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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 20-F

[   ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b)
OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 OR

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended July 31, 2011

OR

[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 OR

[   ] SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report

Commission File Number 0-14884

SAND TECHNOLOGY INC.
  (Exact name of registrant as specified in its charter)

Canada(Jurisdiction of incorporation
or organization)

4115 Sherbrooke St. West, Suite 500Westmount,
Quebec, Canada H3Z 1B1(Address of principal executive
offices)

Mr. Tony J. Giuliano(514) 939-3477tony.giuliano@sand.com4115 Sherbrooke St. West, Suite 500Westmount, Quebec, Canada H3Z 1B1(Name,
Telephone, Email and/or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section
12(b) of the Act

|Title of each class | Name of each exchange on which registered
|------------------- | -----------------------------------------
|None                | N/A                                      

---

Securities registered pursuant to Section 12(g) of the Act.

Class A Common Shares

Securities for which there is a reporting obligation pursuant to
Section 15(d) of the Act.

None

Indicate the number of outstanding shares of each of the
issuers classes of capital or common stock as of the close of the period
covered by the annual report.

19,116,636 Class A Common Shares

Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities Act [  
] Yes      [X] No

If this report is an annual or transition report, indicate by
check mark if the registrant is not required to file reports pursuant to Section
13 or 15 (d) of the Securities Exchange Act of 1934. [   ]
Yes      [X] No

Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X]
Yes      [   ] No

Indicate by check make whether the registration has submitted
electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T (§232.405 of this chapter)during the preceding 12 months (or for such
shorter period that registrant was required to submit and pos such files):
[   ] Yes      [X] No

Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated filer. See
definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of
the Exchange Act. (Check one):

|Large accelerated filer [   ] | Accelerated filer [   ] | Non-accelerated filer [X]
|----------------------------- | ----------------------- | -------------------------

Indicate by check mark which basis of accounting the registrant
has used to prepare the financial statements included in this filing:

|U.S. GAAP [   ] | International Financial
      Reporting Standards as issued | Other [X]
|--------------- | ----------------------------------------------------------- | ---------
|                | By the International Accounting
      Standards Board [   ] |          

Indicate by check mark which financial statement item the
registrant has elected to follow.

Item 17 [   ]   Item 18 [X]

If this is an annual report, indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
[   ] Yes      [X] No

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(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PAST FIVE YEARS)

Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court. [   ]
Yes      [X] No

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SAND TECHNOLOGY INC.TABLE OF CONTENTS

| | ITEM 1.  | IDENTITY OF DIRECTORS, SENIOR
      MANAGEMENT AND ADVISERS | 3 
| | -------- | ----------------------------------------------------------- | --
| | ITEM 2.  | OFFER STATISTICS AND EXPECTED TIMETABLE                     | 3 
| | ITEM 3.  | KEY INFORMATION                                             | 3 
| | A.       | Selected Financial Data                                     | 3 
| | B.       | Capitalization and Indebtedness                             | 7 
| | C.       | Reasons for the Offer and Use of Proceeds                   | 7 
| | D.       | Risk Factors                                                | 7 
| | ITEM 4.  | INFORMATION ON THE COMPANY                                  | 13
| | A.       | History and Development
      of the Company                | 13
| | B.       | Business Overview                                           | 14
| | C.       | Organizational Structure                                    | 18
| | D.       | Property, Plant and Equipment                               | 19
| | ITEM 4A. | UNRESOLVED STAFF COMMENTS                                   | 19
| | ITEM 5.  | OPERATING AND FINANCIAL REVIEW AND PROSPECTS                | 20
| | A.       | Operating Results                                           | 22
| | B.       | Liquidity and Capital Resources                             | 27
| | C.       | Research and Development,
      Patents and Licenses, Etc.  | 26
| | D.       | Trend Information                                           | 29
| | E.       | Off-Balance Sheet Arrangements.                             | 27
| | F.       | Tabular d *Disclosure of Contractual
      Obligations.*    | 27
| | G.       | Safe Harbor.                                                | 28
| | ITEM 6.  | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                  | 28
| | A.       | Directors and Senior
      Management                       | 28
| | B.       | Compensation                                                | 32
| | C.       | Board Practices                                             | 36
| | D.       | Employees                                                   | 42
| | E.       | Share Ownership                                             | 43
| | ITEM 7.  | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS           | 46
| | A.       | Major Shareholders                                          | 47
| | B.       | Related Party Transactions                                  | 47
| | C.       | Interests of Experts
      and Counsel                      | 50
| | ITEM 8.  | FINANCIAL INFORMATION                                       | 50
| | A.       | Consolidated Statements and Other Financial Information     | 50
| | B.       | Significant Changes                                         | 50
| | ITEM 9.  | THE OFFER AND LISTING                                       | 51
| | A.       | Offer and listing details                                   | 51
| | B.       | Plan of distribution                                        | 52
| | C.       | Markets                                                     | 52
| | D.       | Selling Shareholders                                        | 52
| | E.       | Dilution                                                    | 52
| | F.       | Expenses of the issue                                       | 52
| | ITEM 10. | ADDITIONAL INFORMATION                                      | 53
| | A.       | Share Capital                                               | 53
| | B.       | Memorandum and Articles of Association                      | 53
| | C.       | Material Contracts                                          | 59
| | D.       | Exchange Controls                                           | 59
| | E.       | Taxation                                                    | 61
| | F.       | Dividends and Paying Agents                                 | 65
| | G.       | Statements by Experts                                       | 65
| | H.       | Documents on Display                                        | 65
| | I.       | Subsidiary Information                                      | 66

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|         | ITEM 11.  | QUANTITATIVE AND QUALITATIVE
      DISCLOSURES ABOUT MARKET RISK                   | 66
|-------- | --------- | ---------------------------------------------------------------------------------- | --
|         | ITEM 12.  | DESCRIPTION OF SECURITIES OTHER THAN EQUITY
      SECURITIES                       | 66
|         |           |                                                                                    |   
|PART II  | 66       
|         |           |                                                                                    |   
|         | ITEM 13.  | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES                                    | 66
|         | ITEM 14.  | MATERIAL MODIFICATIONS TO
      THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS | 66
|         | ITEM 15.  | CONTROLS AND PROCEDURES                                                            | 67
|         | A.        | Disclosure Controls and Procedures                                                 | 67
|         | B.        | Managements Annual Report on Internal
      Control over Financial Reporting      | 67
|         | ITEM 16A. | AUDIT COMMITTEE FINANCIAL
      EXPERT                                             | 68
|         | ITEM 16B. | CODE OF ETHICS                                                                     | 68
|         | ITEM 16C. | PRINCIPAL ACCOUNTANT FEES
      AND SERVICES                                       | 68
|         | ITEM 16D  | EXEMPTIONS FROM THE LISTING STANDARDS FOR
      AUDIT COMMITTEES                   | 69
|         | ITEM 16E. | PURCHASES OF EQUITY SECURITIES
      BY THE ISSUER AND AFFILIATED PURCHASERS       | 69
|         | ITEM 16F  | CHANGES IN REGISTRANT'SCERTIFYING ACCOUNTANT                                       | 69
|         | ITEM 16G  | CORPORATE GOVERNANCE                                                               | 69
|         |           |                                                                                    |   
|PART III | 70       
|         |           |                                                                                    |   
|         | ITEM 17.  | FINANCIAL STATEMENTS                                                               | 70
|         |           |                                                                                    |   
|         | ITEM 18.  | **FINANCIAL STATEMENTS**                                                           | 70
|         |           |                                                                                    |   
|         | ITEM 19.  | EXHIBITS                                                                           | 71

- ii -

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In this Annual Report on Form 20-F (the "Report"), unless we
indicate otherwise or the context otherwise requires, we, our, us, SAND
and the Company refer to SAND Technology Inc. and its consolidated
subsidiaries and shares and common shares refer to our Class A Common
Shares. References in this Report to a fiscal year means one of our fiscal years
ending July 31.

Except where otherwise indicated, all dollar amounts stated in
this Annual Report on Form 20-F are Canadian dollars.

**ITEM
1.**     **IDENTITY OF DIRECTORS,
SENIOR MANAGEMENT AND ADVISERS**

Not applicable.

**ITEM
2.**     **OFFER STATISTICS AND
EXPECTED TIMETABLE**

Not applicable.

**ITEM
3.**     **KEY
INFORMATION**

***A.***     ***Selected
Financial Data***

The
following table sets forth selected consolidated financial information with
respect to SAND for the five (5) years ended July 31, 2011 and is extracted in
part from the consolidated financial statements that have been audited by our
auditors, Raymond Chabot Grant Thornton LLP for the fiscal years ended July 31,
2011 (included herein at Item 18), July 31, 2010, July 31, 2009, July 31, 2008
and July 31, 2007. The information set forth below is not necessarily indicative
of the results of future operations and should be read in conjunction with and
is qualified in its entirety by the consolidated financial statements included
in Item 18.

This
selected financial data has been prepared in accordance with Canadian generally
accepted accounting principles ("Canadian GAAP") which differs in certain
respects from generally accepted accounting principles in the United States
("U.S. GAAP"). A discussion of the differences between Canadian GAAP and U.S.
GAAP is contained in Note 19 to the audited Consolidated Financial Statements
included in Item 18. Any monetary figure included in this Report is presented
consistent with Canadian GAAP except where otherwise indicated.

- 3 -

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The
selected financial data set forth below is stated in thousands of Canadian
dollars (except per share amounts).

FIVE YEAR COMPARATIVE SUMMARY OF SELECTED
        FINANCIAL DATA (expressed in thousands of Canadian dollars
        unless otherwise indicated) (In accordance with Canadian GAAP)Years ended July 31
      2011
      2010
      2009
      2008
      2007Operating resultsRevenue
      $6,872
      $6,562
      $7,049
      $6,998
      6,729Cost of Sales and Product Support
      ($1,235)
      ($1,195)
      ($1,396)
      ($1,470)
      ($1,667)Research and Development Costs
      ($1,866)
      ($1,458)
      ($1,960)
      ($1,972)
      ($2,215)Selling, General and Administrative Expenses
      ($5,400)
      ($4,225)
      ($4,372)
      ($4,403)
      ($5,079)Amortization
      ($41)
      ($53)
      ($64)
      ($187)
      ($201)Loss from Operations
      ($1,670)
      ($369)
      ($743)
      ($1,034)
      ($2,433)Other Income (Expense)
      ($442)
      ($377)
      ($449)
      ($238)
      ($93)Net Income (Loss)
      ($2,112)
      ($746)
      ($1,192)
      ($1,272)
      ($2,526)Financial positionWorking Capital (Deficiency)
      ($1,248)
      ($983)
      ($1,910)
      ($1,055)
      ($1,096)Total Assets
      $2,215
      $2,117
      $2,740
      $2,803
      $2,357Total Liabilities
      $5,110
      $4,568
      $5,113
      $4,063
      $3,239Capital Stock
      $39,707
      $38,976
      $38,530
      $38,530
      $38,530Shareholders' Equity (Deficit)
      ($2,895)
      ($2,451)
      ($2,373)
      ($1,260)
      ($882)Basic and Diluted Weighted Average Number of Shares Outstanding
      17,009,173
      15,467,702
      14,318,189
      14,318,189
      13,094,288Per share data (in dollars per share)Net Loss Per Share (Basic and dilutive)
      ($0.12)
      ($0.05)
      ($0.08)
      ($0.09)
      ($0.19)Loss from Operations Per Share (Basic and dilutive)
      ($0.09)
      ($0.02)
      ($0.05)
      ($0.07)
      ($0.19)


- 4 -

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The
same data, presented in conformity with U.S. GAAP, is shown in the following
table:

FIVE YEAR COMPARATIVE SUMMARY OF SELECTED
        FINANCIAL DATA (expressed in thousands of Canadian dollars
        unless otherwise indicated) (In accordance with U.S. GAAP)Years ended July 31
      2011
      2010
      2009
      2008
      2007Operating resultsRevenue
      $6,872
      $6,562
      $7,049
      $6,998
      6,729Cost of Sales and Product Support
      ($1,235)
      ($1,195)
      ($1,396)
      ($1,470)
      ($1,667)Research and Development Costs
      ($1,866)
      ($1,458)
      ($1,960)
      ($1,972)
      ($2,215)Selling, General and Administrative Expenses
      ($5,871)
      ($3,561)
      ($3,668)
      ($4,731)
      ($5,477)Amortization
      ($41)
      ($53)
      ($64)
      ($187)
      ($201)Loss from Operations
      ($2,141)
      $295
      ($39)
      ($1,362)
      ($2,831)Other Income (Expense)
      ($397)
      ($334)
      ($407)
      ($196)
      ($93)Net Income (Loss)
      ($2,538)
      ($39)
      ($446)
      ($1,558)
      ($2,924)Financial positionWorking Capital (Deficiency)
      ($2,191)
      ($1,955)
      ($3,280)
      ($2,558)
      ($1,408)Total Assets
      $2,215
      $2,117
      $2,740
      $2,803
      $2,357Total Liabilities
      $5,770
      $5,277
      $6,264
      $5,387
      $3,550Capital Stock
      $39,707
      $38,976
      $38,530
      38,530
      38,530Shareholders' Equity (Deficit)
      ($3,556)
      ($2,314)
      ($2,944)
      ($2,584)
      ($1,193)Basic and Diluted Weighted Average
      17,009,173
      15,467,702
      14,318,189
      14,318,189
      13,094,288Number of Shares OutstandingPer share data (in dollars per share)Net Loss Per Share (Basic and dilutive)
      ($0.12)
      $0.00
      ($0.03)
      ($0.11)
      ($0.22)Income (Loss) from Operations Per Share (Basic)
      ($0.09)
      $0.02
      ($0.00)
      ($0.10)
      ($0.22)


Summary of Differences between Canadian and U.S. GAAP

A reconciliation of the differences between generally accepted
accounting principles in the United States and Canada is presented in Note 19 of
the audited Consolidated Financial Statements included in Item 18.

Issued and Outstanding Class A Common Shares

As of October 21, 2011, the Company had 19,116,636 Class A
Common Shares issued and outstanding. Each common share entitles its holder to
one vote.

Authorized Class B Common Shares

The Company also has authorized Class B, Series A Common
Shares of which none are issued and outstanding as of October 21, 2011.

- 5 -

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Disclosure of U.S. Exchange Rates against Canadian Financial
Reporting Currency

Foreign exchange rate U.S. to
      Canadian Dollar:
      Fiscal 2011
      Fiscal 
        2010
      Fiscal 
        2009
      Fiscal 
        2008
      Fiscal 
        2007Average
    0.9943
    1.0491
    1.1754
    1.0352
    1.1258High
    1.0535
    1.1072
    1.2633
    1.0755
    1.1853**Low**
    0.9428
    0.9988
    1.0547
    0.7695
    1.0372


Month Ended
      High
      Low
      CloseJuly 31, 2011
    0.9690
    0.9428
    0.9555June 30, 2011
    0.9870
    0.9645
    0.9645May 31, 2011
    0.9787
    0.9508
    0.9686April 30, 2011
    0.9675
    0.9464
    0.9464March 31, 2011
    0.9918
    0.9687
    0.9696February 28, 2011
    0.9958
    0.9714
    0.9714January 31, 2011
    1.0015
    0.9869
    1.0015December 31, 2010
    1.0175
    0.9946
    0.9946November 30, 2010
    1.0266
    1.0000
    1.0266October 31, 2010
    1.0319
    1.0048
    1.0202September 30, 2010
    1.0535
    1.0256
    1.0290August 31, 2010
    1.0166
    1.0665
    1.0665


Month
      Monthly AverageJuly 2011
    0.9558June 2011
    0.9773May 2011
    0.9678April 2011
    0.9578March 2011
    0.9766February 2011
    0.9875January 2011
    0.9942December 2010
    1.0080November 2010
    1.0132October 2010
    1.0185September 2010
    1.0336August 2010
    1.0418


On October 21, 2011, the noon rate for U.S.$1.00 was
CDN.$1.0091 and the closing rate was CDN.$1.0087.

- 6 -

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***B.******Capitalization and Indebtedness***

Not applicable.

C.Reasons for the Offer and Use of Proceeds

Not applicable.

D.Risk factors

Our business and an investment in our securities are subject to
a variety of risks. The following risk factors describe the most significant
events, facts or circumstances that could have a material adverse effect upon
our business, financial condition, results of operations, ability to implement
our business plan and the market price for our securities. Many of these events
are outside of our control. These risks and uncertainties are not the only ones
we face. Additional risks not presently known or currently considered
insignificant may also have a material adverse effect upon our business,
financial condition, results of operations, ability to implement our business
plan and the market price for our securities.

RISKS ASSOCIATED WITH OUR BUSINESS:

We have a history of losses.

We have not experienced a profitable year since fiscal year
2003, when we had a gain from the sale of a subsidiary. On July 31, 2011 we had
a working capital deficiency of $1,248,354 and an accumulated deficit of
$45,039,165. Our funds on hand are currently sufficient to sustain operations
for the next year as a result of the sale of a product line described in Item
8.B. Significant Changes. In order to become profitable, we will need to
generate significant additional revenues to offset our cost of revenues, sales
and marketing, research and development and selling, general and administrative
expenses. We may not achieve or sustain our revenue or profit objectives and our
losses may continue or increase in the future in which case you might lose your
entire investment. If we are not able to fund our operations through product
sales in the immediate future, we will have to cease operations.

We may not be able to obtain additional financing when
needed or on acceptable terms.

There is no assurance that additional financing, when required,
will be available or, if it is, whether it will be available on acceptable
terms. Our inability to obtain additional financing when required, or the terms
on which it may be available, could have a material adverse effect on our
business and require us to suspend or cease our operations. If we are required
to cease our operations, you could lose your entire investment.

We have incurred substantial debt which could affect our
ability to obtain additional financing and may increase our vulnerability to
economic and/or business downturns.

On April 18, 2008, the Company issued secured convertible
debentures ("Convertible Debentures") on a private placement and received gross
proceeds of $1,009,819 (U.S.$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 U.S.$900, redeemable at the option of the Company if the bid
price of the common share has been above U.S.$1.50 for 60 consecutive trading
days, and convertible at the option of the holder into class "A" common shares
at U.S.$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 U.S.$0.70 per warrant share at any time
until the earlier of the close of business day which is either thirty six

- 7 -

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(36) months from April 18, 2008 or the bid price of the stock
has been above U.S.$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
U.S.$0.45 per share. Before the warrants expired on April 18, 2011, certain
holders exercised 613,000 warrants and 501,000 warrants expired. 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.

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 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 owing 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:

| | 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, an amount of $1,685,411, including accrued
interest of $481,751, was outstanding under the loan agreement.

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 subsequent to the year end as the Company paid the
significant shareholder the amounts due.

As a result, we are subject to the risks associated with
substantial indebtedness, including:

|- | we are required to use a portion of our cash flow to pay
      debt service costs;                                                                                                                                                           
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                              
|- | it may be more difficult and expensive for us to obtain
      additional funds through financing, if available at all;                                                                                                                       
|  |                                                                                                                                                                                                                                              
|- | we are more vulnerable to economic downturns and
      fluctuations in interest rates, less able to withstand competitive
      pressures and less flexible in reacting to changes in our industry and
      general economic conditions; and
|  |                                                                                                                                                                                                                                              
|- | if we default under any of our existing indebtedness or
      if our creditors demand payment of a portion or all of our indebtedness,
      we may not have sufficient funds to make such payments.                                         

- 8 -

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If we default under our Convertible Debentures, we may have
to forfeit our rights to our assets.

We have pledged all of our assets, including the assets of our
subsidiaries, as security to holders of our Convertible Debentures. A default
under our Convertible Debentures, if not waived or cured, would permit the
holders of our Convertible Debentures to foreclose on the collateral and we
could lose all our rights in the collateral, which would have a materially
adverse effect on our business. As a result, we could have to suspend or cease
our operations and you could lose your entire investment.

We may not be able to develop or manage our internal growth.

If we are successful in growing our existing businesses, such
growth may strain our management, human resources and information systems. To
manage our growth successfully, we will have to add managers and employees and
update our operating, financial and other systems, procedures and controls.

We are highly dependent on our executive management and
other key employees.

We rely heavily on our executive management and key employees
for providing services and for continued business development. We have
employment agreements which contain non-competition and non-solicitation
provisions with certain key executive managers and other key employees. Our
business could be materially adversely affected if a number of our executive
managers and other key employees were to leave us and if we were unable to
enforce the non-competition and non-solicitation agreements or to attract and
retain qualified replacements.

If we cannot deliver the features and functionality our
customers demand, we will be unable to attract customers, and that will result
in a loss of income and eventually a termination of our operations.

As a provider of business intelligence management information
technology, our future success depends largely upon our ability to determine the
features and functionality our customers demand and to design and implement
products that meet their needs in a cost efficient manner. Although we have
often been a leader in introducing new products and technologies, maintaining
that leadership while responding to downward pressures on price is an ongoing
challenge. There is no assurance that we will be able to successfully determine
customer requirements or that our current or future products and services will
adequately satisfy customer demands. If we cannot meet our customers' demands,
we will not generate revenues from this business and we may have to cease or
suspend key operations.

Our business depends on the protection of our intellectual
property and proprietary information.

We rely on a combination of trade secrets, confidentiality
procedures, contractual provisions and patent laws to protect our proprietary
rights in our products and technology. These measures may not be adequate to
protect our trade secrets and proprietary technology. As a result, unauthorized
third parties may copy or otherwise obtain and use our products or technology.
To enforce and defend our intellectual property rights and our proprietary
rights, we may have to engage in litigation, either domestically or in other
countries, and we could face substantial costs and diversion of resources,
including managements attention, regardless of the outcome of that litigation.
Our attempts to enforce our intellectual property rights may not be successful,
may result in royalties that are less than the cost of such enforcement efforts
or may result in the loss of the intellectual property altogether. Furthermore,
we may not have adequate funds available to prosecute actions to protect or
defend our proprietary rights, in which case those using our proprietary rights
may continue to do so in the future. Even if we succeeded in protecting our
intellectual property, others may independently develop similar technologies or
products that do not infringe on our intellectual property.

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Third parties may claim that our current or future products
or services infringe their proprietary rights or assert other claims against
us.

Any claims filed against us alleging that we infringe
third-party proprietary rights could result in significant expenses or
restrictions on our ability to provide our products and services. As the number
of entrants into our market increases, the possibility of an intellectual
property or other claim against us grows. Any intellectual property or other
claim, with or without merit, would be time-consuming and expensive to litigate
or settle and could divert managements attention from focusing on our core
business. As a result of such a dispute, we may have to pay damages, incur
substantial legal fees, develop costly non-infringing technology, if possible,
or enter into license agreements, which may not be available on terms acceptable
to us, if at all. As a result, our business and operating results could be
materially adversely affected. No such claims have been filed against us at this
time.

Competitive conditions could materially adversely affect our
businesses.

The markets in which we do, and intend to do business are
highly competitive. Our ability to execute our business strategy depends, in
part, upon our ability to develop and commercialize efficient and effective
products based on our technologies. We compete against established companies as
well as numerous independently owned small businesses. Many of our competitors
are capable of developing products based on similar technology, have developed
and are capable of continuing to develop products based on other technologies,
which are or may be competitive with our products and technologies. There are
many competitors in all market segments in which we operate, some of which have
significantly greater resources or capital than us, or have better reputations
among potential customers in the delivery of particular services or products.
Our competitors may succeed in developing competing products and technologies
that are more effective than our products and technologies, which may render our
existing and new products or technology uncompetitive, uneconomical or
obsolete.

We may be exposed to liability claims.

We have general liability insurance coverage for $5,000,000.
However, if a judgment is rendered against us in excess of the amount of our
coverage, we may have to cease operations. If we are sued for any reason, we
will have to rely on our liability insurance to pay any judgment rendered
against us. Although we maintain a general liability insurance of $5,000,000,
there is no assurance that:

- our insurance will provide adequate coverage against
potential liabilities if a product or a service we provide causes harm or fails
to perform as promised;

- adequate liability insurance will continue to be available in
the future; or

- our insurance can be maintained on acceptable terms.

The obligation to pay any liability claim in excess of whatever
insurance we are able to obtain would increase our expenses and could greatly
reduce our assets or cause us to cease operations. If a judgment is rendered
against us for any amount over our coverage of $5,000,000, we may have to cease
operations.

Fluctuations in the value of foreign currencies could result
in decreased revenues and increased operating expenses.

While our functional currency is the Canadian dollar and we
report our results in Canadian dollars, we have revenues and operating expenses
outside of Canada. Fluctuations in the value of the Canadian dollar

- 10 -

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are difficult to predict and can cause us to incur currency
exchange costs. Although, we cannot predict the effect of exchange rate
fluctuations on our future operating results, any material changes could cause
our operating results to be materially adversely affected.

The sales cycle for our products is lengthy.

The purchase of our products often requires significant,
executive-level investment and system design decisions by our customers. Sales
may take a long time to conclude because we must provide a significant level of
education about the use and benefits of our products. Accordingly, the sales
cycle associated with the purchase of our products is typically between six to
twelve months in length. During this period, a potential sale may be subject to
a number of significant risks over which we have little or no control, including
customers' budgeting constraints and internal acceptance review procedures
including, in some instances, approval by the board of directors of the
customer.

Our existing shareholders can exercise effective control
over us.

Our major shareholders own approximately 33.5% of our Class A
Common Shares. Arthur G. Ritchie our former Chairman of the Board beneficially
owns approximately 18.8% of SANDs Class A Common Shares. Thomas ODonnell,
Chief Executive Officer of SAND and a director of SAND, beneficially owns
approximately 9.2% of SANDs Class A Common Shares. Carol Shattner, the wife of
the late Jerome Shattner (Jerome Shattner was the late Executive Vice President
of the Company), beneficially owns 5.5% of our Class A Common Shares. These
shareholders may, as a practical matter, continue to be able to control the
election of a majority of the directors of SAND and the determination of many
corporate actions. This concentration of ownership could also have the effect of
delaying or preventing a change in control of SAND.

Our ability to issue Class B Shares could make it more
difficult for a third party to acquire us to the detriment of holders of Class
A Common Shares.

Our articles of incorporation provide for an unlimited number
of Class B Shares which, if ever they are issued, may make it difficult for a
third party to acquire control of us, even if a change in control would be
beneficial to our shareholders. Our board has the authority to attach special
rights, including voting or dividend rights, to the Class B Shares. However,
the voting rights of a Class B Share cannot exceed those of a Class A Common
Share. Class B shareholders who possess these rights could make it more
difficult for a third party to acquire our Company.

RISKS ASSOCIATED WITH OUR COMMON SHARES:

The market for our common shares is limited.

The market for our common shares is limited and you may not be
able to resell your common shares. There is currently only a limited trading
market for our common stock. Our common shares trade on the OTC Bulletin Board
operated by the National Association of Securities Dealers, Inc. under the
symbol "SNDTF". Trading volume of OTC Bulletin Board stocks has been
historically lower and more volatile than stocks traded on an exchange. As a
result, you may not be able to resell your securities in open market
transactions.

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There are a large number of outstanding stock options and
warrants issued that if exercised may be available for future sale and the sale
of these shares may depress the market price of our common stock.

As of October 21, 2011, 19,116,636 shares of our common stock
were outstanding and 8,019,183 shares are issuable upon conversion or exercise
of our outstanding Convertible Debentures, warrants and stock options. The entry
of this substantial number of shares into the public market, or the mere
expectation of the entry of those shares into the market could adversely affect
the market price of our common shares and could impair our ability to obtain
capital through securities offerings.

Our common shares are subject to penny stock rules which
restricts the liquidity of your investment.

Our common shares are now and may continue to be in the future
subject to the penny stock rules under the Securities Exchange Act of 1934, as
amended (Exchange Act). These rules regulate broker/dealer practices for
transactions in "penny stocks". Penny stocks are generally equity securities
with a price of less than $5.00, subject to certain exceptions. The penny stock
rules require broker/dealers to deliver a standardized risk disclosure document
that provides information about penny stocks and the nature and level of risks
in the penny stock market. The broker/dealer must also provide the customer with
current bid and offer quotations for the penny stock, the compensation of the
broker/dealer and its salesperson and monthly account statements showing the
market value of each penny stock held in the customer's account. The bid and
offer quotations and the broker/dealer and salesperson compensation information
must be given to the customer orally or in writing prior to completing the
transaction and must be given to the customer in writing before or with the
customer's confirmation. In addition, the penny stock rules require that prior
to a transaction, the broker and/or dealer must make a special written
determination that the penny stock is a suitable investment for the purchaser
and receive the purchaser's written agreement to the transaction. These
additional penny stock disclosure requirements are burdensome, discourage
investor interest, and may reduce the trading activity in the market for our
common stock. As long as the common stock is subject to the penny stock rules,
holders of our common stock may find it more difficult to sell their securities.

Our operating results have and may continue to vary from
quarter to quarter, and as a result, we may fail to meet the expectations of our
investors and analysts, which may cause our stock price to fluctuate or
decline.

As a software vendor, our contract flow is sometimes
unpredictable, and to the extent that we do not generate new business upon
completion of existing contracts, our revenue will decline. Due to these
factors, our revenue and operating results have fluctuated and may continue to
fluctuate from quarter to quarter. Due to these risks, you should not rely on
period-to-period comparisons of our results of operations as an indication of
future performance.

Ineffective internal controls could have a material adverse
effect on our business and operating results and stockholders could lose
confidence in our financial reporting.

Our internal controls over financial reporting may not prevent
or detect mistatements because of their inherent limitations, including the
possibility of human error, the circumvention or overriding of controls, or
fraud. Even effective internal controls can only provide reasonable assurance
with respect to the preparation and fair presentation of financial statements.
If we fail to maintain the adequacy of our

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internal controls, including the failure to implement required
new or improved controls, or if we experience difficulties in their
implementation, our business and operating results could be harmed and we could
fail to meet our financial reporting obligations, which could cause investors to
lose confidence in our reported financial information and have a material
adverse effect on our stock price.

ITEM
4. **INFORMATION ON THE COMPANY

A.History and Development of the Company

SAND Technology Inc. was incorporated on December 10, 1982
under the Canada Business Corporations Act ("CBCA") and carried on business
under the name Sand Technology Systems (Canada) Inc. until 1988. From 1988 until
1999, we used the name Sand Technology Systems International Inc. On January 1,
2000, we changed our name to SAND Technology Inc. Our principal place of
business is located at 4115 Sherbrooke St. West, Suite 500, Westmount, Quebec,
Canada H3Z 1B1 and our phone number is (514) 939-3477.

Until 1999, an important part of our business was the sale and
service of mainframe peripheral products manufactured by Hitachi, Ltd. of Japan,
through Hitachi Data Systems Inc. ("HDS Canada"). HDS Canada marketed a broad
range of information processing solutions, including enterprise servers, storage
subsystems, peripheral products and professional services. SAND was the legal
and beneficial owner of 40% of the issued and outstanding shares of HDS Canada.
Hitachi Data Systems Company ("HDSC") of Santa Clara, California was the legal
and beneficial owner of the remaining 60%. In August 1999, SAND sold its
interest in HDS Canada to HDSC and withdrew from the mainframe computer market
and the peripheral hardware market.

We then fully shifted and have since maintained our focus on
the design, development, marketing and support of software products,
collectively known as the SAND Product Suite, that enable users to retrieve
usable business information from large amounts of data and on providing
specialized systems integration services in connection with those products.

Initially, SAND offered products mainly as part of a systems
integration model. At the end of the 2002 fiscal year, we consolidated the
systems integration portion of our business which had been growing in importance
and subsequently re-branded it with the name ClarityBlue. ClarityBlue Limited
(previously named Sand Technology (U.K.) Limited) ("ClarityBlue") concentrated
on developing a strong competitive practice utilizing the SAND/DNA Analytics
precursor product as an engine for its Customer Analytic offering, and was able
to attract high profile customers particularly in the telecommunications and
financial services markets in the United Kingdom. ClarityBlue was sold on July
31, 2003 to a group of investors which included members of the senior management
of ClarityBlue.

