<Page>

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 20-F

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

                                       OR

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

For the fiscal year ended July 31, 2004

                                       OR

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

Commission file number :  0-14884

                              SAND TECHNOLOGY INC.
              (FORMERLY SAND TECHNOLOGY SYSTEMS INTERNATIONAL INC.)
           (Exact name of the registrant as specified in its charter)

                                     CANADA
                         (Jurisdiction of Incorporation)

                          215 REDFERN AVENUE, SUITE 410
                        WESTMOUNT, QUEBEC, CANADA H3Z 3L5
                    (Address of principal executive offices)

                            TELEPHONE (514) 939-3477

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

                                      NONE

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.

                       CLASS A COMMON SHARES - 12,997,551

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.

                   Yes   X                              No
                      -------

Indicate by check mark which financial statement item the registrant has elected
to follow.
                   Item 17                                       Item 18   X
                           -------                                       -----


                                       1

<Page>

                                TABLE OF CONTENTS
<Table>
<S>      <C>              <C>                                                                                    <C>
PART I............................................................................................................3
         ITEM 1.          IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS...................................3
         ITEM 2.          OFFER STATISTICS AND EXPECTED TIMETABLE.................................................3
         ITEM 3.          KEY INFORMATION.........................................................................3
         ITEM 4.          INFORMATION ON THE COMPANY.............................................................15
         ITEM 5.          OPERATING AND FINANCIAL REVIEW AND PROSPECTS...........................................22
         ITEM 6.          DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.............................................31
         ITEM 7.          MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS......................................41
         ITEM 8.          FINANCIAL INFORMATION..................................................................42
         ITEM 9.          THE OFFER AND LISTING..................................................................42
         ITEM 10.         ADDITIONAL INFORMATION.................................................................43
         ITEM 11.         QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.............................53
         ITEM 12.         DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.................................54


PART II..........................................................................................................54
         ITEM 13.         DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES........................................54
         ITEM 14.         MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS...........54
         ITEM 15.         CONTROLS AND PROCEDURES................................................................57
         ITEM 16 A.       AUDIT COMMITTEE FINANCIAL EXPERT.......................................................58
         ITEM 16 B.       CODE OF ETHICS.........................................................................58
         ITEM 16 C.       PRINCIPAL ACCOUNTANT FEES AND SERVICES.................................................58
         ITEM 16 D.       EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES.............................59
         ITEM 16 E.       PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS.................59


PART III.........................................................................................................61
         ITEM 17.         FINANCIAL STATEMENTS...................................................................61
         ITEM 18.         FINANCIAL STATEMENTS...................................................................61
         ITEM 19.         EXHIBITS...............................................................................79
</Table>

                                       2

<Page>

            CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

           Certain statements contained in this Annual Report on Form 20-F are
"forward-looking statements" within the meaning of the United States Securities
Act of 1933 and of the United States Securities Exchange Act of 1934. The
forward-looking statements are intended to be subject to the safe harbour
protection provided by these Acts. We have based these forward-looking
statements on our current expectations and projections about future results,
levels of activity, events, trends or plans. Such forward-looking statements are
not guarantees and are subject to known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of
SAND to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. In some
cases, you can identify forward-looking statements by terminology such as
"guidance", "may", "will", "should", "could", "would", "expect", "plan",
"anticipate", "believe", "estimate", "continue", or the negative of such terms
or other similar expressions. All forward-looking statements included in this
discussion are based on current expectations and on information available to the
Corporation on January 27, 2005. For a more detailed discussion of these risks
and uncertainties and other business risks, see Item 3 - "Risk Factors" and Item
5 - "Trend Information". 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 do not intend to publish updates or revisions
of any forward-looking statement we make to reflect new information, future
events or otherwise.

                                     * * *

SAND Technology and Nucleus are registered trademarks, and Nucleus Server,
N:VECTOR, Nucleus Exploration Warehouse, Nucleus Exploration Mart, Nucleus
Exploration Data Warehouse, Nucleus Octopus, SAND Online and MPSO are registered
trademarks of Sand Technology Inc. and Nucleus Virtual Database (VDB), NUCLEUS
POWERED!, Nucleus Adviser, SAND Analytic Server, SAND Analytic Warehouse, See
what's on the horizon, Analytics @ the Speed of Business and all related Sand -
and Nucleus-based marks and designs are trademarks of Sand Technology Inc.


