluted weighted average number of
common shares
      16,204,842     16,204,842     16,204,842  

40


SAND Technology Inc.
Notes to Consolidated Financial Statements
April 30, 2012 and 2011
(Expressed in Canadian Dollars, unless otherwise stated)
(Unaudited)

  vii)

Reconciliation of the Statement of Comprehensive Loss under Canadian GAAP to IFRS for the nine months ended April 30, 2011


            Previous     Effect of        
            Canadian     transition to        
      Note     GAAP     IFRS     IFRS  
                           
  Revenue     $ 4,101,153   $  -   $  4,101,153  
  Cost of sales and product support         762,727     -     762,727  
  Gross profit         3,338,426     -     3,338,426  
                           
  Operating expenses                        
     Research and development costs, net         902,517     -     902,517  
     Sellling, general and administrative   15 f)     3,999,182     106,304     4,105,486  
            4,901,699     106,304     5,008,003  
  Operating loss         (1,563,273 )   (106,304 )   (1,669,577 )
     Net finance expense   15 g)   345,807     31,118     376,925  
  Loss from continuing operations         (1,909,080 )   (137,422 )   (2,046,502 )
  Gain on sale of discontinued operations         -     -     -  
  Earnings from discontinued operations         715,812     -     715,812  
  Net loss and comprehensive loss     $ (1,193,268 ) $  (137,422 ) $  (1,330,690 )
                           
  Basic and diluted loss per share     $ (0.08 ) $  (0.01 ) $  (0.08 )
     From continuing operations     $ (0.12 ) $  (0.01 ) $  (0.12 )
     From discontinued operations     $ 0.04   $  -   $  0.04  
                           
  Basic and diluted weighted average number of
   common shares
      16,204,842     16,204,842     16,204,842  

41


SAND Technology Inc.
Notes to Consolidated Financial Statements
April 30, 2012 and 2011
(Expressed in Canadian Dollars, unless otherwise stated)
(Unaudited)

f)

Explanatory Notes – Share-based compensation

   

Under Canadian GAAP, the entity can consider the entire award as a group, determine the fair value using the average term of the instruments and then recognize the compensation expense on a straight- line basis over the vesting period. Additionally, under Canadian GAAP, forfeitures must be recognized as they occur.

   

Pursuant to IFRS 2, each portion of an award with graded vesting options must be considered as a separate award with its own vesting date and fair value and must be recognized on that basis. Additionally, under IFRS, entities are required to estimate awards that are expected to vest and to revise that estimate if subsequent information indicates that actual forfeitures are likely to differ from initial estimates.

   

The impact on the Company’s transition to IFRS is to increase contributed surplus by $10,005 and increase the accumulated deficit by the same amount as at August 1, 2010 and increase Selling, general and administrative expenses by $106,304 for the period ended April 30, 2011 and increase contributed surplus by the same amount, and increase Selling, general and administrative expenses by $166,959 for the year ended July 31, 2011 and increase contributed surplus by the same amount.

   
g)

Explanatory Notes – Convertible debentures

   

Under Canadian GAAP, the component parts of compound financial instruments (convertible debenture) issued by the Company were classified separately as financial liabilities and equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument. The conversion option that was to be settled by the exchange of a fixed amount of cash for a fixed number of the Company’s own equity instruments was classified as an equity instrument.

   

Under IFRS, The conversion option that will be settled by the exchange of a fixed amount of cash for a fixed number of the Company’s own equity instruments is classified as a financial liability since the instrument does not meet the fixed for fixed test.

   

As a result, the equity component in the amount of $446,027 and the value of the warrants credited to contributed surplus in the amount of $305,600 that were previously recognized under Canadian GAAP were written off. At conversion date, the liability portion of the financial instrument was adjusted to $647,321 and the derivative components were classified as other financial liabilities in the amount of $342,927. An adjustment of $209,688 was charged to deficit. For the three-month and nine month period ended April 31, 2011, accretion expense was increased by $10,373 and $31,118 respectively.

42


SAND Technology Inc.
Notes to Consolidated Financial Statements
April 30, 2012 and 2011
(Expressed in Canadian Dollars, unless otherwise stated)
(Unaudited)

16 –INFORMATION ON EARNINGS AND COMPARATIVE FIGURES

Amortization expense of capital assets for the three-month and nine-month periods ended April 30, 2012 and 2011 amounted to $11,949 and $37,736, respectively, and $7,756 and $33,588, respectively.

Certain comparative figures have been reclassified to conform with the presentation adopted in the current period.

17 – SUBSEQUENT EVENTS

In June 2012, the Company announced that it had reduced its workforce eliminating 20 positions including executives in Canada, the United Kingdom, the US and Germany in an effort to contain costs. The Company believes that this initiative will allows it to further preserve capital while maintaining a core team to support our ongoing business, as it continues to progress in our strategic review process.

In addition, the Company had to delay the filing of its interim financial report and related management’s discussion and analysis for the interim period ended April 30, 2012 beyond the filing deadline of June 29, 2012 due to the departure of the Chief Financial Officer in early June 2012.

The Company was then advised by the Autorité des marches financiers (the “AMF”) that, in accordance with the guidelines set out in Policy Statement 12-203 respecting Cease Trade Orders for Continuous Disclosure Defaults, it had issued a cease trade order that prohibits all trading of the securities of the Company. The cease trade order will remain in place until lifted by the AMF upon application by the Company following the filing of the Required Filings.

Subsequent to the end of the quarter, the Company paid out $453,092 as a final settlement of an amount due a shareholder. The Company received a full release of the associated hypothec. There no longer remains any outstanding amount due to shareholders.

43