We now focus our resources around intelligent information
management and consultative best practices leveraging the latest developments
in our SAND CDBMS platforms.

B.Business Overview

1)Business
Description

SAND is one of the leading sources of business intelligence
management information technology. SAND is involved in the design, development,
marketing and support of software products and services that deliver usable
business information from Big Data. The software products, collectively known as
the

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SAND Analytic Platform, are designed to provide an efficient
and cost effective way for business users to make fast and easy inquiries of
large data sets without the intervention of specialist information technology
professionals.

Our revenues consist of license fees for software products and
fees for a range of associated services, including software maintenance and
support, training and system implementation consulting. Our plans to achieve
profitability in the future will continue to require us to devote substantial
financial resources to grow our work force, improve our infrastructure, continue
the development, marketing and the distribution of our products, and generally
support our expanding operations.

2)Products and Services

The SAND Analytic Platform is based on our patented tokenized
columnar database engine. It is an enterprise platform technology that enables
organizations to maximize the business value of corporate information by
supporting better business decisions through intuitive interactive data access
which allows keeping more data available for analysis. Our products permit more
timely and accurate decisions across an entire organization making "business
intelligence" a key component of operational excellence.

SAND Analytic Platform

SAND Analytic Platform is substantially faster than any
traditional relational database and can be searched directly by business users
using standard business intelligence tools. This is a breakthrough technology
and has particular impact on the current information technology environment
where volumes of corporate data are growing at an exponential rate.

During fiscal 2011, a focus of the R&D work was associated
with enhancing in-database analytics, performance enhancements and scalability
with the introduction of the Massively Parallel Processing (MPP) architecture.
The support of the PMML (Predictive Model Markup Language) standard enables
processing complex statistical and mathematical models inside the database
engine. The MPP architecture enables the SAND database to scale to many TBs and
still deliver great performance.

i)**SAND - Converting Data into Key Decisions

The SAND Analytic Platform facilitates the use of data mining,
query, reporting and other classes of online analytical applications, thereby
enabling more effective management of customer relationships, supply chains and
other critical business processes.

Our Analytic Platform product incorporates a number of advanced
technologies. Its development has required substantial investment in research
and development:

a) ******During fiscal 2002, important advancements were made in the
ability to quickly and efficiently load even larger volumes of data into the
SAND product and in its ability to support an even wider variety of applications
by more efficient interfacing with industry-standard applications and data
extraction tools.

b) ******During fiscal 2004, we made available Release 3.2 of our
high-performance SAND Analytic Server. Release 3.2 augmented the proven
scalability and query speed of previous versions of the Nucleus data management
technology on which it is based by significantly enhancing the speed of loading
and

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updating data for analysis as well as adding further support
for open industry-standard business intelligence tools through more flexible
open database connectivity.

c)******
During fiscal 2005, we released a significant update to Version 4 incorporating
many features to allow high-performance scalability for multiple users and huge
amounts of data.

d) ******During fiscal 2008, SAND made available Release 5.1 of SAND/DNA
Analytics which was designed to provide superior analytic capabilities and
performance for extremely large (multi-terabyte) databases by enabling
implementation of a distributed architecture. Features included support for
federated databases, virtual tables, UNION operators in nested table
expressions, unstructured free text searches, advanced statistical aggregate
functions and triganometric math functions, snapshots, and Eastern European
language and hexadecimal characters.

e) ******During fiscal 2009, SAND made available Release 5.2 of SAND/DNA
Analytics. This new version introduced three major functionalities. A text
search engine has been incorporated into the product to enable complex text
analytics. A data federation layer has been integrated to the core product to
enable a distributed architecture facilitating the interoperability. MOLAP
functionalities have been added to the SQL language enabling more complex
analytics.

During fiscal 2010, SAND introduced the support of advanced
data privacy protection. The new functionality is based on internal database
encryption and strict data access mechanism. That type of functionality is
required by organizations that need to comply with industry standards or
government regulations, like PCI standards in the retail and financial market
and HIPPA regulations for the health care market. The performance of the product
has been enhanced at different levels to take advantage of a new underline
algorithm associated with join operations, extending the use of multithread
and distributed processing. The SQL functionalities have been extended to
introduce new mathematical functions. The manageability of the product has also
been improved with the extension of the background database housekeeping task.

ii)**SAND Platform - Empowering the Users

We have developed unique data storage and manipulation
architecture which allows user-driven queries on large amounts of data to be
performed efficiently and cost-effectively. This patented breakthrough in the
storage and integration of data, and in the speed and flexibility at which data
can be analyzed by business users, represents the next step in the drive to
empower managers across an organization by providing them with the data they
need when and how they need it to perform business operations more effectively
at a lower cost.

During fiscal 2010, SAND introduced a new deployment
architecture based on a private cloud computing. The new architecture enables
high availability, active disaster recovery and on demand processing resource
allocation. The new architecture also provides economies of scale and a dynamic
and agile hardware deployment.

3)**
Key Business Segments and Uses of Our Software Solutions

Our customers in Canada, the United States and Europe use
SANDs solutions for:

a) ******Analytical and operational purposes, including market
segmentation, CRM analytics, Web analytics, Business Performance Management and
strategic planning, and

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b) ******Regulatory and compliance applications, including efficient
storage and retrieval of large amounts of historical data.

In particular, the SAND Analytics Platform is used to provide
fast measurable business benefits in the retail, finance, healthcare,
transportation, telecommunication, manufacturing, government and insurance
sectors. Customers, often at the recommendation of systems integrators or
platform partners, use our products in support of strategic corporate
initiatives including e-business, customer relationship management, reporting,
supply chain management, risk analysis and management, product trend and
profitability analysis, fraud detection, emerging markets, information lifecycle
management, competitive analysis and quality control. Increasingly as
organizations shift the competitive landscape from operations to intelligence,
these information-intensive decisions are not stand-alone, but a core part of an
integrated information management infrastructure.

4) **Business Locations

a) ******Our corporate headquarters are located in Westmount, Canada, where
we also have development and sales resources. We have offices in Kenilworth, New
Jersey and Pasadena, California, through our wholly-owned subsidiary Sand
Technology Corporation, to provide for the development, sales, marketing and
distribution of the SAND/Analytic Platform in the United States.

b) ******Our offices in the United Kingdom are located in Chiswick Park,
near London, where we operate through our wholly-owned subsidiary Sand
Technology Limited.

c) ******Our offices in Germany are located in Hamburg where we operate
through our wholly-owned subsidiary Sand Technology Deutschland GmbH.

d) ******Our offices in Australia are located in Melbourne where we operate
through our wholly-owned subsidiary Sand Technology Pty Ltd.

5)**Key partners

We now have marketing, sales and technical arrangements in
place with a number of recognized systems integration partners who have trained
personnel in the marketing and deployment of our products.

6)**
  Company Strategy

Our long term direction for our high performance analytical and
intelligent information management products has always been to ensure that these
products become a recognized platform for advanced analytical applications and
for managing large data volumes.

SANDs vision is to be the dominant leader in delivering its
products and best practices to customers around the world, in order to provide
them with all the data they need, when and how they need it.

We have a four-pillar strategy to achieve SANDs vision.It
focuses on:

| | i.  | Implementing a best practices and service offering
      approach to delivering solutions.                                 
| | --- | ---------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                            
| | ii. | Becoming the preferred partner of choice with systems
      integrators and application vendors delivering the
  solutions.

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| | iii. | Implementing a TEAM SAND approach to delivering the
      solutions worldwide.  
| | ---- | --------------------------------------------------------------------------------
| |      |                                                                                 
| | iv.  | Implementing a continuous improvement approach to our
      internal operations.

7)**
  Competition

We compete in the highly competitive computer software
industry. The market in which we operate is still developing and is intensively
competitive, highly fragmented, and characterized by rapidly changing technology
and evolving standards. Our current and potential competitors offer a variety of
solutions and generally fall within several categories:

- vendors that offer data warehouse appliances which operate specifically
  with their proprietary platform such as IBM / Netezza, Teradata and Oracle;
- other companies that may in the future announce offerings of enterprise
  information management solutions.

Our competitive position in our market is uncertain and
changing due principally to the variety of current and potential competitors and
the emerging nature of the market. We expect additional competition as other
established and emerging companies enter into the intelligent information
management software market and new products and technologies are introduced.
Increased competition could result in price reductions, fewer customer orders,
reduced gross margins, longer sales cycles, and loss of market share.

We compete primarily on the basis of product features, lower
total cost of ownership, return on investment , time to market, ease of use,
product performance, product quality, user scalability, open architecture,
customer support and price. While we believe we presently compete favourably
with respect to each of these factors, our market is evolving at a rapid pace.

8) **Proprietary Rights

We currently rely primarily on a combination of copyright and
trademark laws, patents, trade secrets, confidentiality procedures and
contractual provisions to protect our proprietary rights. We seek to protect our
software, documentation and other written materials under trade secret and
copyright laws, which afford only limited protection. We currently have nine
United States patents and thirty-two foreign patents.

In 1994, SAND acquired all the rights, title and interest in
the Nucleus Database Engine Subsystem in addition to trademarks, trade names and
other proprietary rights, their interests included patents related to bit vector
compression and Boolean operation processing capability.

In October 1997, SAND acquired the Advanced Technology Group of
XDB Systems, Inc. as well as the rights to the source code of Quantum Leap.
Quantum Leap was designed to provide a more flexible architecture for
customization and incorporation of new technology quickly and effectively using
small footprint engines.

The Company has been issued nine United States patents and
thirty-two foreign patents which provide protection for the SAND Analytic Server
and the SAND Searchable Archive which incorporate the Nucleus database engine
and other Nucleus derived products.

The Company has also filed applications in accordance with the
Patent Cooperation Treaty (the "PCT"). The PCT is a multilateral treaty that was
concluded in Washington in 1970 and entered into force in 1978.

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It is administered by the International Bureau of the World
Intellectual Property Organization (the "WIPO"), headquartered in Geneva,
Switzerland. The PCT facilitates the obtaining of protection for inventions
where such protection is sought in any or all of the PCT contracting states. It
provides for the filing of one patent application (the "international
application"), with effect in several contracting states, instead of filing
several separate national and/or regional patent applications. At the present
time, an international application may include designation for regional patents
in respect of contracting states party to regional patent treaties. The PCT does
not eliminate the necessity of prosecuting the international application in the
national phase of processing before the national or regional offices, but it
does facilitate such prosecution in several important respects by virtue of the
procedures carried out first on all international applications during the
international phase of processing under the PCT. The formalities check, the
international search and (optionally) the international preliminary examination
carried out during the international phase, as well as the automatic deferral or
national processing which is entailed, give the applicant more time and better
basis for deciding whether and in what countries to further pursue the
application.

The Company holds registered trademarks and trademarks. SAND
Technology, N-Vector, Sandonline and Nucleus are registered trademarks, and SAN
DNA Analytics, SAND Analytic Server, and all related SAND − and Nucleus-based
marks and designs are trademarks of the Company.

9)    Seasonality

The Company's operations are not seasonal and its operations
are carried out year round.

10)   Impact of Governmental
  Regulations

Other than government regulations of general application, no
government body has specific authority to regulate the business of the Company.

C.Organizational Structure

SAND has six wholly-owned subsidiaries: (i) Sand Technology
(Ireland) Limited; (ii) STSI Licensing, LLC; (iii) Sand Technology Corp.; (iv)
Sand Technology Deutschland GmbH; (v) Sand Technology Limited; and (vi) Sand
Technology Pty Ltd.

Subsidiary
      Jurisdiction of Incorporation
      Percentage of voting securities
      heldSand Technology Corp.
    Delaware
    100%STSI Licensing, LLC
    New Jersey
    100%Sand Technology (Ireland) Limited
    Ireland
    100%Sand Technology Deutschland Gmbh
    Germany
    100%Sand Technology Limited
    England
    100%Sand Technology Pty Ltd
    Australia
    100%


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The following chart illustrates the principal subsidiaries of
SAND, together with the jurisdiction of incorporation:



D.Property, Plant and Equipment

As at July 31, 2011, we leased a total of approximately 7,668
  square feet of office space in two cities across North America, 215 square feet
  in London, England and 2,561 square feet in Hamburg, Germany. The weighted average
  annualized cost per square foot of the total of 16,850 square feet occupied
  is $22.67 including real estate taxes and operating expenses. No lease extends
  beyond November 30, 2021.

ITEM 4A.      UNRESOLVED STAFF COMMENTS

Not Applicable.

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ITEM
5. **OPERATING AND FINANCIAL REVIEW AND PROSPECTS

A.OPERATING RESULTS

1)**Financial Condition

Total assets of $2,215,227 as of July 31, 2011 were 4.6% higher
than the previous year total of $2,117,443. The increase is attributable to the
Cash balance of $810,745 as of July 31, 2011 being 40.0% higher than the
previous year balance of $579,270, to the Accounts Receivable balance of
$541,959 as of July 31, 2011 being 26.7% lower than the previous year balance of
$739,144 ,to the Research and Development Tax Credits Receivable balance of
$663,857 as of July 31, 2011 being 0.6% higher than the previous year balance of
$660,000 , to the Prepaid Expenses balance of $117,305 as of July 31, 2011 being
57.4% higher than the previous year balance of $74,541 and to the net Capital
Assets balance of $81,361 as of July 31, 2011 being 26.2% higher than the
previous year balance of $64,488. Total liabilities of $5,110,058 as of July 31,
2011 were 11.9% higher than the previous year balance of $4,568,107. The
increase is mainly attributable to the Accounts Payable and Accrued Liabilities
balance of $776,623 as of July 31, 2011 being 21.1% lower than the previous year
balance of $984,149, to the Deferred Revenues balance (short-term and long-term)
of $1,875,927 as of July 31, 2011 being 51.1% higher than the previous year
balance of $1,241,938, to the Due to Shareholders (short-term and long-term)
balance of $1,914,837 as of July 31, 2011 being 2.2% higher than the previous
year balance of $1,874,153 and to the Convertible Debentures balance of $542,671
as of July 31, 2011 being 21.1% higher than the previous year balance of
$448,309.

2)**Operations

Revenue  Total and Variation

The following table provides a summary of the revenue growth
for fiscal years 2011, 2010, 2009 and 2008:

|                               |   | Year ended |  |   | Year ended |  |   | Year ended |  |   | Year ended | 
|------------------------------ | - | ---------- |  | - | ---------- |  | - | ---------- |  | - | ---------- | 
|                               |   | July 31,   |  |   | July 31,   |  |   | July 31,   |  |   | July 31,   | 
|Revenue - Total and Variation  |   | 2010       |  |   | 2010       |  |   | 2009       |  |   | 2008       | 
|Revenue                        |   |            |  |   |            |  |   |            |  |   |            | 
|Revenue                        | $ | 6,871,671  |  | $ | 6,562,411  |  | $ | 7,049,237  |  | $ | 6,998,472  | 
|Year-over-year
      variation |   | 4.7%       |  |   | -6.9%      |  |   | 0.7%       |  |   | 4.0%       | 

Sales were negatively impacted during fiscal 2011 by the
strengthening of the Canadian dollar against three of the foreign currencies in
which the Company invoices its customers outside of Canada, the U.S. dollar, the
U.K. pound and the Euro (the Company only commenced operations in Australia in
April 2011). Comparing the average rates of fiscal 2011 and fiscal 2010, the
Canadian dollar increased against the U.S. dollar, the U.K. pound and the Euro
by 6.7%, 7.0% and 9.8%, respectively.

Revenue growth in fiscal year 2011 was lower than expected due
to (a) customers cut in IT spending due to the slowdown in the economy, and (b)
a cautious attitude of customers towards investing in long-term solutions.

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Revenue  Segment and Variation

The Company has four geographical segments. The Canadian,
United States, European and Australian segments market the SAND/DNA Product
Suite. The following table provides a summary of the revenue growth by
geographical segments for fiscal years 2011, 2010 and 2009:

|                                |   |            |  |   | Canada        |  |   |            | 
|------------------------------- | - | ---------- |  | - | ------------- |  | - | ---------- | 
|                                |   | Year ended |  |   | Year ended    |  |   | Year ended | 
|                                |   | July 31,   |  |   | July 31,      |  |   | July 31,   | 
|Revenue - Segment and Variation |   | 2011       |  |   | 2010          |  |   | 2009       | 
|Revenue                         |   |            |  |   |               |  |   |            | 
|Revenue                         | $ | 909,206    |  | $ | 1,131,633     |  | $ | 1,716,902  | 
|Year-over-year
      variation  |   | -19.7%     |  |   | -34.1%        |  |   | 37.7%      | 
|                                |   |            |  |   |               |  |   |            | 
|                                |   |            |  |   | United States |  |   |            | 
|                                |   | Year ended |  |   | Year ended    |  |   | Year ended | 
|                                |   | July 31,   |  |   | July 31,      |  |   | July 31,   | 
|Revenue - Segment and Variation |   | 2011       |  |   | 2010          |  |   | 2009       | 
|Revenue                         |   |            |  |   |               |  |   |            | 
|Revenue                         | $ | 914,020    |  | $ | 812,620       |  | $ | 971,777    | 
|Year-over-year
      variation  |   | 12.5%      |  |   | -16.4%        |  |   | -16.4%     | 
|                                |   |            |  |   |               |  |   |            | 
|                                |   |            |  |   | Europe        |  |   |            | 
|                                |   | Year ended |  |   | Year ended    |  |   | Year ended | 
|                                |   | July 31,   |  |   | July 31,      |  |   | July 31,   | 
|Revenue - Segment and Variation |   | 2011       |  |   | 2010          |  |   | 2009       | 
|Revenue                         |   |            |  |   |               |  |   |            | 
|Revenue                         | $ | 4,824,667  |  | $ | 4,618,158     |  | $ | 4,360,558  | 
|Year-over-year
      variation  |   | 4.5%       |  |   | 5.9%          |  |   | -5.0%      | 
|                                |   |            |  |   |               |  |   |            | 
|                                |   |            |  |   | Australia     |  |   |            | 
|                                |   | Year ended |  |   | Year ended    |  |   | Year ended | 
|                                |   | July 31,   |  |   | July 31,      |  |   | July 31,   | 
|Revenue - Segment and Variation |   | 2011       |  |   | 2010          |  |   | 2009       | 
|Revenue                         |   |            |  |   |               |  |   |            | 
|Revenue                         | $ | 223,778    |  | $ | -             |  | $ | -          | 
|Year-over-year
      variation  |   | N/A        |  |   | N/A           |  |   | N/A        | 

Operating Expenses

The following table provides a summary of the operating
expenses for the fiscal years 2011, 2010, 2009 and 2008:

- 21 -

---

|                                                      |   | Year ended |  |   | Year ended |  |   | Year ended |  |   | Year ended | 
|----------------------------------------------------- | - | ---------- |  | - | ---------- |  | - | ---------- |  | - | ---------- | 
|                                                      |   | July 31,   |  |   | July 31,   |  |   | July 31,   |  |   | July 31,   | 
|Operating Expenses                                    |   | 2011       |  |   | 2010       |  |   | 2009       |  |   | 2008       | 
|                                                      |   |            |  |   |            |  |   |            |  |   |            | 
|Cost of sales and product support                     | $ | 1,235,328  |  | $ | 1,194,674  |  | $ | 1,396,224  |  | $ | 1,470,215  | 
|Year-over-year variation                              |   | 3.4%       |  |   | -14.4%     |  |   | -5.0%      |  |   | -11.8%     | 
|Percentage of
      revenues                          |   | 18.0%      |  |   | 18.2%      |  |   | 19.8%      |  |   | 21.0%      | 
|                                                      |   |            |  |   |            |  |   |            |  |   |            | 
|Research and development costs, net                   |   | 1,866,244  |  |   | 1,458,392  |  |   | 1,960,295  |  |   | 1,971,813  | 
|Year-over-year variation                              |   | 28.0%      |  |   | -25.6%     |  |   | -0.6%      |  |   | -11.0%     | 
|Percentage of
      revenues                          |   | 27.2%      |  |   | 22.2%      |  |   | 27.8%      |  |   | 28.2%      | 
|                                                      |   |            |  |   |            |  |   |            |  |   |            | 
|Amortization of capital assets and other
      assets |   | 40,597     |  |   | 53,298     |  |   | 63,643     |  |   | 187,517    | 
|Year-over-year variation                              |   | -23.8%     |  |   | -16.3%     |  |   | -66.1%     |  |   | -6.8%      | 
|Percentage of
      revenues                          |   | 0.6%       |  |   | 0.8%       |  |   | 0.9%       |  |   | 2.7%       | 
|                                                      |   |            |  |   |            |  |   |            |  |   |            | 
|Selling, general and administrative
      expenses    |   | 5,399,512  |  |   | 4,224,677  |  |   | 4,372,067  |  |   | 4,402,613  | 
|Year-over-year variation                              |   | 27.8%      |  |   | -3.4%      |  |   | -0.7%      |  |   | -13.3%     | 
|Percentage of
      revenues                          |   | 78.6%      |  |   | 64.4%      |  |   | 62.0%      |  |   | 62.9%      | 

Cost of Sales and Product Support

Cost of sales and product support consists mainly of costs
related to providing customer implementation and support services and the costs
related to the sale of third-party software, including certain license fees and
royalties.

Research and Development Costs

Research and development costs consist mainly of salaries and
other personnel-related costs of technical and engineering personnel associated
with our research and product development activities, including the enhancement
and localization of existing products, quality assurance, and testing.

Amortization of Capital Assets and Other Assets

Amortization of capital assets and other assets consists of the
depreciation of furniture and equipment, computer equipment, research and
development equipment and leasehold improvements costs over their estimated
useful lives.

Selling, General and Administrative Expenses

Selling, General and Administrative expenses include salaries,
commissions and other personnel-related costs, travel expenses, advertising
programs and other promotional activities associated with the selling and
marketing of our products. It excludes foreign exchange gains and losses and
interest expense.

Our cost of sales for fiscal year 2011 showed a slight increase
of 3.4% compared to fiscal year 2010 in line with the increase in sales.

Research and Development costs increased by 28.0%, or $407,852,
as a result of a decrease in government sponsored investment tax credits from
the previous year in the amount of $380,838, the previous years amount
including a catch-up amount representing two years of investment tax credits.

- 22 -

---

The reduction in Amortization of Capital Assets in fiscal year
2011 from the amortization in fiscal year 2010 was due to the lower value of
capital assets and minimal capital expenditures.

Selling, General and Administrative expenses of $5,399,512 for
fiscal 2011 was 27.8% higher than the previous year amount of $4,224,677. The
increase was largely attributable to a significant increase in stock-based
compensation from $79,605 in fiscal year 2010 to $741,847 in fiscal year 2011,
representing the issuance of a significant number of stock options to employees,
Officers and Directors of the Company. The Company also invested heavily in
additional sales staff and marketing expenditures in an effort to boost sales in
future periods.

Interest expense of $370,313 for fiscal year 2011 was 25.1%
higher than the previous year amount of $295,941 as a result of increased
interest costs related to the loan from a significant shareholder.

The foreign exchange loss of $72,146 for fiscal 2011 was 10.9%
lower than the previous year amount of $80,978.

Net Losses  Total and Variation

The following table provides a summary of the net losses for
fiscal years 2011, 2010, 2009 and 2008:

|                               |   | Year ended |   |   | Year ended |   |   | Year ended |   |   | Year ended |  
|------------------------------ | - | ---------- | - | - | ---------- | - | - | ---------- | - | - | ---------- | -
|                               |   | July 31,   |   |   | July 31,   |   |   | July 31,   |   |   | July 31,   |  
|Net Loss - Total and Variation |   | 2011       |   |   | 2010       |   |   | 2009       |   |   | 2008       |  
|                               |   |            |   |   |            |   |   |            |   |   |            |  
|Net Loss                       | $ | (2,112,469 | ) | $ | (745,549   | ) | $ | (1,191,695 | ) | $ | (1,271,950 | )
|******Year-over-year variation |   | -183.3%    |   |   | 37.4%      |   |   | -6.3%      |   |   | -49.7%     |  

There was an increase of 183.3% in our net loss from $745,549
in fiscal 2010 to $2,112,469 in fiscal 2011. The increase in total expenses
described above was only partially offset by the increase in total revenues from
$6,562,411 for fiscal 2010 to $6,871,671 for fiscal 2011.

Inflation

Inflation has no material impact on the Company's
operations.

Impact of Foreign Currency

Since we currently earn revenues and incur expenses in United
States dollars, British pounds, Euros, Australian Dollars and Canadian dollars,
exchange rates for these and other local currencies in countries where we may
operate in the future may fluctuate in relation to the Canadian dollar and such
fluctuations may have an adverse effect on our earnings or assets when United
States dollars, British pounds, Euros, Australian dollars or local currencies
are exchanged for Canadian dollars. We have not entered into forward foreign
exchange contracts. Gains and losses resulting from the translation of revenue
and expenses denominated in United States dollars, British pounds, Euros and
Australian dollars into Canadian dollars have been included in our results of
operations in to the audited consolidated financial statements.

Changes in foreign exchange rates had a negative impact on our
results of operations for fiscal year 2011. Comparing the average rates of
fiscal 2011 and fiscal 2010, the Canadian dollar increased against the U.S.
dollar, the U.K. pound and the Euro by 6.7%, 7.0% and 9.8%, respectively (the
Company only commenced operations in Australia in April 2011).

- 23 -

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Summary of Quarterly Results

The following tables set forth the unaudited statements of
operations for each of the quarters of fiscal years 2011, 2010, 2009 and 2008.
The quarterly results, in managements opinion, have been prepared on a basis
consistent with the audited consolidated financial statements and include the
adjustments necessary for a fair presentation of the information.

|                                                          |   | Year
      Ended July 31, 2011 |   |   | Year
      Ended July 31, 2010 |  
|--------------------------------------------------------- | - | ------------------------------ | - | - | ------------------------------ | -
|QUARTERLYRESULTS                                          |   | Q4                             |   |   | Q3                             |  
|                                                          |   |                                |   |   |                                |  
|Revenue                                                   | $ | 1,456,584                      |   | $ | 1,002,596                      |  
|Quarter-over-quarter variation                            |   | 45.3%                          |   |   | -59.0%                         |  
|                                                          |   |                                |   |   |                                |  
|Cost of sales and product support                         |   | 341,155                        |   |   | 284,470                        |  
|Quarter-over-quarter variation                            |   | 19.9%                          |   |   | 0.3%                           |  
|                                                          |   |                                |   |   |                                |  
|Gross margin                                              |   | 76.6%                          |   |   | 71.6%                          |  
|                                                          |   |                                |   |   |                                |  
|Totalotheroperatingexpenses                               |   | 2,034,629                      |   |   | 2,012,402                      |  
|Quarter-over-quarter variation                            |   | 1.1%                           |   |   | -0.6%                          |  
|                                                          |   |                                |   |   |                                |  
|Profitability                                             |   |                                |   |   |                                |  
|Net income (loss)                                         |   | (919,200                       | ) |   | (1,294,276                     | )
|Quarter-over-quarter variation in net
      income (loss) |   | -29.0%                         |   |   | -1053.5%                       |  
|Basic and diluted loss
      per common share             |   | -0.05                          |   |   | -0.08                          |  
|                                                          |   |                                |   |   |                                |  
|Weightedaveragenumberofsharesoutstanding                  |   | 17,009,173                     |   |   | 16,204,842                     |  

|                                                          |   | Year
      Ended July 31, 2009 |   |   | Year
      Ended July 31, 2008 | 
|--------------------------------------------------------- | - | ------------------------------ | - | - | ------------------------------ | 
|QUARTERLYRESULTS                                          |   | Q4                             |   |   | Q3                             | 
|                                                          |   |                                |   |   |                                | 
|Revenue                                                   | $ | 1,706,293                      |   | $ | 2,371,632                      | 
|Quarter-over-quarter variation                            |   | -28.1%                         |   |   | 35.7%                          | 
|                                                          |   |                                |   |   |                                | 
|Cost of sales and product support                         |   | 319,612                        |   |   | 349,592                        | 
|Quarter-over-quarter variation                            |   | -8.6%                          |   |   | -13.8%                         | 
|                                                          |   |                                |   |   |                                | 
|Gross margin                                              |   | 81.3%                          |   |   | 85.3%                          | 
|                                                          |   |                                |   |   |                                | 
|Totalotheroperatingexpenses                               |   | 1,761,806                      |   |   | 1,721,343                      | 
|Quarter-over-quarter variation                            |   | 2.4%                           |   |   | 17.2%                          | 
|                                                          |   |                                |   |   |                                | 
|Profitability                                             |   |                                |   |   |                                | 
|Net income (loss)                                         |   | (375,127                       | ) |   | 300,697                        | 
|Quarter-over-quarter variation in net income
      (loss) |   | -224.8%                        |   |   | -336.0%                        | 
|Basic and diluted loss
      per common share             |   | -0.03                          |   |   | 0.02                           | 
|                                                          |   |                                |   |   |                                | 
|Weightedaveragenumberofsharesoutstanding                  |   | 14,318,189                     |   |   | 14,318,189                     | 

Sales of the Company's products and services are not subject to
seasonal variations. Historically, the Companys operating results have
fluctuated on a quarterly basis. The Companys revenues, expenses and operating
results may vary significantly from quarter-to-quarter because of a number of
factors. These factors may include the timing of product sales and the length of
the sales cycle. As a result, period-to-period comparisons may not be meaningful
comparisons of the Companys results nor are they necessarily indicative of the
future results of the Company.

- 24 -

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B.Liquidity and Capital Resources

Our cash balance as at July 31, 2011 was $810,745 compared to
$579,270 as at July 31, 2010 and $1,065,572 at July 31, 2009.

We generated a negative cash flow of $178,8263 from operating
activities in fiscal 2011 as compared to a negative cash flow of $573,567 from
operating activities in fiscal 2010, representing an increase in cash flow of
$394,7414 in fiscal 2011 as compared to a decrease in cash flow from operating
activities in fiscal 2010 of $59,096. For fiscal 2011, the increase in the net
loss over fiscal year 2010 by $1,366,920 was partially offset by an increase of
$662,245 in stock-based compensation, representing a non-cash expense.

Investing activities represent additions to capital assets
which amounted to $57,436 in fiscal 2011 as compared to $34,334 in fiscal 2010
and $24,781 in fiscal 2009.

Financing activities represent funds provided by shareholders
and private investors and the issuance of share capital. The Company generated a
positive cash flow of $514,076 from financing activities in fiscal 2011 as
compared to a positive cash flow of $254,867 from financing activities in fiscal
2010, representing an increase of $259,209 in fiscal year 2011 as compared to a
decrease in fiscal year 2010 of $494,157. For fiscal 2011, the increase is
mainly attributable to a private placement of $775,073 (U.S.$750,000) involving
investors and the Chief Executive Officer, and to a reduction in repayments of a
shareholder loan.

At July 31, 2011, we had a working capital deficiency of
$1,248,354 compared to a working capital deficiency of $982,935 as at July 31,
2010, representing an increase of $265,419 in working capital deficiency in
fiscal 2011 as compared to a decrease in working capital deficiency in fiscal
2010 of $927,123. Working capital has been calculated as the difference between
current assets and current liabilities.

As of July 31, 2011, the Companys long-term debt consisted of
the following:

| | a) | Convertible debentures consisting of 1,114 Units issued
      as part of a private placement transaction on April 18, 2008. Each unit
      consists of one 8% Convertible Debenture due December 31, 2017, having a
      nominal value of U.S.$900, redeemable at the option of the Company if the
      bid price of the common share has been above $1.50 for 60 consecutive
      trading days, and convertible at the option of the holder into class "A"
      common shares at U.S.$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 U.S.$0.70 per
      warrant share at any time until the earlier of the close of business day
      which is either thirty six (36) months from April 18, 2008 or the bid
      price of the stock has been above U.S.$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 U.S.$0.45 per share. Before the warrants
      expired on April 18, 2011, certain holders exercised 613,000 warrants and
      501,000 warrants expired. 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 redemption value of the
      convertible debentures on the maturity date, December 31, 2017, is
      U.S.$1,777,944.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

- 25 -

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| | 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 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 owing 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:
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    | i)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    | ii)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

As at July 31, 2011, an amount of
$1,685,411 (July 31, 2010 - $1,407,874), including accrued interest of $481,751
(July 31, 2010 - $204,214), was outstanding under the loan agreement.

The following table provides a summary of the contractual
commitments for the next five years and thereafter:

2012
    $
    314,0732013
    
    268,0302014
    
    267,5462015
    
    222,9852016
    
    200,704Thereafter
    
    1,038,165$
    2,311,503


C.Research and Development,
Patents and Licenses

Our research and development activities focus on enhancing its
current products to exceed customer expectations and to develop new products to
maintain our competitive advantage in the market.

Our research and development activities are central to fueling
its existing and potential business. We engage in research and development
activities relating to the introduction of new features, enhancements and new
packaged products. We focus on SAND/DNA Analytics.

We maintain our main research and development facility in
Westmount, Canada. We also have a network of research and development
technologists in the United States, the United Kingdom, Germany and Australia.
As of October 21, 2011, there are 20 technologists. After research and
development tax credits, SAND spent $1.87 million in 2011, $1.46 million in 2010
and $1.96 million in 2009 on research and development.

- 26 -

---

We will continue to focus on research and development efforts
that are key to responding to changing technology.

Research and development expenses consist mainly of salaries
and other personnel-related costs of technical and engineering personnel
associated with our research and product development activities, including the
enhancement and localization of existing products, quality assurance, and
testing.

Research and development expenses, before research and
development tax credits, remained stable in the fiscal year ended on July 31,
2011 as compared to the fiscal year ended on July 31, 2010.

D.                
  Trend Information

Revenue growth in fiscal year 2011 was lower than expected due
to (a) customers cut in IT spending due to the slowdown in the economy, and (b)
a cautious attitude of customers towards investing in long-term solutions. We
will continue to monitor these trends and factors in the current fiscal year
ending July 31, 2012.

E.                
Off-balance Sheet Arrangements

None.

F.                
Disclosure of contractual obligations

The following table provides a summary of the contractual
commitments as of July 31, 2011 for the next five years and thereafter.

2012
    $
    314,0732013
    
    268,0302014
    
    267,5462015
    
    222,9852016
    
    200,704Thereafter
    
    1,038,165$
    2,311,503


- 27 -

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The following table provides a summary of the material
financial obligations as of July 31, 2011:

|                       |            | Payments
      due by period |         
|---------------------- | ---------- | ---------------------------- | --------
|                       |            | Less than                    | 1 - 3   
|                       | Total      | 1
      year                 | years   
|                       |            |                              |         
|Debt Component of      | $ 542,671  | -                            | -       
|Convertible            |            |                              |         
|Debentures(U.S.$) (1)  |            |                              |         
|                       |            |                              |         
|Due to a significant   | $1,914,837 | $937,053                     | $977,784
|shareholder (CDN.$)(2) |            |                              |         

| | (1) | - The amount represents the redemption value of the
      convertible debentures on the maturity date, December 31, 2017. Reference
      should be made to the audited consolidated financial statements for the
      book value as at July 31, 2011.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                        
| | (2) | The amount represents the payment obligations under a
      Repayment Agreement with Mr. Arthur G. Ritchie, the former President and
      Chief Executive Officer of SAND Technology Inc.                                                            

G.Safe
  Harbor

Certain statements contained in this Report are
"forward-looking statements" within the meaning of the United States Securities
Act of 1934 and of the Exchange Act. The forward-looking statements are intended
to be subject to the safe harbour protection provided by these Acts. We have
based these forward-looking statements on our current expectations and
projections about future results, levels of activity, events, trends or plans.
Such forward-looking statements are not guarantees and are subject to known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. In some cases, you can identify forward-looking
statements by terminology such as "guidance", "may", "will", "should", "could",
"would", "expect", "plan", "anticipate", "believe", "estimate", "continue", or
the negative of such terms or other similar expressions. All forward-looking
statements included in this discussion are based on current expectations and on
information available to us on the date of this Annual Report on Form 20-F. For
a more detailed discussion of these risks and uncertainties and other business
risks, seeItem 3.G. - "Risk Factors". Although the Company has attempted
to identify important risks and factors that could cause actual actions, events
or results to differ materially from those described in forward-looking
statements, there may be other factors and risks that cause actions, events or
results not to be as anticipated, estimated or intended. Readers are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as of the date made. Except as required by applicable laws, we undertake no
obligation to publicly release the result of any revision of these
forward-looking statements to reflect events or circumstances after the date
they are made or to reflect the occurrence of unanticipated events

ITEM
6. **DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A.Directors and Senior Management

Directors

The following table sets forth certain information concerning
our directors, including their beneficial ownership of shares of the Company as
of October 21, 2011. Unless otherwise indicated, each nominee holds sole voting
and investment power over his shares.

- 28 -

---

Name, Residence and Office
      Held
      Director Since
      Principal Occupation
      Number and Percentage of Common Shares Beneficially
      Owned or ControlledP. Wayne Musselman (1)
      Toronto, Ontario, Canada Director
    2007
    Accountant and Business
      Consultant.
    232,788
      (1.2%)Thomas M. O'Donnell Woodstock, Illinois, United States
      President and Chief Executive Officer and Director
    2008
    Current Chief Executive Officer
      of SAND Chief Executive Officer of Edge Specialists LLC
    4,086,468
      (19.1%)Duncan Painter (2)
      Letchworth, Herts, United Kingdom Director
    2010
    Executive and Business Consultant
    772,858
      (3.9%)Daniel Benn (1) Pointe
      Claire, Quebec, Canada Director
    2010
    Executive and Business Consultant
    100,000
      (0.5%)Michael Pesner(1)Montreal, Quebec, Canada
      Director
    2010
    Accountant and Business
      Consultant
    100,000 (0.5)George Wicker (2) Palm
      Beach Gardens, Florida, United States Director
    1996
    Attorney and Business Consultant
    477,738(2.5%)


Notes:

|(1) | Member of the Audit Committee.                                                         
|--- | ---------------------------------------------------------------------------------------
|(2) | Member of the Governance, Nomination, Human Resources and
      Compensation Committee.

As of October 21, 2011, the directors of the Company as a group
beneficially owned 5,769,852 Common Shares representing approximately 26.0% of
the outstanding Common Shares of the Company excluding Common Shares subject to
exercise of share purchase warrants or to conversion of convertible debentures.
The information as to Common Shares beneficially owned or over which control or
direction is exercised, not being within the knowledge of the Company, has been
furnished by the respective directors and officers individually.

Mr. P. Wayne Musselman, BCom (Hon), FCA, retired as a partner
of Deloitte & Touche LLP in 2003 after a career of nearly forty years during
which he served clients in the banking, securities, international trade and
distribution industries. He directed the Japanese Service Group of Deloitte
Canada and served on the Board of Deloittes Global Japanese Services Group. He
is currently the Chairman of the Board of FaithLife Financial and a director and
the Chairman of the Audit Committee of State Bank of India (Canada). Mr. P.
Wayne Musselman is the Chairman of the Audit Committee of SAND.

Mr. Thomas M. O'Donnell has an extensive career in the software
and financial markets. He is Chief Executive Officer, founder and majority owner
of Edge Specialists LLC, which is an independent software vendor with extensive
United States patent protection providing derivative trading tools including
options, stocks and futures trading. He is a co-inventor of two extensive
trading software

- 29 -

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patents, a C.P.A. and a graduate of Harvard Business School. In
addition, Mr. O'Donnell was a Designated Primary Market Maker on the Chicago
Board of Options Exchange and has extensive experience in the financial markets.
Effective November 1, 2009, Thomas M. ODonnell was appointed President and
Chief Executive Officer of SAND, as Arthur G. Ritchie retired. In connection
with our sale of the Convertible Debentures, we entered into a Voting Agreement
dated 18, 2008, with Arthur G. Ritchie and Bradley G. Griffith on behalf of the
subscribers of the Convertible Debentures, whereby Mr. Ritchie agreed to vote
his shares in favour of the election of a director nominated by the holders of
such Convertible Debentures holding a majority of the aggregate principal amount
of the Convertible Debentures outstanding.Mr. ODonnell was elected as a
director in connection with this agreement and the sale of the Convertible
Debentures.

Mr. Daniel Benn was the founder and former Chief Executive
Officer of a technology company. He is skilled and experienced in setting
strategic direction, business and tactical planning and execution, initiating
and driving growth strategies, managing bottom-line profitability, acquisitions
and divestitures, direct and channel sales and marketing, research and product
development, project management and operational infrastructure.

Mr. Duncan Painter most recently led both the U.K. Marketing
Services and Global Marketing Services Consulting and Delivery businesses at
Experian Plc. He has extensive experience with SAND Technology, having headed up
the Companys European operations for a number of years.

Mr. Michael Pesner has extensive experience in financial
advisory services and investment banking, including mergers and acquisitions,
restructuring, divestitures and debt and equity financing. He spent 26 years
with KPMG, was Chairman of Thorne Ernst & Whinney Inc. and served on the
Board of Directors of Peat Marwick Thorne. Mr. Michael Pesner serves on the
Board of Directors of five other reporting issuers (or the equivalent) as
described in Item 6.C. Board Practices - Directorships.

Mr. George Wicker held executive level positions in general
management, program management and finance with Lockheed Martin Corporation and
its predecessor corporations during a thirty-three year career. Mr. Wicker holds
a B.A. in Political Sciences, an MBA in Financial Management from the University
of Santa Clara and a Juris Doctor degree from Pepperdine University. Mr. George
Wicker is the Chairman of the Compensation Committee of SAND.

Mr. Arthur G. Ritchie resigned from the Board of Directors on
August 2, 2011. He had served as Chairman of the Board of Directors.

- 30 -

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Senior Management

The following table shows certain information with respect to
our executive and other officers:

Name
      Office
      Yearappointedto Office
      Other Positions and BusinessExperienceThomas M. ODonnell
    Chief Executive Officer
    2009 (5)
    CEO of Edge Specialists LLCMichael Pilcher
    President and Chief Operating
      Officer
    2010(4)
    Senior executive at multiple
      large companies and start-up companiesTony J. Giuliano
    Vice-President, Finance and
      Administration and Chief Financial Officer and Corporate Secretary
    2010(2)(3)
    Chief Financial Officer at
      multiple companiesRichard Grondin
    Chief Technology Officer
    2009(1)
    -


Notes:

|(1) | Richard Grondin was appointed Chief Technology Officer on
      November 1, 2009.                                                                                                
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                  
|(2) | Mr. Tony J. Giuliano was appointed as Vice-President,
      Finance and Administration of the Company on October 4, 2010.                                                        
|    |                                                                                                                                                                                  
|(3) | Mr. Tony J. Giuliano was appointed as Corporate Secretary
      of the Company on November 16, 2010.                                                                             
|    |                                                                                                                                                                                  
|(4) | Mr. Pilcher was appointed Chief Operating Officer of the
      Company on April 1, 2010 and President on July 12, 2011.                                                          
|    |                                                                                                                                                                                  
|(5) | Thomas M. ODonnell was appointed President and Chief
      Executive Officer of the Company on November 1st, 2009 and
      relinguished the role of President on July 12,
2011.

Michael Pilcher was previously Sales Director Hiring Solutions,
EMEA at LinkedIn Corporation, the largest professional network in the world.
Prior to LinkedIn, he worked at Oracle Corporation where he led the U.K.
insurance group, at Sybase where he ran U.K. Financial Services and at Tenfold
Corporation where, as world-wide Vice-President Sales, he completed a highly
successful IPO. He brings the experience of working in large public companies
and dynamic start-ups from across multiple industries and geographic sectors.

Tony Giuliano was previously Director, Financial Management at
Unisource Canada Inc. Previously, he was Chief Financial Officer at Avensys
Corporations, a U.S. public company involved in high-tech manufacturing, and
Chief Financial Officer at Starlink Aviation Inc, involved in the private
aviation business. He holds a Graduate Diploma in Accountancy from McGill
University in Montreal together with a Bachelor of Commerce from Concordia
University in Montreal. He is a member of the Quebec Institute of Chartered
Accountants.

Richard Grondin has been with SAND Technology Inc. since April
2, 1997 and has worked in various roles before becoming Chief Technology Officer
on November 1, 2009.

There are no family relationships between any directors and
executive officers of the Company.

- 31 -

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B.Compensation

Compensation of Directors

For the period from August 1, 2009 to December 31, 2009, P.
Wayne Musselman, George Wicker and former directors Martin Shindler and Douglas
S. Pryde were paid an annual retainer of $15,000 for serving as a directorAll
non-management directors are currently compensated with stock options from the
2010 Stock Incentive Plan. Each non-management director is entitled to receive
50,000 stock options per calendar year with the Chairman of the Audit Committee
and Chairman of the Compensation Committee entitled to receive an additional
15,000 stock options per calendar year.

Executive Compensation Analysis

General Principles of Executive Compensation

Although the Company has not adopted a formal compensation
program, remuneration plays an important role to attract, motivate and retain
key members of the management team required for its success and to drive
strategic growth. Compensation is designed to reward for services provided and
to provide an incentive for the executive management team to implement
strategies aimed at increasing share value and creating economic value. The
compensation is also established according to the duties and responsibilities
that rest on the individuals and their own level of performance. The total
compensation package is designed in a manner that takes into account the
constraints under which the Company operates and that it is a technology company
without a history of earnings.

Determining Compensation

The compensation of the Named Executive Officers identified in
Compensation of Executive Management below is established by the Board, upon
the recommendation of the Governance, Nomination, Human Resources and
Compensation Committee (Compensation Committee) (please refer to section C 
Board Practices for more details on the role and responsibility of this
committee). The compensation of the Named Executive Officers, with the exception
of the Chief Executive Officer, is proposed by the Chief Executive Officer to
the Compensation Committee, which recommends the adoption by the Board of
Directors. The compensation of the Chief Executive Officer is established by the
Compensation Committee which recommends adoption to the Board of Directors.

Components of Overall Compensation

When assessing total direct annual compensation, the Company
focuses on four key components which are intended to collectively make up most
of an executive total compensation opportunity. There are two fixed components 
base salary and participation in the collective insurance plans. There are two
variable components  incentive bonus and the grant of common share stock
options or common share awards of the Company.

Base Salary

The Named Executive Officers receive a base salary which is
based primarily on the level of responsibility of the position, the
qualifications and experience of the officer and market conditions. The base
salary may be paid to the Named Executive Officer in the form of cash, a
consulting fee or in shares.

- 32 -

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Incentive Bonus

The amount of bonus is based on factors relating to both
corporate and individual performance, including business development and
profitability.

Option-Based or Share-Base Award Plans

The stock option or share plans are the only long-term
incentive plans (LTIP) of the Company. Stock options or share awards ensure that
the Named Executive Officers are motivated to achieve long-term growth of the
Company and increases in shareholder value, and provide capital accumulation
linked directly to the Companys performance. Stock options or share awards are
made by the Board of Directors, after recommendation by the Compensation
Committee. Stock options or share awards are established, among other things,
according to the role and responsibilities associated with the participants
position and his or her influence over appreciation in shareholder value. The
terms of the plans are described below under section E  Share Ownership.

Other Compensation

The Named Executive Officers have the right to receive the
benefits from any collective insurance plans in force of the Company.

Compensation of Executive Management

The following table sets forth information concerning the
compensation paid to the Company's Chief Executive Officer and
named executive officers (the "Named Executive Officers") as required disclosure
in accordance with applicable Canadian securities regulations during the
Company's three fiscal years ended July 31, 2011:

"Named Executive Officers" or "NEOs" means the following
individuals:

| | (a) | each Chief Executive Officer;              
| | --- | -------------------------------------------
| |     |                                            
| | (b) | each President and Chief Operating Officer;
| |     |                                            
| | (c) | each Chief Financial Oficer; and           
| |     |                                            
| | (d) | each Chief Technology Officer.             

As at July 31, 2011, the end of the most recently completed
financial year of the Company, the Company had four Named Executive Officers,
whose names and positions held within the Company are set out in the summary
compensation table below:

- 33 -

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Summary Compensation Table

Name andPrincipalPosition
      Year
      Annual
        Compensation
      Long-Term
        CompensationAwards
      PayoutsSalary
        ($)
      Bonus
        ($)
      Other
        ($)
      Share-
        Based Awards ($)
      Option-
        Based **Awards ($)**
      LTIP
        Payouts ($)
      All
        Other Compensation ($)Thomas M. ODonnell(2)
        Chief Executive 
        Officer
      2011 
        2010 
        2009
      39,772 
        - 
        -
      - 
        - 
        -
      - 
        - 
        -
      - 
        - 
        -
      294,458 
        - 
        -
      - 
        - 
        -
      - 
        - 
        -Michael Pilcher(4)
        President and 
        Chief Operating Officer
      2011 
        2010 
        2009
      238,290 
        82,555 
        -
      - 
        - 
        -
      - 
        - 
        -
      - 
        - 
        -
      87,729 
        - 
        -
      - 
        - 
        -
      - 
        - 
        -Arthur G. Ritchie(3) 
        Former President and Chief 
        Executive Officer
      2010 
        2009
      54,538 
        212,153
      12,500 
        50,000
      11,804 
        80,772
      - 
        -
      - 
        -
      - 
        -
      - 
        -Tony J. Giuliano(6)
        Vice-President, Finance and Chief 
        Financial Officer and Corporate Secretary
      2011
      120,000
      -
      -
      -
      19,991
      -
      -Zainab A. Schwartz (1) 
        Former Vice- 
        President, Finance 
        and Administration and Chief Financial Officer
      2010 
        2009
      120,000 
        120,000
      10,000 
        10,000
      - 
        -
      - 
        -
      - 
        -
      - 
        -
      - 
        -Richard Grondin(5)
        Chief Technology Officer
      2011 
        2010
      235,000 
        167,351
      34,768 
        18,122
      18,400 
        8,077
      
      123,942 
        -


Notes:

|(1) | Ms. Zainab Schwartz resigned on September 15,
  2010.                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(2) | Mr. Thomas ODonnell became President and Chief Executive
      Officer of SAND on November 1, 2009. Mr. ODonnell relinguished his role
      as President on July 12, 2011. For his service during the period from
      November 1, 2009 to January 31, 2011, Mr. ODonnell received stock options
      from the 2010 Stock Incentive Plan in the amount of 50,000 stock options
      per month. Commencing February 1, 2011, Mr. ODonnell is entitled to
      receive 10,000 stock options per month.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(3) | Mr. Ritchie retired as President and Chief Executive
      Officer on October 31, 2009.                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(4) | Mr. Pilcher became Chief Operating Officer on April 1,
      2010 and President and Chief Operating Officer on July 12, 2011. Mr.
      Pilcher received 219,426 stock options from the 2010 Stock Incentive Plan
      on April 1, 2010 and is entitled to receive 315,242 stock options on each
      of July 31, 2012 and July 31, 2013.                                                                                                                                                                  

- 34 -

---

|(3) | Mr. Richard Grondin became Chief Technology Officer on
      November 1, 2009. Mr. Grondin received 310,000 stock options from the 2010
      Stock Incentive Plan on April 1, 2010 and is entitled to receive 50,000
      stock options on July 31, 2012.                                                   
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                               
|(4) | Mr. Tony Giuliano became Chief Financial Officer on
      October 4, 2010 and Corporate Secretary on November 16, 2010. Mr. Giuliano
      received 50,000 stock options from the 2010 Stock Incentive Plan on April
      1, 2010 and is entitled to receive 50,000 stock options on December 31,
      2011.

Outstanding Option-Based Awards

As at July 31, 2011, stock options held by the Named Executive
Officers are indicated below under section E  Share Ownership.

Pension Plan Benefits

The Company has no pension or retirement benefit plans have
been instituted and none are proposed at this time.

Securities Authorized for Issuance under Equity Compensation
Plans

The following tables summarize as of October 21, 2011, the
equity compensation plans pursuant to which equity securities of the Company may
be issued:

Stock-Option Plans Information

Plan Category
      Number of Common Shares to
      be Issued Upon Exercise of Outstanding Vested and
      Unvested Stock Options
      Weighted Average
      Exercise Price of Outstanding Options
      Number of Common Shares
      Remaining Available for Future Issuance Under
      the Equity Compensation PlansEquity Compensation Plans of the Company approved by the
      shareholders
    3,483,583
    1.00
    2,516,417Equity Compensation Plans of the Company not approved by
      the shareholders
    0
    N/A
    3,000,000Total:
    3,483,583
    
    5,516,417


Share Award Plan Information

Plan Category
      Number of Common Shares
      to be Issued Upon Exercise of Outstanding Share
      Awards
      Weighted Average
      Exercise Price of Outstanding Options
      Number of Common Shares
      Remaining Available for Future Issuance Under
      the Equity Compensation PlansEquity Compensation Plans of the Company approved by the
      shareholders
    0
    0
    1,000,000Equity Compensation Plans of the Company not approved by
      the shareholders
    N/A
    N/A
    N/ATotal:
    0
    -
    1,000,000


- 35 -

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Directors and Officers Liability Insurance

The Company maintains Directors and Officers liability
insurance. The policy contains standard industry exclusions, and no claims have
been made thereunder to date. The policy provides coverage with a limit of
U.S.$5,000,000 per loss per policy period, subject to a deductible of
U.S.$100,000 per securities claim and U.S.$100,000 per other claim. The current
annual premium is paid entirely by SAND and amounts to U.S.$90,000. SAND has
entered into an indemnification agreement with each of its directors and senior
officers.

C.Board Practices

Date of expiration of current term of office

Pursuant to the CBCA, directors of the Company hold office
until the close of the next annual meeting of shareholders and until their
successors are elected and qualified or until their earlier resignation or
removal. The CBCA requires that twenty-five percent (25%) of the members of the
Board of Directors must be resident Canadians. In addition, the Board may not
transact business at a meeting unless one-quarter of the directors participating
in the meeting are Canadian residents. Officers serve at the pleasure of the
Board of Directors, subject to the terms of employment agreements, if any, and
applicable employment laws.

SAND has entered into the following arrangements with its
directors mentioned above:

| | (a) | On April 18, 2008, we entered into a Voting Agreement
      with Arthur G. Ritchie and Bradley G. Griffith on behalf of the
      subscribers of the Convertible Debentures issued pursuant to a private
      placement on April 24, 2008 for aggregate proceeds of US$1,002,600. Under
      the terms of the Voting Agreement, Mr. Ritchie agreed to vote his shares
      in favour of the election of a director nominated by the holders of such
      Convertible Debentures holding a majority of the aggregate principal
      amount of the Convertible Debentures outstanding.Mr. ODonnell was elected
      as a director in connection with this agreement and the sale of the
      Convertible Debentures.                                                                                                                                                                                                                                                                                                                                                                                                             
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | (b) | Effective November 1, 2009, Arthur G. Ritchie, SAND and
      Jerart Financial Services Limited (a company wholly-owned by Arthur G.
      Ritchie) (Jerart) entered into a Marketing and Sales Assistance
      Agreement. Jerart agreed to provide SAND with partner services such as
      identifying potential customers, leading the sale through establishing the
      primary relationship to the influencers and decision makers, submitting
      proposals and developing the business case. The fees are based on a
      percentage of the sales. The percentage is based on the type of level of
      partner services as defined in the contract;                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | (c) | On August 1, 2007, a Consulting Agreement was entered by
      and between Arthur G. Ritchie, SAND and Jerart. Jerart agreed to provide
      SAND with corporate management services through the person of Arthur G.
      Ritchie himself and which provides that Arthur G. Ritchie shall act as
      President and Chief Executive Officer of SAND. Effective October 31, 2009,
      Arthur G. Ritchie retired as President and Chief Executive Officer of SAND
      and a new Consulting Agreement was entered into between Arthur G.
      Ritchie, SAND and Jerart as part of his retirement package. Jerart agreed
      to provide SAND with corporate management services through the person of
      Arthur G. Ritchie himself. The agreement commenced on November 1, 2009 and
      will continue for a term of two years. The Company is required to pay
      Jerart an annual consulting fee in the amount of $250,000 payable on the
      first business day of every month in monthly instalments of $20,833 plus
      all applicable taxes. If the agreement is terminated by the Company for
      any reason

- 36 -

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| |     | whatsoever prior to the expriry of the term, the
      remaining unpaid balance of the consulting fee will become immediately due
      and payable to Jerart;                                                                                                                                                                                                                                                                                                                                                                                                               
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | (d) | Certain loan agreements between Arthur G. Ritchie, SAND
      and Jerart, prior to November 1, 2009, were replaced on such date by a
      Repayment Agreement. Pursuant to such Repayment Agreement, the amounts
      owed by SAND to Arthur G. Ritchie will be repaid in equal instalments over
      three (3) years commencing January 1, 2011. The amounts due under the
      Repayment Agreement continue to bear interest at 15% per annum and are
      payable on a semi-annual basis. Please see Item 7B  Related Party
      Transactions for more details; and
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | (e) | On October 31, 2009, Arthur G. Ritchie, Jerart and
      Bradley G. Griffith entered into a Priority Agreement whereby Bradley G.
      Griffith as fondé de pouvoirfor the holders of the Convertible
      Debentures agreed that the security in interest granted to Arthur G.
      Ritchie shall rank concurrently and pari passuwith the security
      granted to the holders of the Convertible
Debentures.                                                                                                                                                          

Officers Services Contract

During the fiscal year ended July 31, 2011, the Company had a
Consulting Agreement with Thomas M. ODonnell, as Chief Executive Officer, and
Employment Agreements with Michael Pilcher, as President and Chief Operating
Officer, Tony J. Giuliano, as Vice President, Finance and Administration and
Chief Financial Officer and Richard Grondin, as Chief Technology Officer.

Effective November 1, 2009, Thomas M. ODonnell became
President and Chief Executive Officer. For the period from November 1, 2009 to
January 31, 2011, Mr. ODonnell received 50,000 stock options per month while
serving as Chief Executive Officer. Effective February 1, 2011, Mr. ODonnell is
entitled to a monthly salary amount based on performance and cashflow position tests and bonuses as may from time to time be payable pursuant
to any bonus program which is offered to senior officers or as may from time to
time be payable at the discretion of the Board of Directors. Mr. ODonnell shall
also be compensated with 10,000 stock options per month from the 2010 Stock
Incentive Plan. Mr. ODonnell relinguished his role as President on July 12,
2011.

Michael Pilcher was appointed Chief Operating Officer effective
April 1, 2010 and President and Chief Operating Officer on July 12, 2011. The
Employment Agreement of Michael Pilcher provides that he is entitled to an
annual base salary and bonuses as may from time to time be payable pursuant to
any bonus program which is offered to senior officers or as may from time to
time be payable at the discretion of the Board of Directors. Mr. Pilcher shall
also be compensated with 849,910 stock options from the 2010 Stock Incentive
Plan.

Tony J. Giuliano was appointed Vice President, Finance and
Administration and Chief Financial Officer effective October 4, 2010. The
Employment Agreement of Tony J. Giuliano provides that he would be paid an
annual base salary and bonuses as may from time to time be payable pursuant to
any bonus program which is offered to senior officers or as may from time to
time be payable at the discretion of the Board of Directors. Tony J. Giuliano
shall also be compensated with 100,000 stock options from the 2010 Stock
Incentive Plan.

Richard Grondin was appointed Chief Technology Officer
effective November 1, 2009. The Employment Agreement of Richard Grondin provides
that he would be paid an annual base salary and bonuses as may from time to time
be payable pursuant to any bonus program which is offered to senior officers or
as may from time to time be payable at the discretion of the Board of Directors.
Richard Grondin shall also be compensated with 360,000 stock options from the
2010 Stock Incentive Plan.

- 37 -

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Audit Committee

Audit Committee Charter

The Audit Committee of the Board of Directors of SAND (the
"Audit Committee") has a formal charter setting out its mandate and
responsibilities that has been reviewed and adopted as amended on June 14, 2005.

Composition of Audit Committee

Name
      Independent
      Financially LiterateP. Wayne Musselman
    Yes
    YesDaniel Benn
    Yes
    YesMichael Pesner
    Yes
    Yes


The Audit Committee is comprised of three directors, all of
whom are independent under applicable Canadian requirements and the rules of the
United States Securities and Exchange Commission (the "SEC"). Based on their
profiles (please see Item 6A  Directors, for more details), the education and
experience of each Audit Committee member is relevant to the performance of his
responsibilities as a Committee member. All the members of the Committee are
"financially literate" and have the ability to read and understand a set of
financial statements. P. Wayne Musselman is the Chairman of the Audit Committee.

Audit Committee Meetings

The Audit Committee meets on a quarterly basis and holds
special meetings as circumstances require. During the year ended on July 31,
2011, the Audit Committee held four meetings. All members attended the four
meetings of the Audit Committee held during the last fiscal year.

Audit Committee Responsibilities

The Audit Committee assists the Board in its oversight functions
  as they relate to the accounting, financial reporting, auditing, risk management
  and internal controls of the Company. The Audit Committee has the following
  duties and responsibilities:

| | (a) | Reviewing the audited financial statements of the Company
      and recommending whether such statements should be approved by the
      Board;                                                                                                         
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                         
| | (b) | Reviewing and approving the unaudited interim financial
      statements of the Company;                                                                                                                                                                
| |     |                                                                                                                                                                                                                                                         
| | (c) | Recommending to the Board the firm of independent
      auditors to be nominated for appointment by shareholders at each annual
      general meeting of the Company and, where necessary, the removal of the
      independent auditors of the Company;
| |     |                                                                                                                                                                                                                                                         
| | (d) | Reviewing the scope and adequacy of audits to be
      conducted by the independent auditors of the
Company;                                                                                                                                            

- 38 -

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| | (e) | Adopting and annually reassessing formal terms of
      reference for the independent auditors of the Company;                                                                          
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                         
| | (f) | Monitoring and evaluating the independence and
      performance of the independent auditors of the Company;                                                                            
| |     |                                                                                                                                                                                         
| | (g) | Pre-approving all non-audit services to be provided to
      the Company by its independent auditors prior to the commencement of such
      services;                                  
| |     |                                                                                                                                                                                         
| | (h) | Reviewing all post-audit management letters containing
      the recommendations of the independent auditors of the Company and the
      response or follow-up thereto from management;
| |     |                                                                                                                                                                                         
| | (i) | Reviewing and monitoring the integrity, adequacy and
      timeliness of the financial reporting and disclosure practices of the
      Company;                                         
| |     |                                                                                                                                                                                         
| | (j) | Reviewing and, if deemed advisable, approving all related
      party transactions as defined in the governing legislation of the
      Company;                                        
| |     |                                                                                                                                                                                         
| | (k) | Monitoring the compliance of the Company with legal and
      regulatory requirements related to financial reporting and
    disclosure;                                                
| |     |                                                                                                                                                                                         
| | (l) | Monitoring and evaluating the adequacy of the internal
      accounting and audit procedures of the Company;                                                                            
| |     |                                                                                                                                                                                         
| | (m) | Reviewing and ensuring the acceptability of the
      accounting principles of the Company;                                                                                             
| |     |                                                                                                                                                                                         
| | (n) | Identifying the principal financial risks of the
      Company;                                                                                                                         
| |     |                                                                                                                                                                                         
| | (o) | Overseeing reporting on internal controls of management
      and ensuring that management has designed and implemented an effective
      system of internal controls;                 
| |     |                                                                                                                                                                                         
| | (p) | Annually reviewing and reassessing the adequacy of the
      duties and responsibilities of the Audit Committee; and                                                                    
| |     |                                                                                                                                                                                         
| | (q) | Any other matters that the Audit Committee feels are
      important to its mandate or that the Board chooses to delegate to
    it.                                                    

The Audit Committee has established procedures for the receipt,
retention and treatment of complaints regarding accounting, internal accounting
controls or auditing matters and the confidential, anonymous submission by
employees of complaints or concerns regarding questionable accounting or
auditing matters. Any employee of the Company or its affiliates may submit a
good faith complaint regarding accounting or auditing matters to the management
of the Company without fear of dismissal or retaliation of any kind.

It is the responsibility of the Audit Committee to maintain an
open avenue of communication between itself, the Auditor and Management of the
Company. In performing its role, the Audit Committee is empowered to investigate
any matter brought to its attention, with full access to all books, records,
accounts, facilities and personnel of the Company. The Audit Committee is also
empowered to instruct and retain outside counsel or other experts as necessary.

- 39 -

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Governance, Nomination, Human Resources and Compensation
Committee

Charter of the Governance, Nomination, Human Resources and
Compensation Committee

The Governance, Nomination, Human Resources and Compensation
Committee of the Board ("Governance Committee") is governed by a formal charter
that details its mandate.

Composition of the Governance Committee

The Governance Committee is composed of Duncan Painter, George
Wicker and Daniel Benn, all of whom were non-management and independent
directors during the fiscal year ended July 31, 2011 and satisfy the current
requirements of The NASDAQ Stock Market relating to independence. Duncan Painter
is the Chairman of the Governance Committee.

Governance Committee Meetings

During the year ended July 31, 2011, the Compensation Committee
met numerous times.

Governance Committee Responsibilities

The Governance Committee has the following duties and
responsibilities:

| | (a) | Developing, monitoring and ensuring the effectiveness of
      the corporate governance policies and practices of the Company;                                                                                                                                                                                  
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                 
| | (b) | Identifying and selecting nominees for election of the
      Board of Directors of the Company and identifying and proposing to the
      Board of Directors candidates to fill in the vacancies on the Board of
      Directors;                                                                               
| |     |                                                                                                                                                                                                                                                                                                                 
| | (c) | Ensuring the independence of the Board of
    Directors;                                                                                                                                                                                                                                                        
| |     |                                                                                                                                                                                                                                                                                                                 
| | (d) | Evaluating the effectiveness and performance of
      individual directors, the Board of Directors and its committees;                                                                                                                                                                                          
| |     |                                                                                                                                                                                                                                                                                                                 
| | (e) | Assisting the Board in setting the objectives for the
      Chief Executive Officer of the Company and evaluating his
    performance;                                                                                                                                                                          
| |     |                                                                                                                                                                                                                                                                                                                 
| | (f) | Establishing human resources policies and practices,
      including compensation and recruitment policies and practices for senior
      management, as well as establishing levels of salary, bonus, benefits and
      incentives provided to executive officers of the Company and its
      affiliates; and
| |     |                                                                                                                                                                                                                                                                                                                 
| | (g) | Various other matters related to the foregoing as set out
      in the Charter of the Committee.                                                                                                                                                                                                                

Statement of Corporate Governance Practices

The Company has reviewed its corporate governance practices in
light of the guidelines contained in Regulation 58-101 respecting Disclosure
of Corporate Governance Practice("Regulation 58-101") of the Canadian
Securities Administrators. A description of the Companys corporate governance
practices is set out below in response to the requirements of Regulation 58-101.

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Board of Directors Delegation

The Board has delegated to the Chief Executive Officer and
senior management the responsibility for day-to-day management of the business
of the Company, subject to compliance with the plans approved from time to time
by the Board of Directors. In addition to those matters, which must by law or by
the Articles of the Company be approved by the Board, the Board retains
responsibility for significant changes in the Companys affairs such as approval
of major capital expenditures, debt and equity financing arrangements and
significant acquisitions and divestitures.

The Board oversees the identification of the principal risks of
the Company's business and the implementation by management of appropriate
systems to manage such risks. The Board reviews from time to time organizational
matters such as succession planning.

During the fiscal year ended July 31, 2011, the following
directors are "independent" pursuant to National Policy 58-201 Corporate
Governance Guidelines ("NP 58-201") as they qualify as "independent"
directors, as such term is defined in Regulation 52-110 respecting Audit
Committees: Wayne Musselman, Michael Pesner, Daniel Benn, Duncan Painter and
George Wicker.

Effective November 1, 2009, Thomas M. ODonnell became Chief
Executive Officer and is no longer independent.

Directorships

Michael Pesner is presently a director of five other issuers
that are reporting issuers (or the equivalent in any jurisdiction), Richmont
Mines Inc., Questrare Minerals Ltd., Mint Technology Corp., Bitumen Capital Inc.
and Unite Capital Corp..

Orientation and Continuing Education

The Board of Directors of the Company takes the following steps
to ensure that all new directors receive orientation regarding the role of the
Board, its committees and its directors, and the nature and operation of the
Company.

The first step is to assess a new director's set of skills and
professional background. This allows the orientation to be customized to that
director's needs since different information regarding the nature and operations
of the Company's business will be necessary and relevant to each new director.
Once determined, one or more existing directors, who may be assisted by the
Company's management, provide the new director with the appropriate orientation
through a series of meetings, telephone calls and other correspondence.

Orientation and education of directors is an ongoing matter. As
such, ongoing informal discussions between management and members of the Board
are encouraged and visits to the Companys operations are organized.

Ethical Business Conduct

The Company is committed to promote the highest standard of
ethic and integrity in the pursuance of all of its activities. Furthermore, the
directors, officers and employees of the Company are expected to act and to hold
their office within the best interests of the Company. The Company expects all
directors to act in compliance of all laws and regulations applicable to their
office as director of the Company.

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In the event any transactions or agreements occur in respect of
which a director or executive officer has a material interest, the matter must
be initially reviewed by the Audit Committee and is then submitted to the Board
of Directors. The Board may implement any measures that it finds necessary in
order to ensure the exercise of independent judgment. In the event a director
has a material interest in any transaction or agreement, such director will
abstain from voting in that regard.

Nomination of Directors

The Board of Directors of the Company does not feel it is
necessary to increase the number of directors on the Board at this time. Also
with the current absence of a Chairman, the Board of Directors, under the Canada
Business Corporations Act, is not mandated to have a Chairman of the Board of
Directors but is currently in the process of determining whether a replacement
will be nominated. A Chairman of the Board, under the Canada Business
Corporations Act, does not have any inherent extra powers over other members of
the Board.

The Governance Committee seeks qualified candidates to be
considered for nomination as directors. Proposed nominations are subject to
review and approval by the Board.

Any new appointees or nominees to the Board of Directors must
have a favourable track record in general business management, special expertise
in areas of strategic interest to the Company, the ability to devote the time
required and a willingness to serve as a director.

Compensation

The Governance Committee evaluates the adequacy of compensation
of the directors and the Companys management. After sufficient review and
analysis, the Governance Committee recommends the compensation of the directors
and the Companys management to the Board for approval.

Other Board Committees

As of the date hereof, the Audit Committee and the Governance
Committee are the only Board committees created by the Board of Directors.

Assessments

The Governance Committee is responsible for assessing the
individual and collective effectiveness of the Board and selecting new
directors.

D.Employees

On July 31, 2011, the Company had 44 employees, including 24
full-time employees with SAND Canada, 5 full-time employees and 1 part-time
employee with Sand U.S., 5 full-time employees and 1 part-time employee with
Sand U.K., 5 full-time employees and 1 part-time employee with Sand Germany and
2 full-time employees with Sand Australia.

On July 31, 2010, the Company had 44 employees, including 23
full-time employees and 1 part-time employee with SAND Canada, and 6 full-time
employees and 1 part-time employee with Sand USA, 3 full-time employees and 1
part-time employee with Sand UK and 8 full-time employees and 1 part-time
employee with Sand Germany.

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On July 31, 2009, the Company had 44 employees, including 25
full-time employees and 1 part-time employee with SAND, and 5 full-time
employees with Sand Technology Company ("Sand USA"), 3 full-time employees with
Sand Technology Limited ("Sand UK") and 9 full-time employees and 1 part-time
employee with Sand Technology Deutschland GmbH ("Sand Germany").

No employee of the Company is represented by a labour union or
  is covered by a collective bargaining agreement. Since inception, the Company
  has not suffered any disruptions as a result of labour problems or employee
  disputes.

E.Share Ownership

The shareholdings of the directors and officers of the Company
as at October 21, 2011 are as follows:

Name
      Position Held
      Number and Percentage of Outstanding
        Common Shares Owned
      Number of Vested and Unvested
        Stock Options HeldThomas M. O'Donnell
      Chief Executive Officer and Director
      1,761,843 (9.2%)
      760,000 vested  60,000 unvestedDuncan Painter
      Director
      428,572 (2.2%)
      97,500 vested  32,500 unvestedGeorge Wicker
      Director
      377,738 (2.0%)
      75,000 vested  25,000 unvestedP. Wayne Musselman
      Director
      102,788 (0.5%)
      97,500 vested  32,500 unvestedMichael Pesner
      Director
      Nil
      75,000 vested  25,000 unvestedDaniel Benn
      Director
      Nil
      75,000 vested  25,000 unvestedMichael Pilcher
      President and Chief Operating Officer
      Nil
      219,426 vested  630,484 unvestedTony J. Giuliano
      Vice-President, Finance and Administration and
        Chief Financial Officer and Corporate Secretary
      50,000 (0.003%)
      Nil vested  50,000 unvestedRichard Grondin
      Chief Technology Officer
      6,500 (0.0003%)
      310,000 vested  50,000 unvestedTotal Common Shares held by Directors and
        Officers and Total Vested and Unvested Stock Options
      2,727,441 (14.3%)
      1,709,426 vested 
        930,484 unvested


Arrangements Involving the Employees in the Capital of the
Company

The Company has an informal employee compensation plan, which
also applies to management, pursuant to which, if employees fulfil stated goals
with respect to sales revenue, new account penetration, profit contribution and
other criteria, their incomes will increase proportionately above the guaranteed
base until the specified target income is earned or exceeded. The informal
employee compensation plan is not based upon a mathematical formula in the case
of management, but is rather subject to individual discussio.

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1996 Stock Incentive Plan

On July 8, 1996, the Board of Directors adopted the 1996 Stock
Incentive Plan (the "Incentive Plan") pursuant to which the beneficiaries
selected by a committee of the Board of Directors may be granted options to
subscribe for Common Shares. The Incentive Plan was confirmed, approved and
ratified by the shareholders of the Company at the annual and special meeting of
the shareholders held on December 17, 1996. On November 9, 1999, by resolution,
the directors of the Company amended the Incentive Plan to increase the maximum
aggregate number of options to purchase Common Shares which may be granted under
the Incentive Plan. This resolution of the directors was confirmed, approved and
ratified by the shareholders of the Company at the annual and special meeting of
the shareholders held on December 17, 1999. The total number of Common Shares of
the Company authorized for grants of options is 1,100,000 (as adjusted to
reflect the share subdivision on a two-for-one basis on December 31, 1996)
subject to adjustment to take into account changes in the capital structure of
the Company.

On November 21, 2005, the Board of Directors approved an
amendment to the 1996 Stock Incentive Plan to extend the life of the Incentive
Plan for an additional period of ten (10) years. This amendment was confirmed,
approved and ratified by the shareholders of the Company at the annual and
special meeting of the shareholders held on December 15, 2005. On October 3,
2006, the Board of Directors provided for the amendment of each Stock Incentive
Agreement between an optionee and the Company whereby the options granted and
outstanding thereunder became exercisable for a period of ten (10) years from
July 7, 2006 with immediate vesting for all those outstanding options which have
vested on or prior to July 7, 2006.

The Incentive Plan is administered by the Governance Committee
of the Board of Directors. The former Options Committee has been dissolved.

The term and number of Common Shares covered by each option, as
well as the permitted frequency of exercise of such options, are determined by
the Governance Committee at the time the options are granted to the recipients.
The number of Common Shares which may be subject to option in favour of a single
recipient may not exceed 5% of the outstanding Common Shares of the Company. The
exercise price of each option for Common Shares may not be less than the closing
price of the Common Shares on the trading day prior to the day the option is
granted or, if there was no transaction on that day, the average of the bid and
ask prices on that day, less any discount as decided by the Board of Directors
within the extent permitted by the applicable regulatory provisions. Options
granted under the Incentive Plan may not be assigned or pledged. No financial
assistance is available to recipients in connection with the exercise of an
option. The Company may terminate the Incentive Plan at any time, subject to
vested rights.

During the fiscal year ended July 31, 2011, no stock options
were granted, no stock options expired, no stock options were forfeited and no
stock options were exercised under the 1996 Stock Incentive Plan.

During the period August 1, 2011 to October 21, 2011, no stock
options were granted, expired, forfeited or exercised under the 1996 Stock
Incentive Plan.

1996 Stock Option Plan

On July 8, 1996, the Board of Directors adopted the 1996 Stock
Option Plan ("Option Plan") pursuant to which the beneficiaries selected by a
committee of the Board of Directors may be granted options to subscribe for
Common Shares in the Company. The Option Plan was confirmed, approved and
ratified by the shareholders of the Company at the annual and special meeting of
the shareholders held on December 17, 1996. On November 9, 1999, by resolution,
the directors of the Company amended the Option Plan to

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increase the maximum aggregate number of options to purchase
Common Shares, which may be granted under the Option Plan. This resolution of
the directors was confirmed, approved and ratified by the shareholders of the
Company at the annual and special meeting of the shareholders held on December
17, 1999. The total number of Common Shares of the Company authorized for grants
of options is 900,000 (as adjusted to reflect the share subdivision on a
two-for-one basis on December 31, 1996), subject to adjustment to take into
account changes in the capital structure of the Company.

On November 21, 2005, the Board of Directors approved an
amendment to the Option Plan to extend the life of the Option Plan and of the
options granted and outstanding under the Option Plan for an additional period
of ten (10) years. This amendment was confirmed, approved and ratified by the
shareholders of the Company at the annual and special meeting of the
shareholders held on December 15, 2005. On October 3, 2006, the Board of
Directors provided for the amendment of each Stock Option Agreement between an
optionee and the Company whereby the options granted and outstanding thereunder
became exercisable for a period of ten (10) years from July 7, 2006 with
immediate vesting for all those outstanding options which had vested on or prior
to July 7, 2006.

The Option Plan is administered by the Governnace Committee of
the Board of Directors.

The term and number of Common Shares covered by each option, as
well as the permitted frequency of exercise of such options, are determined by
the Compensation Committee at the time the options are granted to the
recipients. The number of Common Shares which may be subject to option in favour
of a single recipient may not exceed 5% of the outstanding Common Shares of the
Company. The exercise price of each option for Common Shares may not be less
than the price of the Common Shares as determined by the Governance Committee
within the extent permitted by the applicable regulatory provisions. Options
granted under the Option Plan may not be assigned or pledged. No financial
assistance is available to recipients in connection with the exercise of an
option. Options which expire or are terminated or surrendered or unexercised are
thereafter available for the granting of other options. The Company may
terminate the Option Plan at any time subject to vested rights.

As at October 21, 2011, 357,000 options had been granted and
remained outstanding under the Option Plan and the Incentive Plan and 1,643,000
options remained available for grant under both plans.

During the fiscal year ended July 31, 2011, no stock options
were granted, no stock options expired, no stock options were forfeited and no
stock options were exercised under the 1996 Stock Option Plan

During the period August 1, 2011 to October 21, 2011, no stock
options were granted, expired, forfeited or exercised under the 1996 Stock
Option Plan.

Share Award Plan

On November 2, 2006, the Board of Directors of SAND established
a Share Award Plan pursuant to which up to 1,000,000 Common Shares of the
Company are issuable through direct and immediate issuances without any
intervening option grants. Each such share issuance shall be evidenced by a
Share Award Agreement that complies with the terms and conditions of the Share
Award Plan, and which state the number of Common Shares being awarded, the
restrictions imposed on the shares awarded under such Share Award Agreement and
such other representations, agreements, terms or conditions as may be required
or desirable by the Board of Directors of the Company. The award recipient shall
obtain the rights and obligations of a shareholder of the Company with respect
to the Common Shares of the Company award under the Share Award Agreement only
upon vesting of the award.

On August 28, 2007, the Board of Directors of the Company
authorized the award of up to 665,000 Common Shares. On September 30, 2007, the
Company granted 402,500 share awards which are

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dependant on the award recipients achieving certain defined
objectives including continued employment with the Company for a period of 3
years. As of September 30, 2010, following the 3-year employment period and
after taking into account terminations and resignations, 277,500 share awards
became eligible for issuance to recipients. 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.

2010 Stock Incentive Plan

On November 16, 2010,the Board of Directors of SAND
established the 2010 Stock Incentive Plan ("2010 Incentive Plan") pursuant to
which the beneficiaries selected by a committee of the Board of Directors may be
granted stock options or share awards in the Company. The 2010 Incentive Plan
was approved and ratified by the shareholders of the Company at a special
meeting of the shareholders held on January 25, 2011. The maximum number of
Common Shares of the Company that may be issued resulting from stock options or
share awards granted under the 2010 Incentive Plan is 4,000,000 subject to
adjustment to take into account changes in the capital structure of the
Company.

The 2010 Incentive Plan is administered by the Governance
Committee of the Board of Directors.

The term and number of Common Shares covered by each stock
option or share award, as well as the permitted frequency of exercise of such
stock options or share awards, will be determined by the Compensation Committee
at the time the stock options or share awards are granted to the recipients. The
number of Common Shares which may be subject to stock options or share awards in
favour of a single recipient may not exceed 5% of the outstanding Common Shares
of the Company. Stock options or share awards granted under the 2010 Incentive
Plan may not be assigned or pledged. No financial assistance is available to
recipients in connection with the exercise of a stock option or share award.
Stock options or share awards which expire or are terminated or surrendered or
unexercised are thereafter available for the granting of other stock options or
share awards. The Company may terminate the Incentive Plan at any time subject
to vested rights.

As at October 21, 2011, 3,473,583 options had been granted and
remained outstanding under the 2010 Incentive Plan and 526,417 options remained
available for grant under that plan.

During the fiscal year ended July 31, 2011, 3,295,756 stock
options were granted, 27,310 stock options expired, 91,863 stock options were
forfeited and 60,000 stock options were exercised under the 2010 Incentive Plan.

During the period from August 1, 2011 to October 2011, zero
stock options were granted, zero stock options expired, zero stock options were
forfeited and 25,000 stock options were exercised under the 2010 Incentive Plan.

ITEM
7. **MAJOR
SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

As of October 21, 2011, the Company had 19,116,636 Class A
Common Shares outstanding. Each Class A Common Share entitles its holder to
one vote.

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A.Major Shareholders

The following are the only persons who, to our knowledge,
beneficially own or exercise control or direction over shares carrying more than
five percent (5%) of the votes attached to Class A Common Shares of the Company
at October 21, 2011:

Approximate Number of Class A Common Shares Owned, Controlled or Directed,
      Directly or Indirectly
      Percentage of Class A Common
      Shares Owned, Controlled or DirectedArthur G. Ritchie
    3,598,388
    18.8%Thomas M. O'Donnell
    1,761,843
    9.2%Carol Shattner
    1,058,600
    5.5%Total Common Shares Owned, Controlled or
      Directed, Directly or Indirectly by the Major
      Shareholders
    6,418,831
    33.5%


The voting rights of the Class A Common Shares held by the
persons identified or referred to above are the same as the voting rights of the
Class A Common Shares held by all other shareholders.

To our knowledge, as of October 21, 2011, 14,383,282 Class A
Common Shares were held of record by persons whose registered addresses were in
the United States. Many of our Class A Common Shares are held in the name of
intermediaries.

Except as set forth above, to our knowledge, the Company is not
directly or indirectly owned or controlled by another company, by any foreign
government or by any other national or legal person severally or jointly.

There are no known contractual arrangements which may result in
a change of control of the Company at a subsequent date.

B.Related Party Transactions

1)      Arthur G. Ritchie

The Company has entered into the following agreements with
Arthur G. Ritchie, a major shareholder and its former Chairmanand former
President and Chief Executive Officer, as follows:

| | (a) | During fiscal year 2009, the Company formalized the
      conditions pertaining to a loan obtained from Arthur G. Ritchie. The loan
      originated from amounts owed by the Company to Arthur G. Ritchie by virtue
      of his previous employment contracts as President and Chief Executive
      Officer. Arthur G. Ritchie 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, Arthur G. Ritchie has the right to convert all outstanding amounts
      owed to him hereunder into common
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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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 Arthur G. Ritchie at a purchase price
per share equal to the greater of:

| | 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, an amount of
$1,685,411 (July 31, 2010 - $1,407,874), including accrued interest of $481,751
(July 31, 2010 - $204,214), was outstanding under the loan agreement.

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 Arthur G. Ritchie,
effective February 1, 2011, and the default was cured subsequent to the year end
as the Company paid the significant shareholder the amounts due as described in
Item 18., Financial Statements (Note 20).

In conjunction with the original loan
agreement, the Company also issued 103,061 warrants to Arthur G. Ritchie, 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.

| | (b) | The Company, effective November 1, 2009, also signed a
      Consulting Agreement and a Marketing and Sales Assistance Agreement with
      Arthur G. Ritchie. The Consulting Agreement provides for a fixed payment
      on the first of each month in the amount of $21,013 and expires on October
      31, 2011. Payments made under the consulting agreement during fiscal year
      2011 amounted to $210,130 (2010 - $188,937) with a balance owing at July
      31, 2011 of $42,026 (July 31, 2010  Nil).                                                                                                                                                                                                                                     
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     | Under the Marketing and Sales Assistance Agreement, the
      Company and Arthur G. Ritchie 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.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | (c) | Arthur G. Ritchie 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
      July 31, 2011 and 2010, bonuses payable amounted to $165,386 and $165,386,
      respectively.                                                                                                                                                                                                                                                                   

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During fiscal year 2008, an Inter-Creditor Priority Agreement
was signed between Arthur G. Ritchie (loans disclosed under a), b) and c) above)
and the holders of the Convertible Debentures (collectively the parties), at
the time when the Company issued the Convertible Debentures. The parties agreed
that the sums owing under the Convertible Debentures will be paid by the Company
to the Convertible Debenture holders in priority to the sums owed by the Company
to Arthur G. Ritchie. Specifically, for every $2 paid to the Convertible
Debenture holders, the Company shall remit $1 to Arthur G. Ritchie, 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 Arthur G. Ritchie such that for every $1 paid to the Convertible
Debenture holders, the Company shall remit $1 to Arthur G. Ritchie.

2) ******Thomas M. ODonnell

During fiscal year 2011 and fiscal year 2010, we obtained
various loans from the Chief Executive Officer, who is also a shareholder, in
the form of Promissory Notes for a total amount of $341,621 (U.S.$325,000)
(2011: $41,728 (U.S.$40,000); 2010: 299,893 (U.S.$285,000)). 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 (U.S.$287,847), including accrued interest of $2,927
(U.S.$2,847), was outstanding on the Promissory Notes. During the year ended
July 31, 2011, a private placement was completed which converted the principal
value amounting to $341,621 (U.S.$325,000) of the Promissory Notes. As at July
31, 2011, an amount of accrued interest of $22,014 (U.S.$23,040) was
outstanding.

3)******
  Private Placements

In May 2007, the Company completed a non-brokered private
placement where the Company issued 1,500,000 Common Shares at a price of US$0.40
share for total cash proceeds of $675,795. In addition, the Company issued
750,000 share purchase warrants entitling two shareholders to purchase up to
750,000 shares of the Company at a price of US$0.60 for three years. One of
these shareholders is Arthur G. Ritchie, the former Chairman and former
President and Chief Executive Officer of the Company.

In April 2008, the Company issued secured convertible
debentures ("Convertible Debentures") on a private placement basis and received
gross proceeds of $1,009,819 (U.S.$1,002,600) to investors, one of whom is
Thomas M. ODonnell, the Chief Executive Officer of the Company, representing a
total of 1,114 units. Each unit consists of one 8% Convertible Debenture due
December 31, 2017 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 U.S.$0.70 per share. Interest is calculated at the
rate of 8% per annum, payable in common shares at a rate of U.S.$0.45 per share.
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.

In November 2009, the Company completed a non-brokered private
placement where the Company issued 785,715 units for U.S.$0.70 per unit, for
total gross proceeds of $587,835 (U.S.$550,000) to investors, one of whom is
Thomas M. ODonnell, the Chief Executive Officer of the Company. Each unit
consists of two Class A Common Shares and one warrant to purchase one Class A
Common Share for an exercise price of U.S.$0.50 per share.

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In March 2011, the Company completed a non-brokered private
placement where the Company issued 1,071,432 units for U.S.$0.70 per unit, for
total gross proceeds of $775,073 (U.S.$750,000) to investors, one of whom is
Thomas M. ODonnell, the Chief Executive Officer of the Company. Each unit
consists of two Class A Common Shares and one warrant to purchase one Class A
Common Share for an exercise price of U.S.$0.50 per share.

C.Interests of Experts and Counsels

******Not
  applicable.

ITEM
8. **FINANCIAL INFORMATION

A.Consolidated Statements and Other Financial
Information

Consolidated Financial Statements

The Companys consolidated financial statements are set out
under Item 18.

Legal Proceedings

There are no on-going legal proceedings.

Dividend Record and Policy

The Company has never paid any dividend on its Common Shares.
The Companys present policy is to retain any earnings to finance future growth.
Dividends on the Common Shares paid to non-residents of Canada would generally
be subject to withholding tax under the Income Tax Act (Canada) at the
rate of 25%. Such rate may be subject to reduction under the provisions of a tax
treaty between Canada and the country in which the recipient is resident. The
Canada-U.S. Income Tax Convention (1980) (the "Convention") provides for a
general reduction in the rate of withholding tax to 15% on dividends paid on
shares of a Company resident in Canada (such as the Company) to a resident of
the United States, and also provides for a further reduction to 5% where the
beneficial owner of the dividend is a Company, resident in the United States,
which owns at least 10% of the voting shares of the Company paying the dividend.

B.Significant Changes

Subsequent to July 31, 2011, the Company had the following
significant events:

| | a) | 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 has
      a maturity date of November 30, 2011 with interest at 15% and warrants
      valued at $500,000 at a price of U.S.$0.50 per warrant Interest was
      prepaid from the proceeds of the bridge loan.                                                                                                                                                     
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | b) | 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 U.S.$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 U.S.$4,172,465. The Company anticipates it will be
      able to meet all its obligations under the

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| |    | Asset Purchase Agreement governing this transaction to
      collect the remaining amount due from the sale.                                                                                                                                                                                           
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                        
| | c) | Further to a settlement agreement signed on September 6,
      2011 with a significant shareholder referred to in Note 8, the initial
      proceeds received on the above-mentioned sale were used to pay a pro-rata
      amount owed to the significant shareholder in the amount of
    $1,329,781.

ITEM
9. **THE
OFFER AND LISTING

A.Offer and listing details

The following tables sets forth the price ranges and volume of
Common Shares during the periods indicated on the OTCBB, and before August 5,
2005, on the Nasdaq SmallCap Market System.

Quarter Ended
      
      High
      
      Low
      
      VolumeJuly 31, 2011
    
    0.63
    
    0.37
    
    305,486April 30, 2011
    
    0.62
    
    0.34
    
    383,984January 31, 2011
    
    0.42
    
    0.28
    
    335,877October 31, 2010
    
    0.46
    
    0.25
    
    215,699July 31, 2010
    
    0.56
    
    0.26
    
    174,174April 30, 2010
    
    0.53
    
    0.32
    
    305,235January 31, 2010
    
    0.50
    
    0.29
    
    234,468October 31, 2009
    
    0.50
    
    0.25
    
    216,644July 31, 2009
    
    0.45
    
    0.30
    
    312,065April 30, 2009
    
    0.40
    
    0.26
    
    273,716January 31, 2009
    
    0.57
    
    0.28
    
    642,333October 31, 2008
    
    0.81
    
    0.48
    
    345,400July 31, 2008
    
    0.85
    
    0.70
    
    539,300April 30, 2008
    
    0.55
    
    0.31
    
    648,500January 31, 2008
    
    0.50
    
    0.31
    
    578,400October 31, 2007
    
    0.55
    
    0.40
    
    599,400July 31, 2007
    
    0.58
    
    0.35
    
    667,400April 30, 2007
    
    0.65
    
    0.40
    
    361,600January 31, 2007
    
    0.70
    
    0.40
    
    460,900October 31, 2006
    
    0.48
    
    0.38
    
    348,500


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Fiscal Year Ended(1)
      
      High
      
      Low
      
      VolumeJuly 2011
    
    0.63
    
    0.25
    
    1,241,046July 2010
    
    0.56
    
    0.25
    
    930,521July 2009
    
    0.81
    
    0.26
    
    1,573,394July 2008
    
    0.85
    
    0.31
    
    2,365,600July 2007
    
    0.70
    
    0.35
    
    1,838,400


B.Plan of Distribution

Not applicable.

C.Markets

The Companys Common Shares have been traded in the United
States on the OTCBB since August 9, 2005, under the symbol "SNDTF". Before
August 9, 2005, the Company's Common Shares were listed on the Nasdaq SmallCap
Market System.

In 2008, the management of SAND had learned that its Common
Shares had been listed for trading on the Berlin-Bremen Stock Exchange (the
"Berlin Exchange") under the symbol "SD1A", without the Company's prior
knowledge, consent or authorization. Any authorized broker may list a company on
the Berling Exchange by filing an application with the administration of the
exchange for a permit to trade a company's stock already listed on and regulated
by other markets. SAND does not anticipate that this will materially affect the
price of its Common Shares.

On January 30, 2008, SAND applied to the Autorité des
marchés financiers (the "AMF"), the securities regulatory authority in the
Province of Québec in Canada to become reporting issuer in the Province of
Québec in order to allow its securities to be freely tradeable in the province
(subject to applicable resale restriction periods). On April 15, 2008, the
application was granted and SAND became a reporting issuer in the Province of
Québec and is now subject to the disclosure requirements of the AMF.

D.Selling Shareholders

Not applicable.

E.Dilution

Not applicable.

F.Expenses of the issue

Not applicable.

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ITEM
10. **ADDITIONAL INFORMATION

A.Share Capital

Not applicable.

B.Memorandum and Articles of Association

SAND was incorporated on December 10, 1982 under the provisions
of the CBCA. The articles of the Company place no restrictions upon the
Company's objects and purposes.

Directors Powers

Pursuant to the articles and the by-laws of the Company and the
requirements of the CBCA, the board of directors must consist of not fewer than
three (3) and not more than eleven (11) directors. A majority of the number of
directors appointed constitutes a quorum at any meeting of directors, provided,
however, that no business may be transacted at a meeting of directors unless at
least one-quarter of the directors present are resident Canadians. The duty of
the directors is to manage or supervise the management of the business of the
Company.

There is no provision in the by-laws that imposes a requirement
in respect of a directors power to vote on a proposal, arrangement or contract
in which the director is materially interested. The CBCA provides that a
director must disclose to the Company, in writing or by requesting to have it
entered in the minutes of meetings of directors or of meetings of committees of
directors, the nature and extent of any interest that he or she has in a
material contract or material transaction, whether made or proposed, with the
Company, if the director (a) is a party to the contract or transaction; (b) is a
director, or an individual acting in a similar capacity of a party to the
contract or transaction; or (c) has a material interest in a party to the
contract or transaction.

The by-laws of the Company state that the directors may fix the
remuneration of the directors and that the directors shall be paid such
remuneration for their services as the board may from time to time determine.
The directors are also entitled to be reimbursed for travel and other expenses
properly incurred by them in attending meetings of the board or any committee of
the board of directors. Nothing in the by-laws precludes any director from
serving the Company in any other capacity and receiving remuneration for such
services.

The articles of the Company state that without limiting the
borrowing powers of the Company as set forth in the CBCA, the board may from
time to time on behalf of the Company without authorization of the shareholders
(a) borrow money upon the credit of the Company; (b) issue, reissue, sell or
pledge debt obligations of the Company; (c) to the extent permitted by the CBCA,
give a guarantee on behalf of the Company to secure performance of an obligation
of any person; and (d) mortgage, hypothecate, pledge or otherwise create a
security interest in all or any property of the Company owned or subsequently
acquired to secure any obligation of the Company.

The directors may, by resolution, make, amend or repeal any
by-laws that regulate the business or affairs of the Company. Any resolution
making, amending or repealing any by-laws of the Company must be submitted to
the next following shareholders meeting for ratification by the shareholders who
may by ordinary resolution confirm, reject or amend the by-law, amendment or
repeal.

The powers of the directors set forth in the articles of the
Company may be amended by special resolution. A special resolution is a
resolution passed by a majority of not less than two-thirds (2/3) of the

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votes cast by shareholders of the Company who being entitled to
do so, vote in person or by proxy at an annual or special meeting of
shareholders of the Company. Under the CBCA, an ordinary resolution of
shareholders requires approval by a majority of the votes cast at a meeting of
shareholders, present in person or represented by proxy.

Election and Qualifications of Directors

The directors of the Company stand for election at the annual
meeting of shareholders and there are no staggered terms. There is no cumulative
voting for directors of the Company. There is no provision in the articles or
by-laws that imposes a requirement for retirement or non-retirement of
directors.

There is no provision in the Companys articles or by-laws that
a director be required to hold a share in the capital of the Company as a
qualification for his office, but he must be qualified to become or act as a
director as required by the CBCA. The CBCA provides that no person is qualified
to act as a director if that person is less than 18 years of age; is a person
who has been found to be a person of unsound mind by a court in Canada; a person
who is not an individual; or is a person who has the status of bankrupt.

The CBCA provides that a director of a Company may be removed
if the shareholders by ordinary resolution at a special meeting vote to remove a
director or directors from office.

Meetings

The CBCA provides that the Company must call an annual meeting
of its shareholders not later than 15 months after holding the last preceding
annual meeting but no later than 6 months after the end of the Company's
preceding financial year. The Company must give notice of any meeting to its
shareholders entitled to receive notice not more than 60 days prior to and not
less than 21 days before the date of meeting. The CBCA requires the directors of
a company to provide with the notice of a general meeting a form of proxy for
use by every member entitled to vote at such meeting as well as an information
circular containing prescribed information regarding the matters to be dealt
with and the conduct of the meeting.

Under the CBCA, the directors of the Company may call a meeting
of shareholders and one or more shareholders holding not less than 5% of the
issued voting shares of the Company may give notice to the directors requiring
them to call and hold a meeting.

Limitations on Ownership of Securities

Except as described below under "Exchange Controls", there are
no limitations on the right to own securities imposed by foreign law to the
Companys knowledge or by the articles of the Company.

Change in Control of Company

There are no provisions in the Companys articles or by-laws
that would have the effect of delaying, deferring, or preventing a change in
control of the Company and that would operate only with respect to a merger,
acquisition or corporate restructuring of the Company or its subsidiaries.

Ownership Threshold

There are no provisions in the articles or by-laws governing
the ownership threshold above which shareholder ownership must be disclosed.

- 54 -

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Description of Share Capital

The authorized share capital of the Company consists of an
unlimited number of Class A Common Shares, all without par value, and an
unlimited number of Class B Shares, issuable in series, all without par value,
of which Class B, Series A Shares have been authorized.

Class A Common Shares

The Class A Common Shares of the Company have the following
rights, privileges, restrictions and conditions:

- Dividends: Subject to the prior rights of the holders of the Class B
  Shares and any other shares ranking senior to the Class A Common Shares with
  respect to priority in the payment of dividends, the holders of Class A Common
  Shares are entitled to receive dividends and the Company must pay dividends
  thereon, as and when declared by the Board of Directors of the Company out of
  moneys properly applicable to the payment of dividends, in such amount and in
  such form as the Board of Directors of the Company may from time to time
  determine and all dividends which the Board of Directors of the Company may
  declare on the Class A Common Shares must be declared and paid in equal
  amounts per share on all Class A Common Shares at the time outstanding.
- Dissolution: In the event of the dissolution, liquidation or
  winding-up of the Company, whether voluntary or involuntary, or any other
  distribution of assets of the Company among its shareholders for the purpose
  of winding-up its affairs, subject to the prior rights of the holders of the
  Class B Shares and any other shares ranking senior to the Class A Common
  Shares with respect to priority in the distribution of assets upon
  dissolution, liquidation, winding-up or distribution for the purpose of
  winding-up, the holders of the Class A Common Shares are entitled to receive
  the remaining property and assets of the Company.
- Voting Rights: The holders of the Class A Common Shares are entitled
  to receive notice of and to attend all meetings of the shareholders of the
  Company and have one vote for each Class A Common Share held at all meetings
  of the shareholders of the Company, except meetings at which only holders of
  another specified class or series of shares of the Company are entitled to
  vote separately as a class or series.

There are no redemption or sinking fund provisions relating to
the Class A Common Shares and the Class A Common Shares are fully paid and
non-assessable.

Class B Shares

The Class B Shares, as a class, have the following rights,
privileges, restrictions and conditions:

- Directors' Authority to Issue in One or More Series: The Board of
  Directors of the Company may issue the Class B Shares at any time and from
  time to time in one or more series. Before the first shares of a particular
  series are issued, the Board of Directors of the Company must fix the limited
  or unlimited number of shares in such series and must determine, subject to
  the limitations set out in the articles, the designation, rights, privileges,
  restrictions and conditions to be attached to the shares of such series
  including, without limitation, the rate or rates, amount or method or methods
  of calculation of dividends thereon, the time and place of payment of
  dividends, whether cumulative or non-cumulative or partially cumulative and

- 55 -

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- Ranking of Class B Shares: No rights, privileges, restrictions or
    conditions attached to a series of Class B Shares may confer upon a series
    a priority in respect of dividends or return of capital over any other series
    of Class B Shares then outstanding. The Class B Shares are entitled to priority
    over the Common Shares of the Company and over any other shares of the Company
    ranking junior to the Class B Shares with respect to priority in the payment
    of dividends and the distribution of assets in the event of the liquidation,
    dissolution or winding-up of the Company, whether voluntary or involuntary,
    or any other distribution of the assets of the Company among its shareholders
    for the purpose of winding-up its affairs. If any cumulative dividends or
    amounts payable on a return of capital in respect of a series of Class B Shares
    are not paid in full, the Class B Shares of all series must participate rateably
    in respect of such dividends, including accumulations, if any, in accordance
    with the sums that would be payable on such shares if all such dividends were
    declared and paid in full, and in respect of any repayment of capital in accordance
    with the sums that would be payable on such repayment of capital if all sums
    so payable were paid in full; provided however, that in the event of there
    being insufficient assets to satisfy in full all such claims to dividends
    and return of capital, the claims of the holders of the Class B Shares with
    respect to repayment of capital must first be paid and satisfied and any assets
    remaining thereafter must be applied towards the payment and satisfaction
    of claims in respect of dividends. The Class B Shares of any series may also
    be given such other preferences over the Common Shares and over any other
    shares ranking junior to the Class B Shares as may be determined in the case
    of such series of Class B Shares.
- Voting Rights: Except as otherwise required by law or in accordance
    with any voting rights which may from time to time be attached to any series
    of Class B Shares, the holders of the Class B Shares as a class are not entitled
    as such to receive notice of, to attend or to vote at any meeting of the shareholders
    of the Company.
- Approval of Holders of Class B Shares: The rights, privileges, restrictions
    and conditions attaching to the Class B Shares as a class may be added to,
    changed or removed but only with the approval of the holders of the Class
    B Shares given as hereinafter specified.

The approval of the holders of Class B Shares to add to, change
or remove any right, privilege, restriction or condition attaching to the Class
B Shares as a class or to any other matter requiring the consent of the holders
of the Class B Shares as a class may be given in such manner as may then be
required by law, subject to a minimum requirement that such approval shall be
given by resolution passed by the affirmative vote of at least two-thirds of the
votes cast at a meeting of the holders of Class B Shares duly called for that
purpose. The formalities to be observed in respect of the giving of notice of
any such meeting or any adjourned meeting and the conduct thereof shall be those
from time to time required by the CBCA (as from time to time amended, varied or
replaced) and prescribed in the by-laws of the

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Company with respect to meetings of shareholders. On every poll
taken at a meeting of holders of Class B Shares as a class, each holder entitled
to vote thereat shall have one vote in respect of each Class B Share held by
him.

Class B, Series A Shares

The first series of the Class B Shares of the Company consists
of 20,000,000 shares and no more and is designated as the Class B, Series A
Shares (the "Class B, Series A Shares") and in addition to the preferences,
rights, privileges, restrictions and conditions attaching to all of the Class B
Shares as a class, the rights, privileges, restrictions and conditions attaching
to the Series A Shares are as follows:

Voting Rights

Each holder of Class B, Series A Shares shall be entitled to
receive notice of and to attend all meetings of shareholders of the Company,
except meetings at which only holders of other classes or series of shares are
entitled to attend, and at all such meetings shall be entitled to a number of
votes equal to the number of Class A Common Shares of the Company then issuable
upon the conversion of the Class B, Series A Shares into Class A Common Shares
and to vote together with the holders of Class A Common Shares of the Company.

Cumulative Dividends

The holders of the Class B, Series A Shares shall be entitled
to receive and the Company shall pay to them, always in preference and priority
to any payment of dividends on the Class A Common Shares of the Company and any
other Shares of the Company ranking junior to the Class B, Series A Shares, as
and when declared by the Board of Directors of the Company out of moneys of the
Company properly applicable to the payment of dividends, fixed, cumulative cash
dividends at the annual rate per share of 7% of the amount equal to the amount
recorded in the stated capital account maintained in respect of the Class B,
Series A Shares outstanding payable quarterly, by cheque of the Company or in
kind. Such dividend on any particular Class B, Series A Share shall accrue and
be cumulative from the date of issue of such Class B, Series A Share. In the
event the price of the Common Shares of the Company is more than 200% of the
conversion price of the Class B, Series A Shares for thirty (30) consecutive
trading days, and provided that a Registration Statement has been declared
effective by the the S.E.C. or 365 days have passed since the initial issue of
the Class B, Series A Shares, the Company shall cease paying dividends.

Liquidation, Dissolution or Winding-Up

In the event of the liquidation, dissolution or winding-up of
the Company, whether voluntary or involuntary, or any other distribution of
assets of the Company among its shareholders for the purpose of winding-up its
affairs, the holders of the Class B, Series A Shares shall be entitled to
receive the amount received by the Company upon initial issue in respect of each
Class B, Series A Share plus all accrued and unpaid cumulative dividends before
any amount shall be paid to the holders of the Common Shares or any other shares
ranking junior to the Class B, Series A Shares. Except as provided above, the
holders of the Class B, Series A Shares shall not be entitled to any further
participation in the assets of the Company.

Modification Procedure

The rights, privileges, restrictions and conditions attached to
the Class B, Series A Shares may be added to, changed or removed only with the
prior approval of the holders of the Class B, Series A Shares given

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as specified herein, in addition to any vote or authorization
required by law or the articles of the Company.

Any approval of the holders of Class B, Series A Shares with
respect to the modification of the rights, privileges, restrictions and
conditions attached to the Class B, Series A Shares or to any other matter
requiring the consent of the holders of the Class B, Series A Shares shall be
given in such manner as may then be required by law, subject to a minimum
requirement that such approval be given by resolution passed by the affirmative
vote of at least two-thirds of the votes cast by the holders of Class B, Series
A Shares who voted in respect of that resolution at a meeting of the holders of
the Class B, Series A Shares duly called for that purpose at which the holders
of at least fifty per cent (50%) of the outstanding Class B, Series A Shares are
present in person or represented by proxy, or, if such quorum is not present at
such meeting, at an adjournment thereof at which the holders of twenty-five per
cent (25%) Class B, Series A Shares then present in person or represented by
proxy shall constitute a quorum for all purposes. The formalities to be observed
with respect to proxies, the giving of notice and the conduct of any such
meeting or any adjourned meeting shall be those from time to time prescribed by
the articles and by-laws of the Company or otherwise prescribed by law with
respect to meetings of shareholders. On every poll taken at every meeting of
holders of Class B, Series A Shares, each holder entitled to vote thereat shall
be entitled to one vote for each Class B, Series A Share held by such holder.

Conversion Rights

The holders of the Class B, Series A Shares shall have the
right at any time to convert the Class B, Series A Shares into a number of Class
A Common Shares of the Company equal to the amount received by the Company upon
the initial issue of each Class B, Series A Share plus all accrued and unpaid
cumulative dividends divided by the conversion price of $0.40 per Class B,
Series A Share (the "Conversion Price").

The conversion privilege herein provided for may be exercised
by notice in writing given to the Company at its registered office, accompanied
by the certificate or certificates representing the Class B, Series A Shares in
respect of which the holder thereof desires to exercise such right of
conversion. Such notice shall be signed by such holder or his duly authorized
attorney and shall specify the number of Class B, Series A Shares which the
holder desires to have converted. If less than all the Class B, Series A Shares
represented by a certificate or certificates accompanying any such notice are to
be converted, the holder shall be entitled to receive, at the expense of the
Company, a new certificate representing the number of Class B, Series A Shares
comprised in the certificate or certificates surrendered as aforesaid which are
not to be converted.

On any conversion of Class B, Series A Shares the share
certificates for Common Shares of the Company resulting therefrom shall be
issued in the name of the registered holder of the Class B, Series A Shares
converted or in such name or names as such registered holder may direct in
writing, provided that such registered holder shall pay any applicable security
transfer taxes. In either instance the transfer form on the back of the
certificates in question shall be endorsed by the registered holder of the Class
B, Series A Shares or his duly authorized attorney, with signature guaranteed in
a manner satisfactory to the Company, provided that the Company may wave the
requirement for any such guarantee.

In the event that the Company issues Class A Common Shares,
Class B Shares or other securities at a price which is less than the then
current conversion price of the Class B, Series A Shares, the conversion price
of the Class B, Series A Shares shall be reduced to the price at which the Class
A Common Shares, Class B Shares or other securities are issued. The following
issuances of securities shall not bring about the foregoing reduction in the
conversion price: (i) securities issued upon the conversion of any Class B,
Series A Shares; (ii) securities issued upon the conversion of any debenture,
warrant, option or other convertible security; and (iii) Class A Common Shares
of the Company (or options or rights or purchase

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such Class A Common Shares) issued or issuable to employees,
directors, officers or consultants pursuant a plan approved by the Board of
Directors of the Company.

Change of Rights of Shareholders

The CBCA requires the consent by special resolution of a
majority of not less than two thirds (2/3) of the votes cast by the shareholders
entitled to vote in order to change the rights of holders of shares, including
the designation of all or any shares, and any addition, change or removal of
rights, privileges, restrictions and conditions, including rights to accrued
dividends, in respect of all or any shares, whether issued or unissued.

C.Material Contracts

The material contracts concluded by the Company for the two
years immediately preceding publication of this Report are as follows:

- The Company is a party to the Asset Purchase Agreement dated October 4,
  2011 (the "Asset Purchase Agreement") among the Company, STSI Licensing, LLC,
  Sand Technology Corporation, Sand Technology Limited, Sand Technology
  (Ireland) Limited, Sand Technology Deutschland GMB, Sand Technology Australia
  Pty Ltd, and Informatica Software, Limited. Under the terms of the Asset
  Purchase Agreement, the Company and its subsidiaries sold certain of their
  assets relating to their Nearline and SAP Nearline lines of business for
  consideration of up to US$8 million. 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
  U.S.$4,172,465 at the closing of this transaction. In connection with this
  transaction, the Company entered into a Restricted Covenants Agreement dated
  October 4, 2011 (the "Restrictive Covenants Agreement") pursuant to which the
  Company agreed to not, and to ensure that its affiliates do not, engage in
  certain activities competitive with the business sold under the Asset Purchase
  Agreement for a period of two years after the date of the Restricted Covenants
  Agreement.
- On September 7, 2011, the Company completed a bridge loan financing in the
  amount of $1,000,000 from a group of investors. The bridge loan has a term of
  three months with interest at 15% and is entirely repayable at its maturity
  date of November 30, 2011. Interest was prepaid from the proceeds of the
  bridge loan.
- In March 2011, the Company completed a non-brokered private placement where
  the Company issued 1,071,432 units for U.S.$0.70 per unit, for total gross
  proceeds of U.S.$750,000 to investors, one of whom is Thomas M. ODonnell, the
  Chief Executive Officer of the Company. Each unit consists of two Class A
  Common Shares and one warrant to purchase one Class A Common Share for an
  exercise price of U.S.$0.50 per share.

- Please see Item Item 6B - Compensation and Item 7B - Related Party
  Transactions for contracts entered into by SAND with its directors and
  officers.

D.Exchange Controls

Other than as provided in the Investment Canada Act
(Canada) (the "Investment Act"), there are currently no limitations imposed by
Canadian laws, decrees or regulations that restrict the import or export of

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capital, including foreign exchange controls, or that affect
the remittance of dividends to non-resident holders of the Companys securities.
However, any such remittances of dividends paid to United States residents are
subject to withholding tax at a rate equal to a maximum of 15% of the amount
paid (see Section E  Taxation under Item 10  Additional Information).

The following discussion summarises the material features of
the Investment Act, in its present form, for a non-resident of Canada who
proposes to acquire Common Shares of the Company. The Investment Act regulates
the acquisition of control of a Canadian business by a non-Canadian as defined
under the Investment Act. With respect to the Company, an acquisition of control
is considered to be the acquisition of the majority of its Common Shares.
However, if a non-Canadian acquires more than one-third of the voting shares of
the Company, but less than a majority, there is a presumed acquisition of
control unless it can be established that the Company is not controlled in fact
by the acquirer. All acquisitions of control of a Canadian business are
notifiable (which requires that a notification form be submitted to Investment
Canada within thirty days after the implementation of the investment) unless the
investment is reviewable. If the investment is reviewable, the investment may
not be implemented until the Minister responsible for the Investment Act is, or
has been deemed to be, satisfied that the investment is likely to be of net
benefit to Canada.

Where either the acquirer is, or the Company is presently
controlled by, a WTO investor (as that term is defined in the Investment Act), a
direct acquisition of control of the Company will only be reviewable if the
value of the Companys assets, as shown on its audited financial statements for
the most recently completed fiscal year, is equal to or greater than $223
million. This amount varies each year based on the rate of growth in Canadian
gross domestic product. Other direct acquisitions of control are reviewable if
the value of the assets of the Company, as calculated above, is equal to or
greater than $5 million. The $5 million threshold for review also applies with
respect to the acquisition of control of any Canadian business that provides any
financial services or transportation services, is a cultural business, or is
engaged in the production of uranium and owns an interest in or producing
uranium property in Canada.

Indirect acquisitions of control (acquisitions of control of an
entity which in turn controls the Company) are not reviewable under the
Investment Act if the acquirer is a WTO investor or if the Company is controlled
by a WTO investor. Otherwise, an indirect acquisition will be reviewable if the
value of the Companys assets is $50 million or more, or if the value of the
Companys assets acquired in the total transaction are in Canada or the
acquisition is not effected through the acquisition of control of a foreign
Company.

Certain types of transactions are exempt from application of
the Investment Act including acquisitions of control of the Company:

| | (a) | by the acquisition of voting shares or the voting
      interests by any person in the ordinary course of that persons business
      as a trader or dealer in securities;                                                           
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                       
| | (b) | in connection with the realization of security granted
      for a loan or other financial assistance and not for any purpose related
      to the Investment Act;                                                                    
| |     |                                                                                                                                                                                                                                       
| | (c) | for facilitating its financing and not for any purpose
      related to the Investment Act on the condition that the acquirer divest
      control within two years after control was acquired; and                                   
| |     |                                                                                                                                                                                                                                       
| | (d) | by reason of an amalgamation, merger, consolidation or
      corporate reorganization following which the ultimate or indirect control
      in fact of the Company through the ownership of voting interests remains
      unchanged.

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There are currently no limitations on the right of foreign or
non-resident owners of Common Shares to hold or vote such securities imposed by
Canadian law or the Companys charter or other constituent documents.

E.Taxation

Certain Canadian Federal Income Tax Consequences

The discussion under this heading summarises the material
Canadian federal income tax consequences of acquiring, holding and disposing of
Common Shares of the Company for a shareholder of the Company who is not
resident in Canada but is resident in the United States who benefits from the
provisions of the Convention and who will acquire and hold Common Shares of the
Company as capital property for the purpose of the Income Tax Act
(Canada) (the "Tax Act"). This summary does not apply to a shareholder who
carries on business in Canada through a "permanent establishment" situated in
Canada or who has a fixed tax base regularly available to him through which he
or she performs independent personal services in Canada if the shareholders
holding in the Company is effectively connected with such permanent
establishment or fixed base. This summary is based on the provisions of the Tax
Act and the regulations thereunder and on the Companys understanding of the
administrative practices of the Canada Revenue Agency and takes into account all
specific proposals to amend the Tax Act or regulations made by the Minister of
Finance of Canada to November 16, 2010. It has been assumed that there will be
no other relevant amendment of any governing law although no assurance can be
given in this respect. This discussion is general only and is not a substitute
for independent advice from a shareholders own Canadian and U.S. tax advisors.

The provisions of the Tax Act are subject to income tax
treaties to which Canada is a party, including the Convention and the Protocols
to the Convention.

Dividends on Common Shares

Under the Tax Act, a non-resident of Canada is generally
subject to Canadian withholding tax at the rate of 25% on dividends paid or
deemed to have been paid to him by a Company resident in Canada. The Convention
limits the rate to 15% if the shareholder is resident in the United States and
the dividends are beneficially owned by and paid to him, and to 5% if the
shareholder is a company that beneficially owns at least 10% of the voting
shares of the payer company. The Convention generally exempts from Canadian
income tax dividends paid to a religious, scientific, literary, educational or
charitable organisation or to an organisation constituted and operated
exclusively to administer a pension, retirement or employee benefit fund or
plan, if the organisation is resident in the United States and is exempt from
income tax under the laws of the United States.

Disposition of Common Shares

Under the Tax Act, a taxpayers capital gain or capital loss
from a disposition of Common Shares of the Company is the amount, if any, by
which his proceeds of disposition exceed (or are exceeded by, respectively) the
aggregate of his adjusted cost base of the share and reasonable expenses of
disposition. One-half of a capital gain (the "taxable capital gain") is included
in income, and one-half of a capital loss in a year (the "allowable capital
loss") is deductible from taxable capital gains realized in the same year. The
amount by which a shareholders allowable capital loss exceeds the taxable
capital gain in a year may be deducted from a taxable capital gain realized by
the shareholder in the year or in the three previous or any subsequent year,
subject to certain restrictions in the case of a corporate shareholder.

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In the case of a shareholder that is a company, the amount of
any capital loss otherwise determined may be reduced, in certain circumstances,
by the amount of dividends previously received in respect of the shares disposed
of, unless the company owned the shares for at least 365 days prior to
sustaining the loss and (together with companies, persons and other entities
with whom the company was not dealing at arms length) did not, at the time the
dividends were received, own more than 5% of the shares of any class of the
capital stock of the company from which the dividend was received. These loss
limitation rules may also apply where a company is a member of a partnership or
a beneficiary of a trust that owned the shares disposed of.

A non-resident of Canada is not subject to tax under the Tax
Act in respect of a capital gain realized upon the disposition of shares unless
the shares represent "taxable Canadian property". Common shares of the Company
will not generally constitute taxable Canadian property. Common shares of the
Company will constitute taxable Canadian property of a shareholder at a
particular time if the shareholder used or held the shares in carrying on a
business in Canada, or if more than 50% of the fair market value of the shares
was derived directly or indirectly from one or any combination of:

| | a) | Real or immovable property in Canada                           
| | -- | ---------------------------------------------------------------
| | b) | Canadian resource properties                                   
| | c) | Timber resource properties; and                                
| | d) | Options in respect of any property described in a) to
      c).

Where a United States resident realises a capital gain on a
disposition of shares that constitute "taxable Canadian property", the
Convention relieves the United States resident from liability for Canadian tax
on such capital gains unless:

| | (a) | the value of the shares is derived principally from "real
      property" in Canada, including the right to explore for or exploit natural
      resources and rights to amounts computed by reference to
  production,                                                                                                                                                                                                                                                     
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | (b) | the shareholder was resident in Canada for 120 months
      during any period of 20 consecutive years preceding the disposition, was
      resident in Canada at any time during the 10 years immediately preceding
      the disposition, the shares were owned by him when he ceased to be
      resident in Canada and the shares were not property that the shareholders
      was treated as having alienated by reason of ceasing to be a resident of
      Canada, or
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | (c) | the shares formed part of the business property of a
      "permanent establishment" that the shareholder has or had in Canada within
      the 12 months preceding the disposition.                                                                                                                                                                                                                                                                                        

Notwithstanding the potential exemption from Canadian tax
provided under the Convention, where a nonresident of Canada disposes of Common
Shares of the Company that are "taxable Canadian property", the non-resident is
required to file a Canadian income tax return in respect of any such
dispositions.

Certain United States Federal Income Tax Considerations

The following discussion summarises the material United States
federal income tax consequences to certain U.S. Holders (as defined below) of
the acquisition, ownership and disposition of the Companys Common Shares. This
discussion assumes such holders hold the Common Shares as capital assets for
United States Federal income tax purposes. This discussion does not address
consequences peculiar to persons subject to special provisions of federal income
tax law, such as tax-exempt organisations, qualified retirement plans, financial
institutions, life insurance companies, real estate investment trusts, regulated
investment companies, broker-dealers, non-resident alien individuals or foreign
companies,

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shareholders actually or constructively owning Common Shares
representing 10% of the vote and value of the Company, a person that holds
shares as part of a straddle or hedging or conversion transaction, or a person
liable for alternative minimum tax. In addition, this discussion does not
address any state, local or foreign tax consequences.

The following discussion is based upon the Internal Revenue
Code of 1986, as amended (the "Code"), final, temporary and proposed Treasury
Regulations promulgated thereunder, published Internal Revenue Service ("IRS")
rulings, published administrative positions of the IRS and court decisions that
are currently applicable, any or all of which could be materially and adversely
changed, possibly on a retroactive basis. In addition, this discussion does not
consider the potential effects, both adverse and beneficial of recently proposed
legislation which, if enacted, could be applied, possibly on a retroactive
basis, at any time. The following discussion is for general information only and
is not intended to be, nor should it be construed to be, legal or tax advice to
any holder or prospective holder of the Companys Common Shares and no opinion
or representation with respect to the United States federal income tax
consequences, to any such holder or prospective holders is made. Accordingly,
holders and prospective holders of the Companys Common Shares should consult
their own tax advisors about the federal, state, local foreign tax consequences
of purchasing, owning and disposing of shares of Common Shares of the Company.

U.S. Holders

As used in this Report, the term "U.S. Holder" means a
beneficial owner of Common Shares that is (i) a citizen or resident individual
of the United States, (ii) a corporation or partnership created or organised
under the laws of the United States, or any political subdivision thereof, (iii)
an estate the income of which is subject to United States federal income tax
regardless of source, or (iv) a trust subject to the primary supervision of a
United States court and which has one or more United States persons who have the
authority to control all substantial decisions of the trust.

Distributions on Common Shares

Dividends (without reduction for Canadian income tax withheld)
paid to a noncorporate U.S. Holder in taxable years beginning before January 1,
2011 that constitute qualified dividend income will be taxable to such holder at
a maximum tax rate of 15% provided that the noncorporate U.S. Holder holds
shares for more than 60 days during the 121 day period beginning 60 days before
the ex-dividend date and meets other holding period requirements. A U.S. Holder
must include the dividend in its taxable income when the holder receives the
dividend, actually or constructively. The dividend will not be eligible for the
dividends-received deduction generally allowed to U.S. corporations in respect
of dividends received from other U.S. corporations. The amount of the dividend
distribution that a U.S. Holder must include in its income will be the U.S.
dollar value of the payments made, determined at the spot rate on the date of
the dividend distribution, regardless of whether the payment is in fact
converted into U.S. dollars. Generally, any gain or loss resulting from currency
exchange fluctuations during the period from the date the U.S. Holder includes
the dividend payment in income to the date it converts the payment into U.S.
dollars will be treated as ordinary income or loss and will not be eligible for
the special tax rate applicable to qualified dividend income. The gain or loss
generally will be income or loss from sources within the U.S. for foreign tax
credit limitation purposes. Distributions in excess of current and accumulated
earnings and profits, as determined for U.S. federal income tax purposes, will
be treated as a non-taxable return of capital to the extent of U.S. Holders
basis in the shares and thereafter as capital gain.

Subject to certain limitations, the Canadian tax withheld will
be creditable against a U.S. Holders United States federal income tax
liability. Special rules apply in determining the foreign tax credit limitation
with respect to dividends that are subject to the maximum 15% tax rate. To the
extent a refund of the tax

- 63 -

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withheld is available to a U.S. Holder, the amount of tax
withheld that is refundable will not be eligible for credit against the U.S.
Holder United States federal income tax liability.

Disposition of Common Shares

A U.S. Holder will recognize United States source gain or loss
upon the sale of Common Shares equal to the difference, if any, between (i) the
amount of cash plus the fair market value of any property received, and (ii) the
shareholders tax basis in the Common Shares. This gain or loss will be capital
gain or loss if the shares are a capital asset in the hands of the U.S. Holder,
and such gain or loss will be long-term capital gain or loss if the U.S. Holder
has held the Common Shares for more than one year. Gains and losses are netted
and combined according to special rules in arriving at the overall capital gain
or loss for a particular tax year. Deductions for net capital losses are subject
to significant limitations.

Other Considerations

In the following circumstance, the above discussion may not
describe the United States federal income tax consequences resulting from the
holding and disposition of the Companys Common Shares:

Passive Foreign Investment Company

Special rules are applicable to U.S. Holders owning shares in a
passive foreign investment company (a "PFIC"). A foreign company will be
classified as a PFIC if at least 75% of its gross income for the taxable year is
passive income or if the value of assets held by it during the taxable year
which produce passive income represents at least 50% of the value of its assets.
In determining whether a foreign company is a PFIC, if the foreign company owns
25% or more (by value) of the stock of another company, the foreign company is
treated as if it (i) held its proportionate share of the assets of such other
company, and (ii) received directly its proportionate share of the income of
such other company.

Based on the nature of the income, assets and activities of the
Company, it is not certain whether the Company could be classified as a PFIC for
any taxable year. While the Company believes that it presently not a PFIC, there
can be no assurance that the Internal Revenue Service will not successfully
challenge our position or that we will not become a PFIC in a future taxable
year, as PFIC status is tested each year and depends on our assets and income in
such year.

If the Company was treated as a PFIC at any time during a U.S.
Holders holding period for the Common Shares, such U.S. Holder might be subject
to additional tax as well as certain interest charges in respect of the deferral
of tax for the period during which such Common Shares were held. Any such
additional tax and interest charges would apply to the disposition of the Common
Shares or the receipt of certain dividends that are considered "excess
distributions" under the Code. Additionally, any gain realized on the
disposition of such Common Shares would be treated as ordinary income rather
than as capital gain and the tax basis of the Common Shares held by a U.S.
Holder generally would not be stepped up to fair market value at death. U.S.
Holders and prospective holders of Common Shares should consult their own tax
advisors regarding the possible application of the PFIC rules to the Company.

New Reporting Requirements

U.S. federal income tax legislation enacted in 2010 generally
requires a U.S. individual to report to the IRS certain interests owned by such
individual in stock or securities issued by a non-U.S. person (such as our Class
A Common Shares) if the aggregate value of all such interests exceeds
U.S.$50,000. The failure to report the information required under this
legislation could result in substantial penalties. U.S Holders should consult
their tax advisors with respect to their obligations under this new legislation.

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Backup Withholding

Certain non-corporate U.S. Holders may be subject to backup
withholding at a rate of 28% on taxable distributions with respect to the Common
Shares and the proceeds of a disposition of the Common Shares. Backup
withholding will apply only if the U.S. Holder (i) fails to furnish its Taxpayer
Identification Number ("TIN") which, in the case of an individual, would be his
or her social security number, (ii) furnishes an incorrect TIN, (iii) is
notified by the IRS that it has failed to properly report payments of interest
or dividends or (iv) under certain circumstances, fails to certify, under the
penalty of perjury, that it has furnished a correct TIN and has not been
notified by the IRS that it is subject to backup withholding. Under newly issued
U.S. Treasury regulations, in the case of interest paid after December 31, 1999,
a U.S. Holder generally will be subject to backup withholding at a 28% rate
unless certain IRS certification procedures are complied with, directly or
through an intermediary. U.S. Holders should consult their tax advisors
regarding their qualification for exemption from backup withholding and the
procedure for obtaining such an exemption if applicable.

F.Dividends and paying agents

Not applicable.

G.Statements by experts

Not applicable.

H.Documents on Display

The Company is subject to certain of the information
requirements of the Securities Exchange Act of 1934, as amended (the Exchange
Act), and in accordance therewith, files reports and other information with the
United States Securities and Exchange Commission (SEC). As a foreign private
issuer, the Company is exempt from the rules under the Exchange Act prescribing
the furnishing and content of proxy statements, and its officers, directors and
principal shareholders are exempt from the reporting and short-swing profit
recovery provisions contained in Section 16 of the Exchange Act. As a foreign
private issuer, the Company is not required to publish financial statements as
frequently or as promptly as United States companies.

We file annual reports and other information with the SEC. You
may read and copy any of these documents at the SEC's Public Reference Room at
Judiciary Plaza, 100 F Street N.E., Washington, D.C. 20549. You may obtain
information on the operation of the Public Reference Room by calling the SEC at
(800) SEC-0330. The SEC maintains an internet site that contains reports, proxy
and information statements and other information regarding issuers that file
electronically with the SEC. The address of that site is http://www.sec.gov.

Any shareholder may also inspect any of the documents or
Exhibits referred to in this Report or any other disclosure by making a request
to the Company in writing.

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I.Subsidiary Information

Information relating to the Companys subsidiaries is described
in  Information on the Company  particularly under "Organizational Structure"
in Item 4 and in "Exhibit 8.1" to this Annual Report on Form 20-F.

ITEM
11. **QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are subject to credit risk as a result of our cash and
accounts receivable balance. We minimize this risk by placing our cash with
major banks that are considered to be at low risk of loss and we sell software
licenses, maintenance and consulting with short credit terms. On a regular
basis, we also monitor the financial condition of our customers.

We are subject to currency risk as we are an international
company. Since we currently earn revenues and incur expenses in United States
dollars, British pounds, Euros and Canadian dollars, exchange rates for these
and other local currencies in countries where we may operate in the future may
fluctuate in relation to the Canadian dollar and such fluctuations may have an
adverse effect on our earnings or assets when United States dollars, British
pounds, Euros or local currencies are exchanged for Canadian dollars. We have
not entered into forward foreign exchange contracts. Losses and gains resulting
from the translation of revenue and expenses denominated in United States
dollars, British pounds, or Euros into Canadian dollars have been included in
our results of operations. We minimize this risk by paying the expenditures
incurred in the local operations using the monies received in the local
currency.

We are subject to liquidity risk, the risk that we may not be
able to meet our financial obligations as they fall due. We manage this risk by
regulary evaluating the liquid resources available to fund the current and
long-term obligations in a cost-effecitve manner using budgets and cash flow
estimates.

We are not subject to fluctuations in cash flow due to interest
rate risk, as a majority of the companys debt is at fixed rates.

Please see Note 17 in the audited consolidated financial
statements for more details on each of the risks above.

ITEM
12. **DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not applicable.

PART II

ITEM
13. **DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

None.

ITEM
14. **MATERIAL MODIFICATIONS TO THE RIGHT OF SECURITY HOLDERS AND USE OF PROCEEDS

None.

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ITEM
15. **CONTROLS AND PROCEDURES

A.Disclosure Controls and Procedures

As of July 31, 2011, an evaluation was carried out, under the
supervision of and with the participation of management, including Chief
Executive Officer ("CEO") and the Vice-President Finance and Administration and
Chief Financial Officer ("CFO"), of the effectiveness of the Companys
disclosure controls and procedures as defined in National Instrument 52-109 -Certification of Disclosure in Issuers' Annual and Interim Filing and in
Rule 13a-15 or 15d-15 under the Exchange Act.

Based upon that evaluation, our CEO and our CFO concluded that
our disclosure controls and procedures were effective in ensuring that
information required to be disclosed by the Company in the reports that it files
or submits under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the SECs rules and forms, and
that information required to be disclosed by the Company in the reports that it
files or submits under the Exchange Act is accumulated and communicated to the
Companys management, including its CEO and CFO, or persons performing similar
functions, as appropriate to allow timely decisions regarding required
disclosure.

B.Managements Annual Report on Internal Control over Financial
Reporting

Our management is responsible for establishing and maintaining
adequate internal control over financial reporting for the Company. Internal
control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of our financial reporting for external
purposes in accordance with Canadian generally accepted accounting principles.
Internal control over financial reporting includes maintaining records that in
reasonable detail accurately and fairly reflect the transactions and disposition
of our assets; providing reasonable assurance that transactions are recorded as
necessary for preparation of our financial statements; providing reasonable
assurance that receipts and expenditures of the Company are made in accordance
with management authorization; and providing reasonable assurance that
unauthorized acquisition, use or disposition of Company assets that could have a
material effect on our financial statements would be prevented or detected on a
timely basis. Because of its inherent limitations, internal control over
financial reporting is not intended to provide absolute assurance that a
misstatement of our financial statements would be prevented or detected. Also,
projections of any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may
deteriorate.

Management conducted an evaluation of the effectiveness of our
internal control over financial reporting based on the framework inInternal
Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this evaluation, management
concluded that the Company's internal control over financial reporting was
effective as of July 31, 2011.

There have been no changes in our internal control over
financial reporting during the fiscal year ended July 31, 2011 that have
materially affected, or are reasonably likely to materially affect our internal
control over financial reporting.

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ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

P. Wayne Musselman, Michael Pesner and Daniel Benn, all of whom
are non-management and unrelated directors, currently comprise the Audit
Committee of the Board of Directors of the Company. P. Wayne Musselman is the
Chairman of the Audit Committee.

Based on the qualifications summarized in his profile in Item
  6A  Directors, the Board of Directors of SAND has determined that Mr.
  Musselman qualifies as an "audit committee financial expert". P. Wayne Musselman
  is independent as defined under Regulation 52-110 respecting Audit
  Committees and under the rules of the NASDAQ Stock Market.

ITEM 16B. CODE OF ETHICS

As part of its stewardship responsibilities, the Board of
Directors has approved formal "Standards of Ethical Conduct" that govern the
behaviour of the directors, officers and employees of the Company. The Board
monitors compliance with these standards and is responsible for the granting of
any waivers from these standards to directors or officers. Disclosure will be
made by the Company of any waiver from these standards granted to the directors
or officers of the Company in the quarterly report of the Comany that
immediately follows the grant of such waiver. No waiver has been granted to
date. A copy of the "Standards of Ethical Conduct" is filed as an exhibit to
this Report.

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

(a)**
  Audit Fees

The aggregate fees billed for professional services rendered by
Raymond Chabot Grant Thornton LLP, the principal accountant for the Company, for
the audit of the Companys annual financial statements and services normally
provided by such accountants in connection with the Companys statutory and
regulatory filings for the Companys fiscal year ended July 31, 2011, were
$95,000 ($95,000 in the fiscal year ended July 31, 2010).

(b) **Audit-Related Fees

There were zero fees billed for assurance and related services
by Raymond Chabot Grant Thornton LLP that are reasonably related to the
performance of the audit or review of the Companys financial statements for the
Companys fiscal year ended July 31, 2011 ($4,500 in the fiscal year ended July
31, 2010).

(c) **Tax Fees

The aggregate fees billed for products and services rendered by
Deloitte & Touche LLP for tax compliance, tax advice and tax planning for
the Companys fiscal ended July 31, 2011 were $63,480 ($10,000 in the fiscal
year ended July 31, 2010).

There were zero fees billed for tax services by Raymond Chabot
Grant Thornton LLP.

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(d) **All Other Fees

There were no fees billed for professional services rendered by
Raymond Chabot Grant Thornton LLP other than the fees reported in this Item 16C.
above during the Companys two fiscal years ended July 31, 2011.

(e) **Audit Committees Pre-Approval Policies

The Audit Committee approves the engagement terms for all audit
and non-audit services to be provided by the Companys accountants before such
services are provided to the Company or any of its subsidiaries.

The Audit Committee approved one hundred percent (100%) of the
services provided to the Company and its subsidiaries described in Items 16C (a)
through 16C (d) above.

(f) **Auditors Use of Non-Permanent Employees

None of the hours expended by Raymond Chabot Grant Thornton LLP
on its engagement to audit the Companys financial statements for the fiscal
year ended July 31, 2011, were performed by persons other than full-time
permanent employees of Raymond Chabot Grant Thornton LLP.

Interest of Auditors

Raymond Chabot Grant Thornton LLP are the Independent
Registered Chartered Accountants of the Company and are independent within the
meaning of the Code of Ethics of the Ordre des comptables agréés du
Québec.

ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT
COMMITTEES

None.

ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND
AFFILIATED PURCHASERS

None.

ITEM 16F. CHANGE IN REGISTRANTS CERTIFYING
ACCOUNTANT

Not applicable.

ITEM 16G. CORPORATE GOVERNANCE

Not applicable, as the securities of SAND are not listed on a
national securities exchange.

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PART III

ITEM 17.**
  FINANCIAL STATEMENTS

Not applicable.

ITEM 18. **FINANCIAL STATEMENTS

The Audited Consolidated Financial Statements of the Company
are included in this Report beginning on page F-1.

These financial statements were prepared in accordance with
generally accepted accounting principles in Canada and are expressed in Canadian
dollars. Such financial statements have been reconciled to U.S. GAAP in Note 19.
For a history of the exchange rates which were used for Canadian dollars against
U.S. dollars, see Section A  Selected Financial Data under Item 3 "Key
Information" of this Report.

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SAND Technology Inc.

Consolidated Financial StatementsJuly 31, 2011, 2010 and 2009





---

Independent Auditors Report of Registered Public
Accounting Firm

|To the Shareholders of SAND
      Technology Inc. | Raymond Chabot Grant Thornton
      LLP
|------------------------------------------------- | ---------------------------------------
|Suite 2000                                       
|National Bank Tower                              
|600 De La Gauchetière Street West                
|Montréal, Québec H3B 4L8                         
|                                                 
|Telephone: 514-878-2691                          
|Fax: 514-878-2127                                
|www.rcgt.com                                     

We have audited the accompanying consolidated financial
statements of SAND Technology Inc. which comprise the consolidated balance
sheets as at July 31, 2011 and 2010, and the consolidated statements of
operations and comprehensive loss, shareholders deficiency and cash flows for
each of the years in the three year period ended July 31, 2011, and a summary of
significant accounting policies and other explanatory information.

Managements responsibility for the consolidated financial
statements

Management is responsible for the preparation and fair
presentation of these consolidated financial statements in accordance with
Canadian generally accepted accounting principles and for such internal control
as management determines is necessary to enable the preparation of consolidated
financial statements that are free from material misstatement, whether due to
fraud or error.

Auditors responsibility

Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. We conducted our audits
in accordance with Canadian generally accepted auditing standards and the
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we comply with ethical requirements and plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit
evidence about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on the auditor's judgment, including
the assessment of the risks of material misstatement of the consolidated
financial statements, whether due to fraud or error. In making those risk
assessments, the auditor considers internal control relevant to the entity's
preparation and fair presentation of the consolidated financial statements in
order to design audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
entity's internal control. An audit also includes evaluating the appropriateness
of accounting policies used and the reasonableness of accounting estimates made
by management, as well as evaluating the overall presentation of the
consolidated financial statements.

We believe that the audit evidence we have obtained in our
audits is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements present
fairly, in all material respects, the financial position of SAND Technology Inc.
as at July 31, 2011 and 2010, and the results of its operations and its cash
flows for each of the years in the three-year period ended July 31, 2011 in
accordance with Canadian generally accepted accounting principles.

Other matter

SAND Technology Inc. is not required to have, nor were we
engaged to perform, audits of its internal control over financial reporting. Our
audits included consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of SAND
Technology Inc.s internal control over financial reporting. Accordingly, we
express no such opinion.

Montréal, CanadaNovember 7, 2011

_______________________________1 Chartered
accountant auditor permit no. 20518

Chartered AccountantsMember of Grant Thornton International Ltd

F-1

---

|Independent Auditors Consent     | Raymond Chabot Grant Thornton
      LLP
|--------------------------------- | ---------------------------------------
|Suite 2000                       
|National Bank Tower              
|600 De La Gauchetière Street West
|Montréal, Québec H3B 4L8         
|                                 
|Telephone: 514-878-2691          
|Fax: 514-878-2127                
|www.rcgt.com                     

SAND Technology Inc.

We consent to the use of our audit report dated November 7,
2011 to the shareholders of SAND Technology Inc. (hereinafter the "Company") on
the consolidated financial statements of the Company, that is, the consolidated
balance sheets as at July 31, 2011 and 2010 and the consolidated statements of
operations and comprehensive loss, shareholders deficiency and cash flows for
each of the years in the three-year period ended July 31, 2011, in connection
with filing with the securities regulatory authorities on November 7, 2011 and
with the publication on SEDAR of the annual report containing these financial
statements and our auditors report (hereinafter the "filing").

We have not performed any procedures subsequent to the date of
this consent.

This consent is provided to the Company for use solely in
connection with the above filing of these consolidated financial statements
pursuant to the continuous disclosure provisions of applicable securities
legislation of Québec. Accordingly, we do not consent to any use other than this
filing, or to the release (as such term is defined in Section 225.3 of the
Securities Act (Quebec)), by the Company or any other person, of our audit
report.

If the filing is not made within five business days of this
consent, our consent will be withdrawn.

Montreal, CanadaNovember 11, 2011

______________________________1Chartered
accountant auditor permit no. 20518

Chartered AccountantsMember of Grant Thornton International Ltd

F-2

---

SAND Technology Inc.Consolidated Balance
SheetsJuly 31, 2011 and 2010 
  (Expressed in Canadian Dollars, unless otherwise stated)

|                                                                                                                                                                                                                                                                                                                            |   | As at July 31, |   |   | As at July 31, |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | -------------- | - | - | -------------- | -
|                                                                                                                                                                                                                                                                                                                            |   | 2011           |   |   | 2010           |  
|                                                                                                                                                                                                                                                                                                                            |   |                |   |   |                |  
|ASSETS                                                                                                                                                                                                                                                                                                                      |   |                |   |   |                |  
|Current Assets                                                                                                                                                                                                                                                                                                              |   |                |   |   |                |  
|Cash                                                                                                                                                                                                                                                                                                                        | $ | 810,745        |   | $ | 579,270        |  
|Accounts receivable                                                                                                                                                                                                                                                                                                         |   | 541,959        |   |   | 739,144        |  
|Research and development tax credits
      receivable (Note 12)                                                                                                                                                                                                                                                             |   | 663,857        |   |   | 660,000        |  
|Prepaid expenses                                                                                                                                                                                                                                                                                                            |   | 117,305        |   |   | 74,541         |  
|                                                                                                                                                                                                                                                                                                                            |   | 2,133,866      |   |   | 2,052,955      |  
|                                                                                                                                                                                                                                                                                                                            |   |                |   |   |                |  
|Capital assets, net (Note 5)                                                                                                                                                                                                                                                                                                |   | 81,361         |   |   | 64,488         |  
|                                                                                                                                                                                                                                                                                                                            |   |                |   |   |                |  
|                                                                                                                                                                                                                                                                                                                            |   | 2,215,227      |   |   | 2,117,443      |  
|                                                                                                                                                                                                                                                                                                                            |   |                |   |   |                |  
|LIABILITIES                                                                                                                                                                                                                                                                                                                 |   |                |   |   |                |  
|Current Liabilities                                                                                                                                                                                                                                                                                                         |   |                |   |   |                |  
|Accounts payable and accrued liabilities (Note
      6)                                                                                                                                                                                                                                                                     |   | 776,623        |   |   | 984,149        |  
|Deferred revenue                                                                                                                                                                                                                                                                                                            |   | 1,179,652      |   |   | 1,135,814      |  
|Deferred lease inducements                                                                                                                                                                                                                                                                                                  |   | -              |   |   | 19,558         |  
|Due to shareholders (Note 7)                                                                                                                                                                                                                                                                                                |   | 1,425,945      |   |   | 896,369        |  
|                                                                                                                                                                                                                                                                                                                            |   | 3,382,220      |   |   | 3,035,890      |  
|                                                                                                                                                                                                                                                                                                                            |   |                |   |   |                |  
|Deferred revenue                                                                                                                                                                                                                                                                                                            |   | 696,275        |   |   | 106,124        |  
|Due to shareholders (Note 7)                                                                                                                                                                                                                                                                                                |   | 488,892        |   |   | 977,784        |  
|Convertible debentures (Note 8)                                                                                                                                                                                                                                                                                             |   | 542,671        |   |   | 448,309        |  
|                                                                                                                                                                                                                                                                                                                            |   | 5,110,058      |   |   | 4,568,107      |  
|                                                                                                                                                                                                                                                                                                                            |   |                |   |   |                |  
|SHAREHOLDERS'
      DEFICIENCY                                                                                                                                                                                                                                                                                              |   |                |   |   |                |  
|Share capital (Note 10)                                                                                                                                                                                                                                                                                                     |   |                |   |   |                |  
|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        19,116,636
      class "A" common
      shares        (July 31, 2010 -
      15,889,620 shares) |   | 39,706,665     |   |   | 38,976,108     |  
|Equity component of convertible debentures (Note 8)                                                                                                                                                                                                                                                                         |   | 446,027        |   |   | 446,027        |  
|Contributed surplus                                                                                                                                                                                                                                                                                                         |   | 1,991,642      |   |   | 1,053,897      |  
|Deficit                                                                                                                                                                                                                                                                                                                     |   | (45,039,165    | ) |   | (42,926,696    | )
|                                                                                                                                                                                                                                                                                                                            |   | (2,894,831     | ) |   | (2,450,664     | )
|                                                                                                                                                                                                                                                                                                                            |   |                |   |   |                |  
|                                                                                                                                                                                                                                                                                                                            |   | 2,215,227      |   |   | 2,117,443      |  

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

On behalf of the Board,

|                        |  |                             
|----------------------- |  | ----------------------------
|George Wicker, Director |  | P. Wayne Musselman, Director

F-3

---

SAND Technology Inc.Consolidated Statement of
Operations and Comprehensive LossYears ended July 31, 2011, 2010 and
2009 
  (Expressed in Canadian Dollars, unless otherwise stated)

|                                                                 |   | Year ended |   |   | Year ended |   |   | Year ended |  
|---------------------------------------------------------------- | - | ---------- | - | - | ---------- | - | - | ---------- | -
|                                                                 |   | July 31,   |   |   | July 31,   |   |   | July 31,   |  
|                                                                 |   | 2011       |   |   | 2010       |   |   | 2009       |  
|                                                                 |   |            |   |   |            |   |   |            |  
|Revenue                                                          | $ | 6,871,671  |   | $ | 6,562,411  |   | $ | 7,049,237  |  
|                                                                 |   |            |   |   |            |   |   |            |  
|Cost of sales and product support                                |   | 1,235,328  |   |   | 1,194,674  |   |   | 1,396,224  |  
|                                                                 |   |            |   |   |            |   |   |            |  
|Gross profit                                                     |   | 5,636,343  |   |   | 5,367,737  |   |   | 5,653,013  |  
|                                                                 |   |            |   |   |            |   |   |            |  
|Operating expenses                                               |   |            |   |   |            |   |   |            |  
|Research and development costs, net (Note 12)                    |   | 1,866,244  |   |   | 1,458,392  |   |   | 1,960,295  |  
|Amortization of capital assets                                   |   | 40,597     |   |   | 53,298     |   |   | 63,643     |  
|Sellling, general and administrative                             |   | 5,399,512  |   |   | 4,224,677  |   |   | 4,372,067  |  
|                                                                 |   | 7,306,353  |   |   | 5,736,367  |   |   | 6,396,005  |  
|                                                                 |   |            |   |   |            |   |   |            |  
|Loss from operations before the undernoted
      items           |   | (1,670,010 | ) |   | (368,630   | ) |   | (742,992   | )
|                                                                 |   |            |   |   |            |   |   |            |  
|Foreign exchange loss                                            |   | 72,146     |   |   | 80,978     |   |   | 135,051    |  
|Interest expense (Note 4)                                        |   | 370,313    |   |   | 295,941    |   |   | 313,652    |  
|                                                                 |   | 442,459    |   |   | 376,919    |   |   | 448,703    |  
|                                                                 |   |            |   |   |            |   |   |            |  
|Net loss and comprehensive loss                                  | $ | (2,112,469 | ) | $ | (745,549   | ) | $ | (1,191,695 | )
|                                                                 |   |            |   |   |            |   |   |            |  
|Basic and diluted loss per share                                 | $ | (0.12      | ) | $ | (0.05      | ) | $ | (0.08      | )
|                                                                 |   |            |   |   |            |   |   |            |  
|Basic and diluted weighted average number
      of common shares |   | 17,009,173 |   |   | 15,467,702 |   |   | 14,318,189 |  

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

F-4

---

SAND Technology Inc.Consolidated Statement of
Shareholders DeficiencyYears ended July 31, 2011, 2010 and 2009

  (Expressed in Canadian Dollars, unless otherwise stated)

Share CapitalEquityNumber of
      
      
      
      
      
      component ofclass"A"
      
      
      
      
      
      convertible
      
      
      Contributed
      
      
      
      
      
      Shareholders'common shares
      
      
      Amount
      
      
      debentures
      
      
      surplus
      
      
      Deficit
      
      
      deficiencyBalance as at July 31, 2008
      
      14,318,189
      
      $
      38,530,441
      
      $
      446,027
      
      $
      752,525
      
      $
      (40,989,452
      )
      $
      (1,260,459
      )Net loss
      
      
      
      
      
      
      
      
      
      
      
      
      
      (1,191,695
      )
      
      (1,191,695
      )Stock-based compensation
      
      
      
      
      
      
      
      
      
      
      79,599
      
      
      
      
      
      79,599Balance as at July 31, 2009
      
      14,318,189
      
      
      38,530,441
      
      
      446,027
      
      
      832,124
      
      
      (42,181,147
      )
      
      (2,372,555
      )Net loss
      
      
      
      
      
      
      
      
      
      
      
      
      
      (745,549
      )
      
      (745,549
      )Stock-based compensation
      
      
      
      
      
      
      
      
      
      
      79,605
      
      
      
      
      
      79,605Common shares issued as part of    
        private placement (Note 9)
      
      1,571,431
      
      
      445,667
      
      
      
      
      
      
      
      
      
      
      
      445,667Warrants issuance as part of     private placement
        (Note 9)
      
      
      
      
      
      
      
      
      
      
      142,168
      
      
      
      
      
      142,168Balance as at July 31, 2010
      
      15,889,620
      
      
      38,976,108
      
      
      446,027
      
      
      1,053,897
      
      
      (42,926,696
      )
      
      (2,450,664
      )Net loss
      
      
      
      
      
      
      
      
      
      
      
      
      
      (2,112,469
      )
      
      (2,112,469
      )Stock-based compensation
      
      
      
      
      
      
      
      
      
      
      741,847
      
      
      
      
      
      741,847Common shares issued as part of     private
        placement (Note 9)
      
      2,142,864
      
      
      579,175
      
      
      
      
      
      
      
      
      
      
      
      579,175Warrants issuance as part of    
        private placement (Note 9)
      
      
      
      
      
      
      
      
      
      
      195,898
      
      
      
      
      
      195,898Common shares issued in     settlement of
        debt
      
      411,152
      
      
      143,903
      
      
      
      
      
      
      
      
      
      
      
      143,903Warrants exercised
      
      613,000
      
      
      6,879
      
      
      
      
      
      
      
      
      
      
      
      6,879Stock options exercised
      
      60,000
      
      
      600
      
      
      
      
      
      
      
      
      
      
      
      600Balance as at July 31, 2011
      
      19,116,636
      
      $
      39,706,665
      
      $
      446,027
      
      $
      1,991,642
      
      $
      (45,039,165
      )
      $
      (2,894,831
      )


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

F-5

---

SAND Technology Inc.Consolidated Statement of
Cash FlowsYears ended July 31, 2011, 2010 and 2009 
  (Expressed in Canadian Dollars, unless otherwise stated)

|                                                            |   | Year Ended |   |   | Year Ended |   |   | Year Ended |  
|----------------------------------------------------------- | - | ---------- | - | - | ---------- | - | - | ---------- | -
|                                                            |   | July 31,   |   |   | July 31,   |   |   | July 31,   |  
|                                                            |   | 2011       |   |   | 2010       |   |   | 2009       |  
|                                                            |   |            |   |   |            |   |   |            |  
|                                                            |   |            |   |   |            |   |   |            |  
|OPERATING ACTIVITIES                                        |   |            |   |   |            |   |   |            |  
|Net loss                                                    | $ | (2,112,469 | ) | $ | (745,549   | ) | $ | (1,191,695 | )
|Non-cash items                                              |   |            |   |   |            |   |   |            |  
|Amortization of capital assets                              |   | 40,597     |   |   | 53,298     |   |   | 63,643     |  
|Stock-based compensation                                    |   | 741,847    |   |   | 79,605     |   |   | 79,599     |  
|Accretion of debt component of convertible
      debentures |   | 94,362     |   |   | 86,087     |   |   | 83,879     |  
|Amortization of deferred lease
      inducement             |   | (19,558    | ) |   | (29,337    | ) |   | (29,337    | )
|Changes in working capital items                            |   |            |   |   |            |   |   |            |  
|Accounts receivable                                         |   | 208,105    |   |   | 524,935    |   |   | 354,310    |  
|Research and development tax credits
      receivable       |   | (3,858     | ) |   | (500,000   | ) |   | (160,000   | )
|Unbilled receivable                                         |   | -          |   |   | 112,515    |   |   | 142,445    |  
|Prepaid expenses                                            |   | (42,078    | ) |   | 26,545     |   |   | (10,096    | )
|Accounts payable and
      accrued liabilities              |   | 265,333    |   |   | 198,380    |   |   | (316,566   | )
|Deferred revenue                                            |   | 648,893    |   |   | (380,046   | ) |   | 578,761    |  
|Cash flows from operating activities (a)                    |   | (178,826   | ) |   | (573,567   | ) |   | (405,057   | )
|                                                            |   |            |   |   |            |   |   |            |  
|INVESTING ACTIVITIES                                        |   |            |   |   |            |   |   |            |  
|Purchase of capital assets                                  |   | (57,436    | ) |   | (34,334    | ) |   | (24,781    | )
|Cash flows from investing activities                        |   | (57,436    | ) |   | (34,334    | ) |   | (24,781    | )
|                                                            |   |            |   |   |            |   |   |            |  
|FINANCING ACTIVITIES                                        |   |            |   |   |            |   |   |            |  
|Due to shareholders                                         |   | 362,067    |   |   | 299,893    |   |   | 749,024    |  
|Repayments of
      due to shareholders                     |   | (304,028   | ) |   | (659,484   | ) |   | -          |  
|Advance from a private investor                             |   | -          |   |   | 26,623     |   |   | -          |  
|Stock options
      exercised                               |   | 600        |   |   | -          |   |   | -          |  
|Warrants exercised                                          |   | 6,879      |   |   | -          |   |   | -          |  
|Issuance of
      units related to private placements       |   | 448,558    |   |   | 587,835    |   |   | -          |  
|Cash flows from financing activities                        |   | 514,076    |   |   | 254,867    |   |   | 749,024    |  
|                                                            |   |            |   |   |            |   |   |            |  
|Effect of exchange rate changes on cash                     |   | (46,339    | ) |   | (133,268   | ) |   | (29,057    | )
|                                                            |   |            |   |   |            |   |   |            |  
|Net increase (decrease) in cash                             |   | 231,475    |   |   | (486,302   | ) |   | 290,129    |  
|                                                            |   |            |   |   |            |   |   |            |  
|Cash, beginning of year                                     |   | 579,270    |   |   | 1,065,572  |   |   | 775,443    |  
|                                                            |   |            |   |   |            |   |   |            |  
|Cash, end of year                                           | $ | 810,745    |   | $ | 579,270    |   | $ | 1,065,572  |  
|                                                            |   |            |   |   |            |   |   |            |  
|(a) Additional information                                  |   |            |   |   |            |   |   |            |  
|Interest paid                                               | $ | 69,642     |   | $ | 300,977    |   | $ | 37,171     |  

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

F-6

---

SAND Technology Inc.Notes to Consolidated
Financial StatementsJuly 31, 2011(Expressed in Canadian Dollars, unless otherwise stated)

1 -NATURE OF BUSINESS

SAND Technology Inc. (the Company) is incorporated under the
Canada Business Corporations Act. The Companys common shares are listed on the
Over-the-Counter (OTC) Bulletin Board in the United States. 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.

2-SUMMARY OF SIGNIFICANT ACCOUNTINGPOLICIES

This summary of significant accounting policies is provided to
assist the reader in understanding the Companys consolidated financial
statements. The consolidated financial statements and notes thereto are the
representations of the Companys management. The Companys management is
responsible for their integrity and objectivity. These accounting policies
conform to Canadian generally accepted accounting principles (Canadian GAAP)
and have been consistently applied in the preparation of the consolidated
financial statements.

Basis of Presentation These consolidated financial
statements and related notes are presented in accordance with Canadian GAAP and
are expressed in Canadian Dollars. Certain Canadian GAAP principles used in
these consolidated financial statements differ from accounting principles
generally accepted in the United States of America (U.S. GAAP) as described in
Note 19. The Companys fiscal year-end is July 31.

Basis of ConsolidationThe consolidated financial
statements include the accounts of the 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 intercompany transactions and accounts have been eliminated on
consolidation.

Accounting EstimatesThe preparation of the
consolidated financial statements in conformity with Canadian GAAP requires
management to make certain estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting year. The
most significant estimates relate to the establishment of the fair values of the
components of the convertible debentures, the accounting for stock options,
share awards, warrants and the evaluation of the research and development tax
credits. Actual results may differ from these estimates.

F-7

---

SAND Technology Inc.Notes to Consolidated
Financial StatementsJuly 31, 2011(Expressed in Canadian Dollars, unless otherwise stated)

Cash and Cash EquivalentsFor purposes of the
statement of cash flows, 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 July 31, 2011 and 2010.

Allowance for Doubtful AccountsManagement of the
Company makes judgements as to its ability to collect outstanding receivables
and provide allowances for the portion of receivables when collection becomes
doubtful. Provisions are made based upon a specific review of all outstanding
invoices. As of July 31, 2011, the allowance for doubtful accounts was nil (nil
as at July 31, 2010).

Capital AssetsCapital assets are recorded at cost
less accumulated amortization and provisions for write-downs. Amortization is
calculated using the straight-line method over the estimated useful lives of the
assets as follows:

|Furniture and equipment            | 5 years               
|---------------------------------- | ----------------------
|Computer equipment                 | 3 years               
|Research and development equipment | 3 years               
|Leasehold improvements             | Lease term of 10 years

Impairment of Long-Lived Assets

Capital assets are tested for recoverability when events or
changes in circumstances indicate that their carrying amount may not be
recoverable. The carrying amount of a long-lived asset is not recoverable when
it exceeds the sum of the undiscounted cash flows expected from its use and
eventual disposal. In such a case, an impairment is recognized and is calculated
as the excess of the carrying amount of the long-lived asset over its fair
value.

Basic and Diluted Income (Loss) per Common Share

Basic net income (loss) per share (Basic EPS) includes no
dilution and is computed by dividing net income (loss) available to common
shareholders by the weighted average number of common shares outstanding for the
year.

Diluted earnings per share is computed by dividing net income
by the weighted average number of shares outstanding and, when, dilutive,
potential shares from stock options and share awards, stock warrants to purchase
common stock using the treasury method, and conversions of outstanding
convertible debt using the if converted method. A net loss was reported in
2011, 2010 and 2009, and accordingly, in those years, the denominator for the
Basic EPS calculation was equal to the weighted average of outstanding shares
with no consideration for outstanding stock options, share awards and warrants
to purchase shares of the Company's common stock because to do so would have
been anti-dilutive.

The following number of stock options, share awards, share
warrants and shares issuable upon conversion of the convertible debentures were
not included in the computation of diluted earnings per share because to do so
would have been anti-dilutive for the periods presented:

F-8

---

SAND Technology Inc.Notes to Consolidated
Financial StatementsJuly 31, 2011(Expressed in Canadian Dollars, unless otherwise stated)

|                                  |  | Year Ended |  |  | Year Ended |  |  | Year Ended | 
|--------------------------------- |  | ---------- |  |  | ---------- |  |  | ---------- | 
|                                  |  | July 31,   |  |  | July 31,   |  |  | July 31,   | 
|                                  |  | 2011       |  |  | 2010       |  |  | 2009       | 
|                                  |  |            |  |  |            |  |  |            | 
|Stock options                     |  | 3,473,583  |  |  | 357,000    |  |  | 551,000    | 
|Share awards                      |  | -          |  |  | 302,500    |  |  | 402,500    | 
|Warrants                          |  | 1,857,147  |  |  | 1,899,715  |  |  | 1,967,061  | 
|Convertible debentures, principal |  | 2,228,000  |  |  | 2,228,000  |  |  | 2,228,000  | 
|Convertible debentures, interest  |  | 460,453    |  |  | 282,213    |  |  | 103,973    | 
|                                  |  |            |  |  |            |  |  |            | 
|                                  |  | 8,019,183  |  |  | 5,069,428  |  |  | 5,252,534  | 

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.
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. Valuation
allowances are established when it is more likely than not that some or all of
the deferred tax assets will not be realized in the future.

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.

Foreign Currency Translation

The Companys functional and reporting currency is the Canadian
dollar and each of the Companys wholly-owned subsidiaries is considered an
integrated foreign operation. Accordingly, 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 statement of operations. 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.

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.

F-9

---

SAND Technology Inc.Notes to Consolidated Financial StatementsJuly 31, 2011(Expressed in Canadian Dollars, unless otherwise stated)

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, the fee is fixed or determinable and vendor-specific evidence of an arrangement
exists to allocate the total fee to the different elements of an arrangement. Vendor-specific objective evidence ("VSOE") is typically based on the price charged when an element is sold separately or, in the case of an element not yet
sold separately, the price established by management if it is probable that the price, once established, will not change before market introduction. If VSOE of all undelivered elements exists but evidence does not exist for one or more delivered
elements, then revenue is recognized using the residual method. Under the residual method, the fair value of the undelivered elements is deferred, and the remaining portion of the agreement fee related to the delivered elements is recognized as
revenue provided that all other revenue recognition criteria are met. If evidence of fair value of one or more undelivered elements cannot be established, revenue is deferred and recognized ratably over the last undelivered element.

In circumstances where the implementation services are essential to the functionality of the software or where the software requires significant customization, the Company recognizes software licence revenue using the percentage-of-completion method
over the implementation period. The percentage-of-completion is measured by the percentage of implementation hours incurred to date to total estimated implementation hours. Past experience has shown expended hours to be the best measure of progress.

Revenues from maintenance services for licences previously sold and implemented are recognized 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 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.

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.

Financing and Transaction Costs

Financing costs associated with the issuance of debt are recorded directly against net income. Transaction costs, such as legal fees, that are directly attributable to the acquisition of financial assets or incurrence of financial liabilities are
recorded directly against net income.

F-10

---

SAND Technology Inc.Notes to Consolidated Financial StatementsJuly 31, 2011(Expressed in Canadian Dollars, unless otherwise stated)

Research and Development Costs

Research costs are charged to operations in the period in which they are incurred. Development costs are expensed as incurred unless a project meets the criteria under Canadian GAAP for deferral and amortization. The Company has not deferred any
such development costs to date. Related tax credits are recorded 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.

Stock-Based Compensation

The Company estimates the fair value of share-based payment awards 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-pricing model. The
value of the portion of the award that is ultimately expected to vest is recognized as an expense ratably over the requisite service periods. The Company uses the Black-Scholes option pricing model to determine the fair value of the stock-based
compensation that it grants to employees and non-employees. 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. 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.

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.

Guarantees

In the normal course of its operations, the Company enters into agreements that contain certain features which meet the definition of a guarantee under the guidance provided by Accounting Guideline AcG–14 – Disclosure of Guarantees.

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.

In addition, the Company provided warranties as part of the sale of a former subsidiary, ClarityBlue Limited, which occurred on July 31, 2003, for claims against it related to conditions existing prior to the sale. The warranties expired on January
31, 2010.

F-11

---

SAND Technology Inc.Notes to Consolidated
Financial StatementsJuly 31, 2011(Expressed in Canadian Dollars, unless otherwise stated)

Financial Assets and Liabilities

On initial recognition, all financial assets and liabilities
are measured and recognized at their fair value. Subsequently, financial assets
and liabilities are measured and recognized as follows:

| | - | Cash is classified as a held-for-trading financial
      asset. It is measured at fair value and changes in fair value are
      recognized in operations.                                                                                                                                                                                                                               
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | - | Accounts receivable are classified as loans and
      receivable. They are measured at amortized cost, which is generally
      the amount initially recognized, less any allowance for doubtful accounts.                                                                                                                                                                               
| | - | Accounts payable and accrued liabilities (excluding sales
      tax payable), due to shareholders and convertible debentures are
      classified as other financial liabilities. They are measured at
      amortized cost using the effective interest rate method. Interest
      calculated using the effective interest method is presented in operations
      as interest expense.

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.

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.

3 FUTURE ACCOUNTING CHANGES

International Financial Reporting Standards (IFRS)

In February 2008, the Canadian Accounting Standards Board
confirmed that Canadian GAAP for publicly accountable enterprises will be
converged with IFRS effective for fiscal years beginning on or after January 1,
2011. IFRS uses a conceptual framework similar to Canadian GAAP, but there are
significant differences in recognition, measurement and disclosures. The Company will
change over to IFRS for its interim and annual financial statements beginning on
August 1, 2011.

F-12

---

SAND Technology Inc.Notes to Consolidated
Financial StatementsJuly 31, 2011(Expressed in Canadian Dollars, unless otherwise stated)

4INFORMATION ON EARNINGS

|                                                            |   | Year ended |  |   | Year ended |  |   | Year ended | 
|----------------------------------------------------------- | - | ---------- |  | - | ---------- |  | - | ---------- | 
|                                                            |   | July 31,   |  |   | July 31,   |  |   | July 31,   | 
|                                                            |   | 2011       |  |   | 2010       |  |   | 2009       | 
|Interest expense                                            |   |            |  |   |            |  |   |            | 
|Accretion of debt component of convertible
      debentures | $ | 94,362     |  | $ | 86,087     |  | $ | 83,879     | 
|Interest expense - due to shareholders                      |   | 261,310    |  |   | 185,045    |  |   | 220,320    | 
|Interest expense - other                                    |   | 14,641     |  |   | 24,809     |  |   | 9,453      | 
|                                                            |   |            |  |   |            |  |   |            | 
|                                                            | $ | 370,313    |  | $ | 295,941    |  | $ | 313,652    | 

Amortization expense of capital assets amounted to $40,597 in
2011 ($53,298 in 2010 and $63,643 in 2009).

5- CAPITAL ASSETS

|                                   |   |           |  |   |              |  |   | July31, | 
|---------------------------------- | - | --------- |  | - | ------------ |  | - | ------- | 
|                                   |   |           |  |   |              |  |   | 2011    | 
|                                   |   |           |  |   | Accumulated  |  |   | NetBook | 
|                                   |   | Cost      |  |   | amortization |  |   | Value   | 
|                                   |   |           |  |   |              |  |   |         | 
|Furniture and equipment            | $ | 544,891   |  | $ | 523,704      |  | $ | 21,187  | 
|Computer equipment                 |   | 114,138   |  |   | 98,703       |  |   | 15,435  | 
|Research and development equipment |   | 176,111   |  |   | 160,827      |  |   | 15,284  | 
|Leasehold improvements             |   | 323,844   |  |   | 294,389      |  |   | 29,455  | 
|                                   |   |           |  |   |              |  |   |         | 
|                                   | $ | 1,158,984 |  | $ | 1,077,623    |  | $ | 81,361  | 

|                                   |   |           |  |   |              |  |   | July31, | 
|---------------------------------- | - | --------- |  | - | ------------ |  | - | ------- | 
|                                   |   |           |  |   |              |  |   | 2010    | 
|                                   |   |           |  |   | Accumulated  |  |   | NetBook | 
|                                   |   | Cost      |  |   | amortization |  |   | Value   | 
|                                   |   |           |  |   |              |  |   |         | 
|Furniture and equipment            | $ | 569,433   |  | $ | 546,563      |  | $ | 22,870  | 
|Computer equipment                 |   | 325,132   |  |   | 307,120      |  |   | 18,012  | 
|Research and development equipment |   | 161,565   |  |   | 154,527      |  |   | 7,038   | 
|Leasehold improvements             |   | 294,287   |  |   | 277,719      |  |   | 16,568  | 
|                                   |   |           |  |   |              |  |   |         | 
|                                   | $ | 1,350,417 |  | $ | 1,285,929    |  | $ | 64,488  | 

F-13

---

SAND Technology Inc.Notes to Consolidated
Financial StatementsJuly 31, 2011(Expressed in Canadian Dollars, unless otherwise stated)

6 -ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

|                                                     |   | July31, |  |   | July31, | 
|---------------------------------------------------- | - | ------- |  | - | ------- | 
|                                                     |   | 2011    |  |   | 2010    | 
|                                                     |   |         |  |   |         | 
|Trade accounts payable and accrued
      liabilities | $ | 690,282 |  | $ | 834,371 | 
|Salaries and commission payable                      |   | 74,952  |  |   | 57,186  | 
|Sales tax payable                                    |   | 11,389  |  |   | 66,884  | 
|Advance from a private investor                      |   | -       |  |   | 25,708  | 
|                                                     |   |         |  |   |         | 
|                                                     | $ | 776,623 |  | $ | 984,149 | 

The advance from a private investor was settled as part of the
private placement completed on March 17, 2011 (Note 9b)).

7 -DUE TO SHAREHOLDERS

|                                                                                                                                                                                                                               |   | July 31,  |  |   | July 31,  | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | - | --------- |  | - | --------- | 
|                                                                                                                                                                                                                               |   | 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, maturing on January 1,
      2013 (b) |   | 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    |  |   | -         | 
|                                                                                                                                                                                                                               |   |           |  |   |           | 
|                                                                                                                                                                                                                               |   | 1,914,837 |  |   | 1,874,153 | 
|                                                                                                                                                                                                                               |   |           |  |   |           | 
|Less: Current portion                                                                                                                                                                                                          |   | 1,425,945 |  |   | 896,369   | 
|                                                                                                                                                                                                                               |   |           |  |   |           | 
|                                                                                                                                                                                                                               | $ | 488,892   |  | $ | 977,784   | 

| | (a) | During fiscal year 2011 and fiscal year 2010, the Company
      obtained various loans from the Chief Executive Officer, who is also a
      shareholder, in the form of Promissory Notes for a total amount of
      $341,621 (U.S.$325,000) (2011: $41,728 (U.S.$40,000); 2010: 299,893
      (U.S.$285,000)). 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 (U.S.$287,847), including
      accrued interest of $2,927 (U.S.$2,847), was outstanding on the Promissory
      Notes. During the year ended July 31, 2011, a private placement was
      completed (Note 9) which converted the principal value amounting to
      $341,621 (U.S.$325,000) of the Promissory Notes. As at July 31, 2011, an
      amount of accrued interest of $22,014 (U.S.$23,040) was
  outstanding.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-14

---

SAND Technology Inc.Notes to Consolidated
Financial StatementsJuly 31, 2011(Expressed in Canadian Dollars, unless otherwise stated)

| | (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:
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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, an amount of $1,685,411 (July 31,
      2010 - $1,407,874), including accrued interest of $481,751 (July 31, 2010
      - $204,214), was outstanding under the loan agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     | 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 subsequent to the year end as
      the Company paid the significant shareholder the amounts due (Note
    20).                                                                                                                                                                                                                                                                                                                                                                                       
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     | 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.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | (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 expires on October 31, 2011. Payments made under the
      consulting agreement during fiscal year 2011 amounted to $210,130 (2010 -
      $189,117) with a balance owing at July 31, 2011 of $42,026 (July 31, 2010
       Nil).                                                                                                                                                                                                                        

F-15

---

SAND Technology Inc.Notes to Consolidated
Financial StatementsJuly 31, 2011(Expressed in Canadian Dollars, unless otherwise stated)

| |     | 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 July 31, 2011 and 2010, bonuses payable
      amounted to $165,386 and $165,386, respectively.                                                                                                                                                                                                                                                                         

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 8. 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.

8 -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 (U.S.$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 U.S.$900, redeemable at the option of the Company if
the bid price of the underlying common share has been above U.S.$1.50 for 60
consecutive trading days, and convertible at the option of the holder into class
"A" common shares at U.S.$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 U.S.$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 U.S.$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
U.S.$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.

F-16

---

SAND Technology Inc.Notes to Consolidated
Financial StatementsJuly 31, 2011(Expressed in Canadian Dollars, unless otherwise stated)

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 U.S.$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
(U.S.$6,130) while 501,000 warrants expired.

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

| | The debt component of the Convertible Debentures was
      originally calculated using the present value of the cash flows of
      principal and interest payments using a discount rate of 15%. The amount
      calculated, at the issue date, for the carrying amount of the debt
      component was $260,377. The carrying value of the debt component is being
      accreted to its face value over its life to maturity. The accretion
      expense, being the amortization of the convertible debentures discount, is
      included in interest expense in the statement of operations. The debt
      issuance costs were expensed directly against net income. The amortization
      of the debt component of the convertible debentures for the periods ended
      July 31, 2011, 2010 and 2009 was $94,362, $86,087 and $83,879,
      respectively.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | The amount calculated for the carrying amount of the
      equity component, at the issue date, was $749,442, determined by deducting
      the carrying amount of the debt component from the gross proceeds
      received. The value of the equity component includes the fair value of the
      share warrants, the conversion option and the interest payable in shares.
      The fair value of the warrants was estimated at $303,415 and was recorded
      in contributed surplus. The fair value of the warrants at the time of
      issue the Convertible Debentures was estimated using the Black-Scholes
      option pricing model with the following assumptions:                                                                                                                                                                                    

|Dividend yield          |       
|----------------------- | -------
|Expected volatility     | 90%    
|Risk-free interest rate | 3.25%  
|Expected life           | 3 years

The remaining equity component balance, in the amount of
$446,027, represents the fair value of the conversion option and the interest
payable in shares and has been presented separately in shareholders deficiency.

9 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 (U.S.$550,000) for Units in the Company at a price of
      U.S.$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
      U.S.$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 U.S.$1.50 for sixty (60) consecutive trading days. The
Company received $429,495 (U.S.$400,000) from
private investors and $158,340 (U.S.$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.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-17

---

SAND Technology Inc.Notes to Consolidated
Financial StatementsJuly 31, 2011(Expressed in Canadian Dollars, unless otherwise stated)

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:

| | Dividend yield          | -      
| | ----------------------- | -------
| | Expected volatility     | 103%   
| | Risk-free interest rate | 1.81%  
| | Expected life           | 3 years

| | b) | On March 17, 2011, the Company completed Non-Brokered
      Private Placement Subscription Agreement (Private Placement) in the
      amount of $775,073 (U.S.$750,000) for Units in the Company at a price of
      U.S.$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 U.S.$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 U.S.$1.50 for sixty (60) consecutive trading days.
      The Company received $448,558 (U.S.$425,000) from private investors and
      $326,515 (U.S.$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.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    | 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:                                                                                                                                                                                                                                                                                                                                                                                                                                          

| | Dividend yield          | -      
| | ----------------------- | -------
| | Expected volatility     | 131%   
| | Risk-free interest rate | 1.28%  
| | Expected life           | 3 years

F-18

---

SAND Technology Inc.Notes to Consolidated
Financial StatementsJuly 31, 2011(Expressed in Canadian Dollars, unless otherwise stated)

10-SHARECAPITAL

2011 transactions

On February 2, 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
(U.S.$750,000) as described in Note 9.

On May 4, 2011, the Company issued 60,000 common shares upon
the exercise of 60,000 stock options at an exercise price of $0.01 for proceeds
of $600.

On May 5, 2011, the Company issued 613,000 common shares upon
the exercise of 613,000 warrants relating to the Convertible Debentures offering
in April 2008 at an exercise price of $0.01 for Canadian dollar proceeds of
$6,879.

2010 transactions

On November 6, 2009, the Company issued 785,715 Units which
included 1,571,431 common shares relating to a Non-Brokered Private Placement
Subscription Agreement, as described in Note 9, for an amount of $587,835.

11 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

F-19

---

SAND Technology Inc.Notes to Consolidated
Financial StatementsJuly 31, 2011(Expressed in Canadian Dollars, unless otherwise stated)

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
U.S.$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 of10 years. Stock
options issued under the 1996 Stock Incentive Plan and the 1996 Stock Option
Plan have a maximum term of 20 years.

The following table summarizes information about the Companys
stock options:

July
        31, 2011
      
      
      July
        31, 2010Weighted
      
      
      
      
      
      Weightedaverage
      
      
      
      
      
      averageNumber of
      
      
      exercise
      
      
      Number of
      
      
      exerciseoptions
      
      
      price
      
      
      options
      
      
      price(U.S. dollars)
      
      
      
      
      
      (U.S. dollars)Options outstanding, beginning of year
      
      357,000
      
      
      1.00
      
      
      551,000
      
      
      0.98Granted
      
      3,295,756
      
      
      0.01
      
      
      -
      
      
      -Exercised
      
      (60,000
      )
      
      (0.01
      )
      
      -
      
      
      -Expired
      
      (27,310
      )
      
      (0.01
      )
      
      (21,000
      )
      
      (4.97
      )Forfeited
      
      (91,863
      )
      
      (0.01
      )
      
      (173,000
      )
      
      (1.00
      )Options outstanding, end of year
      
      3,473,583
      
      
      0.11
      
      
      357,000
      
      
      1.00Optionse xercisable, end of year
      
      2,461,160
      
      
      0.16
      
      
      214,200
      
      
      1.00


The fair value of the stock options at the time of issue was
estimated using the Black-Scholes option pricing model with the following
assumptions:

Dividend yield
    -Expected volatility
    204%Risk-free interest rate
    2.70%Expected life
    8 years


The following table summarizes significant ranges of exercise
prices of outstanding and exercisable options held by employees, officers and
directors as of July 31, 2011:

F-20

---

SAND Technology Inc.Notes to Consolidated
Financial StatementsJuly 31, 2011(Expressed in Canadian Dollars, unless otherwise stated)

July 31, 2011
      
      
      July 31, 2011Options
        Outstanding
      
      
      Options
        ExercisableWeighted
      
      
      Weighted
      
      
      
      
      
      Weighted
      
      
      Weightedaverage
      
      
      average
      
      
      
      
      
      average
      
      
      averageNumber of
      
      
      remaining
      
      
      exercise
      
      
      Number of
      
      
      remaining
      
      
      exerciseoptions
      
      
      life
        (years)
      
      
      price
      
      
      options
      
      
      life(years)
      
      
      price(U.S. dollars)
      
      
      
      
      
      
      
      
      (U.S. dollars)U.S. $1.00
      
      357,000
      
      
      5.06
      
      
      1.00
      
      
      357,000
      
      
      5.06
      
      
      1.00CDN. $0.01
      
      3,116,583
      
      
      7.58
      
      
      0.01
      
      
      2,104,160
      
      
      7.58
      
      
      0.013,473,583
      
      
      7.32
      
      
      0.11
      
      
      2,461,160
      
      
      7.22
      
      
      0.16


During the year ended July 31, 2011, 3,295,756 stock options
were granted at an exercise price of U.S.0.01, 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.

Stock-based compensation expense included in selling, general
and administrative expenses for the years ended July 31, 2011, 2010 and 2009 was
$731,842, $19,577 and $19,573, respectively.

b)Warrants

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

July
        31, 2011
      
      
      July
        31, 2010Weighted
      
      
      Weighted
      
      
      
      
      
      Weighted
      
      
      Weightedaverage
      
      
      average
      
      
      
      
      
      average
      
      
      averageNumber of
      
      
      remaining
      
      
      exercise
      
      
      Number of
      
      
      remaining
      
      
      exercisewarrants
      
      
      life
        (years)
      
      
      price
      
      
      warrants
      
      
      life
        (years)
      
      
      price(U.S. dollars)
      
      
      
      
      
      
      
      
      (U.S. dollars)Balance, beginning of year
      
      1,899,715
      
      
      1.40
      
      
      0.61
      
      
      1,967,061
      
      
      1.30
      
      
      0.65Granted
      
      1,071,432
      
      
      2.63
      
      
      0.50
      
      
      785,715
      
      
      3.00
      
      
      0.50Exercised
      
      (613,000
      )
      
      -
      
      
      (0.01
      )
      
      -
      
      
      -
      
      
      -Expired
      
      (501,000
      )
      
      -
      
      
      (0.70
      )
      
      (853,061
      )
      
      -
      
      
      (0.60
      )Forfeited
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -Balance, end of year
      
      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.

F-21

---

SAND Technology Inc.Notes to Consolidated
Financial StatementsJuly 31, 2011(Expressed in Canadian Dollars, unless otherwise stated)

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 years ended July 31, 2011, 2010 and
2009 was $10,005, $60,028 and $60,026, respectively.

12 -RESEARCHAND DEVELOPMENT
  COSTS

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

|                                 |   | Year ended |   |   | Year ended |   |   | Year ended |  
|-------------------------------- | - | ---------- | - | - | ---------- | - | - | ---------- | -
|                                 |   | July 31,   |   |   | July 31,   |   |   | July 31,   |  
|                                 |   | 2011       |   |   | 2010       |   |   | 2009       |  
|                                 |   |            |   |   |            |   |   |            |  
|Research and development costs   | $ | 2,191,952  |   | $ | 2,164,938  |   | $ | 2,120,295  |  
|Government assistance            |   |            |   |   |            |   |   |            |  
|Investment tax
      credits (a) |   | (325,708   | ) |   | (706,546   | ) |   | (160,000   | )
|                                 |   |            |   |   |            |   |   |            |  
|                                 | $ | 1,866,244  |   | $ | 1,458,392  |   | $ | 1,960,295  |  

|(a) | During fiscal year 2010, the Company received an
      additional amount of tax credits in the amount of $69,401 relating to the
      fiscal year ended July 31, 2008. This 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 fiscal year 2010 also include an accrual for benefits under
      the same enhanced program for tax credits relating to the years ended July
      31, 2010 and 2009.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

13 -INCOMETAXES

The reconciliation of the income tax recovery, based on
reported taxable income (loss) and using Canadian statutory tax rates, with the
reported income tax expense for the years ended July 31, 2011, 2010 and 2009 is
as follows:

F-22

---

SAND Technology Inc.Notes to Consolidated
Financial StatementsJuly 31, 2011(Expressed in Canadian Dollars, unless otherwise stated)

|                                                      |   | Year ended |   |   | Year ended |   |   | Year ended |  
|----------------------------------------------------- | - | ---------- | - | - | ---------- | - | - | ---------- | -
|                                                      |   | July 31,   |   |   | July 31,   |   |   | July 31,   |  
|                                                      |   | 2011       |   |   | 2010       |   |   | 2009       |  
|                                                      |   |            |   |   |            |   |   |            |  
|Income taxr ecovery a tCanadian statutory
      rates | $ | (605,000   | ) | $ | (223,000   | ) | $ | (370,000   | )
|Non-recorded benefit from losses carried forward      |   | (605,000   | ) |   | (223,000   | ) |   | (370,000   | )
|                                                      |   |            |   |   |            |   |   |            |  
|                                                      | $ | -          |   | $ | -          |   | $ | -          |  

The significant components of the Companys future income tax
assets and liabilities are as follows:

|                              |   | July 31,    |   |   | July 31,    |  
|----------------------------- | - | ----------- | - | - | ----------- | -
|                              |   | 2011        |   |   | 2010        |  
|                              |   |             |   |   |             |  
|Future income tax assets      |   |             |   |   |             |  
|Losses carried forward        | $ | 17,981,000  |   | $ | 15,590,000  |  
|Capital assets                |   | 228,000     |   |   | 182,000     |  
|Research and development      |   | 4,453,000   |   |   | 4,136,000   |  
|                              |   | 22,662,000  |   |   | 19,908,000  |  
|Future income tax liabilities |   |             |   |   |             |  
|Convertible debentures        |   | 76,000      |   |   | 51,000      |  
|                              |   | 22,586,000  |   |   | 19,857,000  |  
|                              |   |             |   |   |             |  
|Less: Valuation allowance     |   | (22,586,000 | ) |   | (19,857,000 | )
|                              |   |             |   |   |             |  
|                              | $ | -           |   | $ | -           |  

As at July 31, 2011, the Company has non-capital losses carried
forward to reduce future taxable income expiring at various dates to 2031, as
follows:

July 31,2011(CDN. Dollars)Canada
    $
    18,702,000United States
    
    26,058,000United Kingdom
    
    -Germany
    
    5,542,000$
    50,302,000


F-23

---

SAND Technology Inc.Notes to Consolidated
Financial StatementsJuly 31, 2011(Expressed in Canadian Dollars, unless otherwise stated)

In addition, the Company has unclaimed research and development
expenditures carried forward of approximately $15,411,000, which can be used to
reduce taxable income at any time in the future, and investment tax credits of
approximately $4,192,000, which can be applied against future Canadian federal
income taxes payable, expiring at various dates to 2020. The benefits from these
unclaimed amounts have not been recognized in the consolidated financial
statements.

14-COMMITMENTS

The Company is committed under operating leases for the lease
of office space and certain office equipment for a total amount of $2,311,503.
The minimum lease payments due in each of the next five years and thereafter are
as follows:

2012
    
    
    
    $
    314,0732013
    
    
    
    
    268,0302014
    
    
    
    
    267,5462015
    
    
    
    
    222,9852016
    
    
    
    
    200,704Thereafter
    
    
    
    
    1,038,165$
    2,311,503


15 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.

F-24

---

SAND Technology Inc.Notes to Consolidated
Financial StatementsJuly 31, 2011(Expressed in Canadian Dollars, unless otherwise stated)

UnitedCanada
    
    
    States
    
    
    Europe
    
    
    Australia
    
    
    Total2011Revenue
    $
    909,206
    
    $
    914,020
    
    $
    4,824,667
    
    $
    223,778
    
    $
    6,871,671Current assets
    
    835,299
    
    
    316,678
    
    
    685,560
    
    
    296,329
    
    
    2,133,866Net capital
      assets
    
    47,727
    
    
    5,567
    
    
    26,863
    
    
    1,204
    
    
    81,3612010Revenue
    
    1,131,633
    
    
    812,620
    
    
    4,618,158
    
    
    -
    
    
    6,562,411Current assets
    
    1,190,955
    
    
    121,285
    
    
    740,715
    
    
    -
    
    
    2,052,955Net capital assets
    
    25,033
    
    
    8,551
    
    
    30,904
    
    
    -
    
    
    64,4882009Revenue
    
    1,716,902
    
    
    971,777
    
    
    4,360,558
    
    
    -
    
    
    7,049,237Current assets
    
    915,910
    
    
    295,690
    
    
    1,445,274
    
    
    -
    
    
    2,656,874Net capital
      assets
    
    55,524
    
    
    -
    
    
    27,928
    
    
    -
    
    
    83,452


F-25

---

SAND Technology Inc.Notes to Consolidated
Financial StatementsJuly 31, 2011(Expressed in Canadian Dollars, unless otherwise stated)

16 CAPITAL MANAGEMENT

The Companys capital management objectives are to ensure the
Companys ability to continue as a going concern and to provide an adequate
return to its shareholders through the optimization of the Companys debt and
equity balances. The Companys capital consists of the total of due to
shareholders and convertible debentures, reduced by cash and shareholders
deficiency. The Company manages its capital structure and makes adjustments to
it in the light of its expected business growth and changes in economic
conditions. In order to maintain or adjust its capital structure, the Company
may issue new shares or return capital to shareholders or issue new debt or pay
down existing debt.

|                                                |   | July 31,    |   |   | July 31,    |  
|----------------------------------------------- | - | ----------- | - | - | ----------- | -
|                                                |   | 2011        |   |   | 2010        |  
|                                                |   |             |   |   |             |  
|Due to shareholders                             | $ | 1,914,837   |   | $ | 1,874,153   |  
|Convertible debentures                          |   | 542,671     |   |   | 448,309     |  
|Total Debt                                      |   | 2,457,508   |   |   | 2,322,462   |  
|                                                |   |             |   |   |             |  
|Less Cash                                       |   | 810,745     |   |   | 579,270     |  
|Net Debt                                        |   | 1,646,763   |   |   | 1,743,192   |  
|                                                |   |             |   |   |             |  
|Shareholders' deficiency                        |   |             |   |   |             |  
|Share
      capital                             |   | 39,706,665  |   |   | 38,976,108  |  
|Equity component of
      convertible debenture |   | 446,027     |   |   | 446,027     |  
|Contributed surplus                             |   | 1,991,642   |   |   | 1,053,897   |  
|Deficit                                         |   | (45,039,165 | ) |   | (42,926,696 | )
|                                                |   | (2,894,831  | ) |   | (2,450,664  | )
|                                                |   |             |   |   |             |  
|Adjusted Capital                                | $ | (1,248,068  | ) | $ | (707,472    | )

17 FINANCIAL RISKS

Financial Risk Management

The objective of the Companys financial risk management is to
minimize its risk exposure against various financial risks, which include
interest rate risk, credit risk, currency risk and liquidity risk. The Company
does not use derivative financial instruments to minimize such risks.

a) Interest rate risk

Interest rate risk is the risk that the future cash flows or
the fair value of a financial instrument will fluctuate because of changes in
market interest rates. The Company's debt is at fixed rates thereby limiting the
exposure to cash flow resulting from interest rate fluctuations. However,
changes in interest rates may have an impact on the fair value of the debt.
Management assesses the Companys interest rate risk to be low.

F-26

---

SAND Technology Inc.Notes to Consolidated
Financial StatementsJuly 31, 2011(Expressed in Canadian Dollars, unless otherwise stated)

b) Credit risk

Credit risk is the risk that one party to a financial
instrument will fail to discharge its obligation and cause the other party to
incur a financial loss. The Companys maximum exposure to credit risk is limited
to the carrying amount of financial assets recorded at the balance sheet date.

The Companys credit risk exposure is detailed as follows:

|                    |   | July 31,  |  |   | July 31,  | 
|------------------- | - | --------- |  | - | --------- | 
|                    |   | 2011      |  |   | 2010      | 
|                    |   |           |  |   |           | 
|Cash                | $ | 810,745   |  | $ | 579,270   | 
|Accounts receivable |   | 541,959   |  |   | 739,144   | 
|                    |   |           |  |   |           | 
|                    | $ | 1,352,704 |  | $ | 1,318,414 | 

The Company minimizes its exposure to credit risk by placing
its cash with major banks. Management considers these major banks to be at low
risks of loss.

The credit risk exposure of the Companys accounts receivable
is mitigated by issuing invoices for software licenses, maintenance and
consulting services with short credit terms which are generally net 30 days.
Software maintenance contracts are generally fully paid at the inception of the
service period. In the normal course of operations, the Company evaluates the
financial condition of its customers. Since most of the Companys customers are
relatively large companies in various industries and with a strong history of
payment, the allowance for doubtful accounts is nominal. For the year ended July
31, 2011, the Company generated approximately 42% of its revenues from three
customers and no amounts were outstanding from those customers as at July 31,
2011 (for the year ended July 31, 2010, two customers represented 23% of the
revenues and $89,024 was outstanding from those two customers as at July 31,
2010). Management assesses the Companys credit risk to be low.

c)Currency risk

Currency risk is the risk that the value of a financial
instrument will fluctuate due to changes in foreign exchange rates. The Company
operates internationally and is exposed to risk from changes in foreign currency
rates. The Company does not hold any financial instruments that mitigate this
risk. Management minimizes this risk by paying expenditures in the currency of
the local operation through which funds are generated as a result of local
revenue invoicing. However, the Company is still highly exposed to risks from
fluctuations in foreign currency rates with respect to the financial statement
translation of foreign operations denominated in the U.S. dollar, the Pound
Sterling, the Euro and the Australian Dollar. The following table details the
Companys sensitivity to a 30% strengthening of the U.S. dollar, the Pound
Sterling, the Euro and the Australian Dollar (2010  30% strengthening of the
U.S. dollar and the Pound Sterling and a 21% strengthening of the Euro) against
the Canadian dollar on the net income (loss) of the Company. The sensitivity
analysis includes adjustments to foreign currency denominated monetary assets
and liabilities and revenues and expenses for the changes described above. For a
weakening of the U.S. dollar, the Pound Sterling, the Euro and the Australian
Dollar by the same percentages against the Canadian dollar, there would be an equal and opposite impact on the net income (loss)
of the Company. For this reason, management assesses the Companys currency risk
to be high.

F-27

---

SAND Technology Inc.Notes to Consolidated
Financial StatementsJuly 31, 2011(Expressed in Canadian Dollars, unless otherwise stated)

|                      |   | Year
      ended July 31, 2011 | 
|--------------------- | - | ------------------------------ | 
|                      |   | U.S. Dollar                    | 
|                      |   | Impact                         | 
|                      |   |                                | 
|Net income (loss)     |   |                                | 
|- in Canadian dollars | $ | 12,778                         | 

|                      |   | Year ended July 31, 2010 |  
|--------------------- | - | ------------------------ | -
|                      |   | U.S. Dollar              |  
|                      |   | Impact                   |  
|                      |   |                          |  
|Net loss              |   |                          |  
|- in Canadian dollars | $ | (14,499                  | )

As at July 31, 2011 and July 31, 2010, the Company had the
following monetary assets and liabilities denominated in foreign currencies
included in its consolidated financial statements:

|                  |  | July
      31, 2011 |  |  | July
      31, 2010 | 
|----------------- |  | ------------------- |  |  | ------------------- | 
|                  |  | Current             |  |  | Current             | 
|                  |  | Assets              |  |  | Liabilities         | 
|                  |  |                     |  |  |                     | 
|U.S. Dollars      |  | 331,427             |  |  | 286,848             | 
|Pounds Sterling   |  | 85,706              |  |  | 313,193             | 
|Euros             |  | 401,585             |  |  | 318,572             | 
|Australian Dollar |  | 282,460             |  |  | 61,844              | 

d)Liquidity risk

Liquidity risk is the risk that the Company is not able to meet
its financial obligations as they fall due or can do so only at excessive cost.
The Company manages this risk by regularly evaluating its liquid resources to
fund its current and long-term obligations in a cost-effective manner.

The Companys exposure to liquidity risk is mitigated through
its continued ability to sell software licenses, services and software
maintenance contracts and the prompt collection of accounts receivable. The
Company controls its liquidity risk by managing its cash and cash flows using
budgets and cash estimates.

The table below summarizes the Companys financial liabilities
and their due dates as at July 31, 2011 and July 31, 2010:

F-28

---

SAND Technology Inc.Notes to Consolidated
Financial StatementsJuly 31, 2011(Expressed in Canadian Dollars, unless otherwise stated)

|                                             |  | July
      31, 2011 | 
|-------------------------------------------- |  | ------------------- | 
|                                             |  | Carrying            | 
|                                             |  | Amount of           | 
|                                             |  | Liability           | 
|                                             |  |                     | 
|Accounts payable and accrued liabilities (a) |  | 765,234             | 
|Due to shareholders (b)                      |  | 1,914,837           | 
|Convertible debentures (c)                   |  | 542,671             | 

|                                             |  | July
      31, 2010 | 
|-------------------------------------------- |  | ------------------- | 
|                                             |  | Carrying            | 
|                                             |  | Amount of           | 
|                                             |  | Liability           | 
|                                             |  |                     | 
|Accounts payable and accrued liabilities (a) |  | 917,265             | 
|Due to shareholders (b)                      |  | 1,874,153           | 
|Convertible debentures (c)                   |  | 448,309             | 

| | (a) | Excludes sales taxes payable                                   
| | --- | ---------------------------------------------------------------
| | (b) | Includes contractual interest expense to be
paid               
| | (c) | Includes accretion and interest expense up until
      maturity

As at July 31, 2011, there has been no significant change to
the maturities of financial liabilities as compared to the previous year. As
such, management assesses the Companys liquidity risk to be high.

18 FINANCIAL INSTRUMENTS

Fair value

Fair value is the estimated amount that parties dealing at
arms length would accept to exchange in settlement of a financial instrument
based on the current market for instruments with the same risk, principal and
maturity date. These fair value estimates are affected by assumptions made about
the amount and timing of estimated future cash flows, discount rates and terms
of the contract. As a result, the fair values are not necessarily the net
amounts that would be realized if such financial instruments were settled.

The fair value, as at July 31, 2011 and 2010, of cash, accounts
receivable, accounts payable and accrued liabilities approximates their
respective carrying value given their short-term maturities.

The Company utilizes various types of financing to fund its
business needs including convertible notes with warrants attached. The Company
reviews these transactions of securities issued, including its warrants and
conversion features, to properly determine their proper classification between
the debt and equity components and whether they are classified as a liability at
each reporting period until the amount is settled and reclassified into equity
with changes, if applicable, in fair value recognized in current earnings. At
July 31, 2011 and 2010, the Company did not have any assets or liabilities
measured at fair value on a recurring basis associated with the units consisting of convertible notes. The Canadian GAAP
measurement of these instruments differs from the United States GAAP
measurements and this is more fully explained in Note 19.

F-29

---

SAND Technology Inc.Notes to Consolidated
Financial StatementsJuly 31, 2011(Expressed in Canadian Dollars, unless otherwise stated)

The fair value of the debt component of the convertible
debentures was determined by discounting future cash flows using rates that the
Company would otherwise use for convertible debentures with similar terms,
conditions and maturity dates.

As at July 31, 2011 and July 31, 2010, the classification of
financial instruments, as well as their carrying values and the fair values, is
as follows:

July 31, 2011Other
      
      
      TotalHeld for
      
      
      Loans and
      
      
      Financial
      
      
      Carrying
      
      
      FairTrading
      
      
      Receivables
      
      
      Liabilities
      
      
      Value
      
      
      ValueFinancial AssetsCash
      $
      810,745
      
      
      
      
      
      
      
      $
      810,745
      
      $
      810,745Accounts receivable
      
      
      
      
      541,959
      
      
      
      
      
      541,959
      
      
      541,959Financial LiabilitiesAccounts payable
        and accrued liabilities
      
      
      
      
      
      
      
      776,623
      
      
      776,623
      
      
      776,623Due to shareholders
      
      
      
      
      
      
      
      1,914,837
      
      
      1,914,837Convertible debentures
      
      
      
      
      
      
      
      542,671
      
      
      542,671
      
      
      723,439


July 31, 2010Other
      
      
      TotalHeld for
      
      
      Loans and
      
      
      Financial
      
      
      Carrying
      
      
      FairTrading
      
      
      Receivables
      
      
      Liabilities
      
      
      Value
      
      
      ValueFinancial AssetsCash
      $
      579,270
      
      
      
      
      
      
      
      $
      579,270
      
      $
      579,270Accounts receivable
      
      
      
      
      739,144
      
      
      
      
      
      739,144
      
      
      739,144Financial LiabilitiesAccounts payable
        and accrued liabilities
      
      
      
      
      
      
      
      984,149
      
      
      984,149
      
      
      984,149Due to a shareholder
      
      
      
      
      
      
      
      1,874,153
      
      
      1,874,153Convertible debentures
      
      
      
      
      
      
      
      448,309
      
      
      448,309
      
      
      751,201


As at July 31, 2011 and July 31, 2010, the financial
instruments presented at fair value on the Company`s consolidated balance sheet
by level of the fair value hierarchy are as follows:

|                 |   |         |  |  | July 31, 2011 |  |  |         | 
|---------------- | - | ------- |  |  | ------------- |  |  | ------- | 
|                 |   | Level 1 |  |  | Level 2       |  |  | Level 3 | 
|                 |   |         |  |  |               |  |  |         | 
|Financial assets |   |         |  |  |               |  |  |         | 
|Cash             | $ | 810,745 |  |  | -             |  |  | -       | 
|                 |   |         |  |  |               |  |  |         | 
|                 | $ | 810,745 |  |  | -             |  |  | -       | 

F-30

---

SAND Technology Inc.Notes to Consolidated
Financial StatementsJuly 31, 2011(Expressed in Canadian Dollars, unless otherwise stated)

|                 |   |         |  |  | July 31, 2010 |  |  |         | 
|---------------- | - | ------- |  |  | ------------- |  |  | ------- | 
|                 |   | Level 1 |  |  | Level 2       |  |  | Level 3 | 
|                 |   |         |  |  |               |  |  |         | 
|Financial assets |   |         |  |  |               |  |  |         | 
|Cash             | $ | 579,270 |  |  | -             |  |  | -       | 
|                 |   |         |  |  |               |  |  |         | 
|                 | $ | 579,270 |  |  | -             |  |  | -       | 

19 -RECONCILIATION OF FINANCIAL RESULTS BETWEEN
CANADIAN AND U.S. GAAP

The material differences between Canadian and U.S. GAAP
impacting the Companys consolidated financial statements are as follows:

F-31

---

SAND Technology Inc.Notes to Consolidated
Financial StatementsJuly 31, 2011(Expressed in Canadian Dollars, unless otherwise stated)

|                                                                                                                                                       |   | July 31,   |   |   | July 31,   |   |   | July 31,   |  
|------------------------------------------------------------------------------------------------------------------------------------------------------ | - | ---------- | - | - | ---------- | - | - | ---------- | -
|                                                                                                                                                       |   | 2011       |   |   | 2010       |   |   | 2009       |  
|                                                                                                                                                       |   |            |   |   |            |   |   |            |  
|A - Net Loss Reconciliation                                                                                                                            |   |            |   |   |            |   |   |            |  
|                                                                                                                                                       |   |            |   |   |            |   |   |            |  
|Net loss - Canadian
      GAAP                                                                                                                         | $ | (2,112,469 | ) | $ | (745,549   | ) | $ | (1,191,695 | )
|Adjustments for:                                                                                                                                       |   |            |   |   |            |   |   |            |  
|Stock-based compensation (a)                                                                                                                           |   | (10,312    | ) |   | (2,128     | ) |   | (6,156     | )
|Gain on change in
      derivative liability - Warrants (b)                                                                                            |   | -          |   |   | 141,488    |   |   | 215,779    |  
|Accretion expense - Debt component of convertible debentures (c)                                                                                       |   | 45,013     |   |   | 43,425     |   |   | 40,637     |  
|Gain
      (loss) on change in derivative liabilities - Warrants and
      conversion                       option
      on convertible debentures (b) |   | 96,769     |   |   | 469,285    |   |   | (83,459    | )
|Loss on change in derivative liability - Warrants on November 2009
      private placement (b)                                                         |   | (92,986    | ) |   | (212,390   | ) |   | -          |  
|Loss on change in
      derivative liability - Warrants on March 2011 private placement (b)                                                            |   | (463,802   | ) |   |            |   |   | -          |  
|                                                                                                                                                       |   | (425,318   | ) |   | 439,680    |   |   | 166,801    |  
|                                                                                                                                                       |   |            |   |   |            |   |   |            |  
|Net loss - U.S. GAAP                                                                                                                                   |   | (2,537,787 | ) |   | (305,869   | ) |   | (1,024,894 | )
|                                                                                                                                                       |   |            |   |   |            |   |   |            |  
|Basic and diluted loss
      per common share, U.S. GAAP                                                                                               |   | (0.15      | ) |   | (0.02      | ) |   | (0.07      | )
|                                                                                                                                                       |   |            |   |   |            |   |   |            |  
|                                                                                                                                                       |   |            |   |   |            |   |   |            |  
|B - Liabilities Reconciliation                                                                                                                         |   |            |   |   |            |   |   |            |  
|                                                                                                                                                       |   |            |   |   |            |   |   |            |  
|Total liabilities - Canadian GAAP                                                                                                                      |   |            |   |   |            |   |   |            |  
|Carrying value - Convertible debentures (long term) (c)                                                                                                |   | 542,671    |   |   | 448,309    |   |   |            |  
|Other liabilities                                                                                                                                      |   | 4,567,387  |   |   | 4,119,798  |   |   |            |  
|                                                                                                                                                       |   | 5,110,058  |   |   | 4,568,107  |   |   |            |  
|Adjustments for:                                                                                                                                       |   |            |   |   |            |   |   |            |  
|Carrying value - Convertible debentures (long term) (c)                                                                                                |   | (307,499   | ) |   | (262,486   | ) |   |            |  
|Derivative
      liability - Warrants on convertible debentures (short term) (b)                                                                       |   | 662,545    |   |   | 759,314    |   |   |            |  
|Derivative liability - Warrants on November 2009 private placement
      (short term) (b)                                                              |   | 305,376    |   |   | 212,390    |   |   |            |  
|Derivative
      liability - Warrants on March 2011 private placement (short term) (b)                                                                 |   | 463,802    |   |   | -          |   |   |            |  
|                                                                                                                                                       |   | 1,124,224  |   |   | 709,218    |   |   |            |  
|                                                                                                                                                       |   |            |   |   |            |   |   |            |  
|Total liabilities -
      U.S. GAAP                                                                                                                    |   | 6,234,282  |   |   | 5,277,325  |   |   |            |  
|                                                                                                                                                       |   |            |   |   |            |   |   |            |  
|                                                                                                                                                       |   |            |   |   |            |   |   |            |  
|C - Shareholders' Deficiency Reconciliation                                                                                                            |   |            |   |   |            |   |   |            |  
|                                                                                                                                                       |   |            |   |   |            |   |   |            |  
|Shareholders' deficiency - Canadian
      GAAP                                                                                                         |   | (2,894,831 | ) |   | (2,450,664 | ) |   |            |  
|Adjustments for:                                                                                                                                       |   |            |   |   |            |   |   |            |  
|Cumulative net
      income (loss) reconciling items                                                                                                   |   | (700,794   | ) |   | (275,476   | ) |   |            |  
|Cumulative stock-based compensation (see above) (a)                                                                                                    |   | 326,012    |   |   | 315,700    |   |   |            |  
|Convertible
      debentures equity component (b)                                                                                                      |   | (749,442   | ) |   | (749,442   | ) |   |            |  
|                                                                                                                                                       |   | (1,124,224 | ) |   | (709,218   | ) |   |            |  
|                                                                                                                                                       |   |            |   |   |            |   |   |            |  
|Total shareholders'
      deficiency - U.S. GAAP                                                                                                       | $ | (4,019,055 | ) | $ | (3,159,882 | ) |   |            |  
|                                                                                                                                                       |   |            |   |   |            |   |   |            |  
|Total assets - U.S. and
      Canadian GAAP                                                                                                            | $ | 2,215,227  |   | $ | 2,117,443  |   |   |            |  

F-32

---

SAND Technology Inc.Notes to Consolidated Financial StatementsJuly 31, 2011(Expressed in Canadian Dollars, unless otherwise stated)

a)Stock-based compensation

Under Canadian GAAP, effective August 1, 2005, stock-based compensation expense was accounted for using the fair value based method.

Under U.S. GAAP, effective August 1, 2005, the Company adopted the standard with respect to share-based payments which requires that stock option payments, to the extent they are compensatory, be recognized based on the fair value the of the options
granted by the Company and expensing such amounts over the applicable vesting period. The fair value of the unvested portion of the stock option granted prior to August 1, 2005 was determined based on the fair value of those options on the grant
date , net of forfeitures.

The impact on the statement of operations for years ended July 31, 2011, 2010 and 2009 was an increase in the net loss by $10,312, $2,128 and $6,156, respectively, with a corresponding increase in contributed surplus under
shareholders' deficiency.

b) Share purchase warrants and convertible debentures conversion option

Under Canadian GAAP, share purchase warrants and the convertible debentures conversion option are classified as equity, more specifically as contributed surplus for the share purchase warrants and as a separate equity component for the convertible
debentures conversion option, in the shareholders' deficiency section of the Company's consolidated balance sheet.

Under U.S. GAAP, SFAS No.133, share purchase warrants with an exercise price denominated in a currency other than the functional currency, which in the case of the Company is the Canadian dollar, and the convertible debentures conversion option must
be accounted for as a derivative liability. As well, any changes in the fair value of these derivative liabilities, under U.S. GAAP, is recognized in earnings during the reporting period as a gain or loss on derivative liability.

The impact for years ended July 31, 2011, 2010 and 2009 was a decrease in the net loss by $2,552 a decrease in the net loss by $398,383 and a decrease in the net loss by $132,320, respectively, and the impact on the balance sheet was an
increase to current liabilities by $1,431,723 and $971,704, respectively.

c) Convertible debentures

Under Canadian GAAP, the fair value of the debt component relating to the convertible debentures is determined using the present value of the cash flows of principal and interest payments using an applicable discount rate and is disclosed as a
long-term liability.

Under U.S. GAAP, the initial carrying amount of the debt component is calculated as the balance of the convertible debenture proceeds after deducting the initial fair value of the share purchase warrants and the conversion option. Under both
Canadian and U.S. GAAP, the carrying amount of the debt component is accreted to its face value over the contractual period of the debentures by using the effective interest method.

The impact on the statement of operations for the years ended July 31, 2011, 2010 and 2009 was a decrease in the net loss by $45,013, $43,425 and $40,637, respectively, and the impact on the balance sheet was a decrease to long term
liabilities by $307,499 and $262,486, respectively.

F-33

---

SAND Technology Inc.Notes to Consolidated
Financial StatementsJuly 31, 2011(Expressed in Canadian Dollars, unless otherwise stated)

d) Supplementary disclosures

The following items present other supplementary disclosures
required under U.S. GAAP:

|a) | Under U.S. GAAP, research and development investment tax
      credits (Note 12) would be classified as a reduction of the income tax
      expense instead of a reduction of the related research and development
      costs. This difference in GAAP did not have any impact on the financial
      position, results of operations or cash flows of the Company for the years
      presented.                  
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                     
|b) | Under Canadian GAAP, future income taxes are calculated
      based on enacted or substantially enacted tax rates applicable to future
      years. Under U.S. GAAP, only enacted rates are used in the calculation of
      future income taxes. This difference in GAAP did not have any impact on
      the financial position, results of operations or cash flows of the Company
      for the years presented.

e)Revenue recognition  Multiple-element
arrangements

The FASB issued ASU 2009-13, Multiple-Deliverable Revenue
Arrangements  a consensus of the FASB Emerging Issues Task Force, and ASU
2009-14, Certain Revenue Arrangements That Include Software New Developments
Summary 6 Elements  a consensus of the FASB Emerging Issues Task Force, to
amend the existing revenue recognition guidance. The ASUs codify consensuses
reached in September 2009 by the FASB Emerging Issues Task Force on EITF Issue
08-1, Revenue Arrangements with Multiple Deliverables and EITF Issue 09-3,
Certain Revenue Arrangements that Include Software Elements. ASU 2009-13
amends ASC 605, Revenue Recognition, 25, Multiple-Element Arrangements
(formerly EITF Issue 00-21, Revenue Arrangements with Multiple Deliverables)
as follows:

- Modifies criteria used to separate elements in a multiple-element
  arrangement
- Introduces the concept of best estimate of selling price for determining
  the selling price of a deliverable
- Establishes a hierarchy of evidence for determining the selling price of a
  deliverable
- Requires use of the relative selling price method and prohibits use of the
  residual method to allocate arrangement consideration among units of
  accounting
- Expands the disclosure requirements for all multiple-element arrangements
  within the scope of ASC 605-25

ASU 2009-14 amends the scope of ASC 985, Software, 605,
Revenue Recognition (formerly AICPA Statement of Position 97-2, Software
Revenue Recognition), to exclude certain tangible products and related
deliverables from the scope of this guidance. Instead, the excluded products and
related deliverables must be evaluated for separation, measurement, and
allocation under the guidance of ASC 605-25, as amended by ASU 2009-13.

The amended guidance is effective prospectively for revenue
arrangements entered into or materially modified in fiscal years beginning on or
after June 15, 2010. Early adoption is permitted. An entity may elect
retrospective application to all revenue arrangements for all periods presented
using the guidance in ASC 250, Accounting Changes and Error Corrections
(formerly FASB Statement 154, Accounting Changes and Error Corrections).
Entities must adopt the amendments resulting from both of these ASUs in the same
period using the same transition method, where applicable.

The Company did not enter into any such revenue arrangements
during the year.

F-34

---

SAND Technology Inc.Notes to Consolidated Financial StatementsJuly 31, 2011(Expressed in Canadian Dollars, unless otherwise stated)

20 - SUBSEQUENT EVENTS

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 has a maturity date of November 30, 2011 with interest at 15% and warrants valued at $500,000 at a price of
U.S.$0.50 per warrant. The bridge loan is entirely repayable at the maturity date of November 30, 2011. Interest was prepaid from the proceeds of the bridge loan.

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 U.S.$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 U.S.$4,172,465. 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.

Also, further to a settlement agreement signed on September 6, 2011 with a significant shareholder referred to in Note 7, the initial proceeds received on the above-mentioned sale were used to pay a pro-rata amount owed to the significant
shareholder in the amount of $1,329,781.

F-35

---

ITEM
19. **EXHIBITS

EXHIBIT INDEX

|Exhibit |  |                                                                                                                                                                             
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number  |  | Exhibit Description                                                                                                                                                         
|        |  |                                                                                                                                                                             
|1.1     |  | Articles of Incorporation, as
      amended on December 20, 1996 and December 31, 1996(A).                                                                                  
|        |  |                                                                                                                                                                             
|1.2     |  | Amendment to
        Articles of Incorporation dated January 1, 2000(B).                                                                                                    
|        |  |                                                                                                                                                                             
|1.3     |  | By-Laws approved,
        confirmed and ratified by the shareholders on December 17, 2002(C).                                                                               
|        |  |                                                                                                                                                                             
|4.1     |  | SAND 1996 Stock
        Incentive Plan as amended(D).                                                                                                                       
|        |  |                                                                                                                                                                             
|4.2     |  | SAND 1996 Stock
        Option Plan as amended(E).                                                                                                                          
|        |  |                                                                                                                                                                             
|4.3     |  | SAND Share Award
        Plan dated November 2, 2006 and Share Award Agreement thereunder(F).                                                                               
|        |  |                                                                                                                                                                             
|4.5     |  | Voting Agreement
        by and between SAND, Arthur G. Ritchie and Bradley G. Griffith on behalf
        of the Debentureholders dated April 18, 2008(K).                  
|        |  |                                                                                                                                                                             
|4.6     |  | Inter-Creditor
        Priority Agreement by and between SAND, Arthur G. Ritchie and Bradley
        G. Griffith on behalf of the Debentureholders, dated April 18, 2008(L).
|        |  |                                                                                                                                                                             
|4.7     |  | Deed of Hypothec
        to Secure Payment of Debentures by and between SAND and Bradley G. Griffith
        on behalf of the Debentureholders, dated April 24, 2008(M).    
|        |  |                                                                                                                                                                             
|4.8     |  | Repayment Agreement
        by and between Arthur G. Ritchie, SAND and Jerart Financial Services Ltd.                                                                       
|        |  |                                                                                                                                                                             
|4.9     |  | Consulting Agreement
        by and between Arthur G. Ritchie, SAND and Jerart Financial Services Ltd.                                                                      
|        |  |                                                                                                                                                                             
|4.10    |  | Marketing and
        Sales Assistance Agreement by and between Arthur G. Ritchie and SAND.                                                                                 
|        |  |                                                                                                                                                                             
|4.11    |  | Priority Agreement
        by and between Jerart Financial Services Limited, Arthur G. Ritchie and
        Bradley G. Griffith.                                             
|        |  |                                                                                                                                                                             
|4.12    |  | Form of Convertible
        Debenture(O).                                                                                                                                   
|        |  |                                                                                                                                                                             
|4.13    |  | Form of Warrant(P).                                                                                                                                                         
|        |  |                                                                                                                                                                             
|4.14    |  | SAND 2010 Stock
        Incentive Plan(Q)                                                                                                                                   
|        |  |                                                                                                                                                                             
|4.15    |  | Employment Agreement
        of Michael Pilcher                                                                                                                             
|        |  |                                                                                                                                                                             
|4.16    |  | Employment Agreement
        of Tony Giuliano                                                                                                                               
|        |  |                                                                                                                                                                             
|6.1     |  | Statement detailing
        computation of per share earnings.                                                                                                              
|        |  |                                                                                                                                                                             
|8.1     |  | Subsidiaries.                                                                                                                                                               
|        |  |                                                                                                                                                                             
|11.1    |  | Standards of
        Ethical Conduct(G).                                                                                                                                    
|        |  |                                                                                                                                                                             
|12.1    |  | Certification
        of the Chief Executive Officer of SAND pursuant to Section 302 of the
        Sarbanes-Oxley Act of 2002.                                             

- 72 -

---

|Exhibit |  |                                                                                                                                                                                                    
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number  |  | Exhibit Description                                                                                                                                                                                
|        |  |                                                                                                                                                                                                    
|12.2    |  | Certification
        of the Vice President Finance and Administration and Chief Financial Officer
        of SAND pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                      
|        |  |                                                                                                                                                                                                    
|13.1    |  | Certification
        of Chief Executive Officer of SAND pursuant to 18 U.S.C. Section 1350
        as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                          
|        |  |                                                                                                                                                                                                    
|13.2    |  | Certification
        of Vice President Finance and Administration of SAND pursuant to 18 U.S.C.
        Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley
        Act of 2002.
|        |  |                                                                                                                                                                                                    
|15.1    |  | Consent
        of Raymond Chabot Grant Thornton LLP.                                                                                                                                              
|        |  |                                                                                                                                                                                                    
|15.2    |  | Amended and
        Restated Audit Committee Charter(H).                                                                                                                                           
|        |  |                                                                                                                                                                                                    
|15.3    |  | Governance,
        Nomination, Human Resources and Compensation Committee Charter(I).                                                                                                             
|        |  |                                                                                                                                                                                                    
|15.4    |  | Board of Directors
        Charter(J).                                                                                                                                                             

Notes to Exhibit Index:

| | (A) | Previously filed as an exhibit to SAND's Annual Report on
      Form 20-F for the year ended July 31, 1996 and incorporated herein by
      reference.                            
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                   
| | (B) | Previously filed as an exhibit to Amendment No. 1 to
      SAND's Form F-2 Registration Statement (333-12216) filed on August 18,
      2000 and incorporated herein by reference.
| |     |                                                                                                                                                                                   
| | (C) | Previously filed as exhibit 3.3 to SAND's Annual Report
      on Form 20-F for the year ended July 31, 2002 and incorporated herein by
      reference.                           
| |     |                                                                                                                                                                                   
| | (D) | Previously filed as exhibit 4.1 to SAND's Annual Report
      on Form 20-F for the year ended July 31, 2005 and incorporated herein by
      reference.                           
| |     |                                                                                                                                                                                   
| | (E) | Previously filed as exhibit 4.2 to SAND's Annual Report
      on Form 20-F for the year ended July 31, 1996 and incorporated herein by
      reference.                           
| |     |                                                                                                                                                                                   
| | (F) | Previously filed as exhibit 4.6 to SAND's Annual Report
      on Form 20-F for the year ended July 31, 2007 and incorporated herein by
      reference.                           
| |     |                                                                                                                                                                                   
| | (G) | Previously filed as exhibit 11.1 to SAND's Annual Report
      on Form 20-F for the year ended July 31, 2005 and incorporated herein by
      reference.                          
| |     |                                                                                                                                                                                   
| | (H) | Previously filed as exhibit 15.1 to SAND's Annual Report
      on Form 20-F for the year ended July 31, 2005 and incorporated herein by
      reference.                          
| |     |                                                                                                                                                                                   
| | (I) | Previously filed as exhibit 15.2 to SAND's Annual Report
      on Form 20-F for the year ended July 31, 1996 and incorporated herein by
      reference.                          
| |     |                                                                                                                                                                                   
| | (J) | Previously filed as exhibit 14.3 to SAND's Annual Report
      on Form 20-F for the year ended July 31, 2003 and incorporated herein by
      reference.                          

- 73 -

---

| | (K) | Previously filed as exhibit 4.5 to SAND's Annual Report
      on Form 20-F for the year ended July 31, 2008 and incorporated by
      reference.        
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                         
| | (L) | Previously filed as exhibit 4.6 to SAND's Annual Report
      on Form 20-F for the year ended July 31, 2008 and incorporated herein by
      reference. 
| |     |                                                                                                                                                         
| | (M) | Previously filed as exhibit 4.7 to SAND's Annual Report
      on Form 20-F for the year ended July 31, 2008 and incorporated herein by
      reference. 
| |     |                                                                                                                                                         
| | (O) | Previously filed as exhibit 4.12 to SAND's Annual Report
      on Form 20-F for the year ended July 31, 2010 and incorporated herein by
      reference.
| |     |                                                                                                                                                         
| | (P) | Previously filed as exhibit 4.13 to SAND's Annual Report
      on Form 20-F for the year ended July 31, 2010 and incorporated herein by
      reference.
| |     |                                                                                                                                                         
| | (Q) | Previously filed as exhibit 4.14 to SAND's Annual Report
      on Form 20-F for the year ended July 31, 2010 and incorporated herein by
      reference.
| |     |                                                                                                                                                         
| | (R) | Previously filed as exhibit 99.1 to SAND's Report on Form
      6-K filed on October 19, 2011 and incorporated herein by
  reference.                   
| |     |                                                                                                                                                         
| | (S) | Previously filed as exhibit 99.2 to SAND's Report on Form
      6-K filed on October 19, 2011 and incorporated herein by
  reference.                   

- 73 -

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SIGNATURES

The registrant hereby certifies that it meets all of the
requirements for filing on Form 20-F and that it has duly caused and authorized
the undersigned to sign this Annual Report on Form 20-F on its behalf.

|                        | SAND TECHNOLOGY INC.       
|----------------------- | ---------------------------
|                        |                            
|Dated: November 7, 2011 | By: /s/ THOMAS M. ODONNELL
|                        | Thomas M. O`Donnell        
|                        | Chief Executive Officer    

- 100 -

---