                                     PART I

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

         Our audited consolidated financial statements for the 2004 fiscal year
and the notes relating to them (the "Financial Statements"), which are included
at Item 18 are

                                       3

<Page>

presented in accordance with Canadian generally accepted accounting principles
("Canadian GAAP"). The monetary figures throughout this Annual Report on Form
20-F are presented consistent with Canadian GAAP except where otherwise
indicated.

         The following data expressed in Canadian dollars are derived from
our audited consolidated Financial Statements. 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 found elsewhere in this Annual Report on
Form 20-F.

<Table>
<Caption>

                                               (Dollars in Thousands (000's) except for Per Share Data and Rates of Exchange)
                                                                              FISCAL YEAR ENDED
                                         -------------------------------------------------------------------------------------------
                                            7/31/04            7/31/03             7/31/02             7/31/01            7/31/00
                                         --------------    ----------------   ------------------   ----------------    -------------
                                              CA                 CA                  CA                  CA                 CA
<S>                                         <C>               <C>                   <C>                <C>              <C>
Rates of exchange
   At period end-- US$                        $1.33              $1.40                $1.58              $1.53            $1.49
   Average for the period                     $1.34              $1.50                $1.57              $1.52            $1.47

Results of Operations
   Net Sales                                 $5,349            $31,683              $13,922            $11,259           $6,895
   Research and Development Costs           ($3,309)           ($3,311)             ($4,888)           ($3,924)         ($4,006)
   Selling, General and Administrative
   Expenses                                 ($7,605)          ($16,582)            ($16,033)          ($11,202)         ($6,573)
   Amortization                               ($242)           ($1,077)             ($1,505)           ($1,160)         ($1,044)
   Cost of Sales and Product Support        ($1,652)          ($12,510)             ($6,474)           ($4,120)         ($2,300)
   Loss from operations                     ($7,459)           ($1,797)            ($14,978)           ($9,147)         ($7,028)

Other income (expense)                         $329              ($167)                $166               $624              $85

Equity and Gain on Sale of Subsidiaries                        $11,757                                                    $4,076

Net (Loss) Income                           ($7,130)            $9,793             ($14,812)           ($8,523)         ($2,867)

Financial Position
   Working Capital                          $11,523            $19,133               $7,562            $22,204           $4,475
   Total Assets                             $15,991            $24,026              $15,528            $29,932           $9,071
   Total Liabilities                         $3,632             $4,344               $5,584             $5,237           $2,522
   Shareholders Equity                      $12,359            $19,682               $9,944            $24,695           $6,549

Basic and diluted (loss) earnings            ($0.55)             $0.74               ($1.12)            ($0.71)          ($0.32)
   per Share
Weighted Average Number of Shares
outstanding during each period (000's)       13,080             13,189               13,186             12,079            8,919
</Table>

The same data, reconciled with US GAAP, is shown on the next page.


                                       4

<Page>

 (Dollars in Thousands (000's) except for Per Share Data and Rates of Exchange)
<Table>
<Caption>
                                                  (Dollars in Thousands (000's) except for Per Share Data and Rates of Exchange)
                                                                             FISCAL YEAR ENDED
                                         -------------------------------------------------------------------------------------------
                                              7/31/04           7/31/03              7/31/02            7/31/01           7/31/00
                                          ----------------   ---------------      ---------------   ----------------   -------------
                                                CA                 CA                   CA                CA
<S>                                            <C>             <C>                   <C>                <C>              <C>
Rates of exchange
   At period end -- US$                          $1.33            $1.40                 $1.58              $1.53           $1.49
   Average for the period                        $1.34            $1.50                 $1.57              $1.52           $1.47

Results of Operations
   Net Sales                                    $5,349          $31,683               $13,922            $11,259          $6,895
   Research and Development Costs              ($3,309)         ($3,311)              ($4,888)           ($3,924)        ($4,006)
   Selling, General and Administrative
   Expenses                                    ($7,605)        ($16,582)             ($16,033)          ($11,202)        ($6,573)
Amortization                                     ($242)         ($1,077)              ($1,505)           ($1,160)        ($1,044)
   Cost of Sales and Product Support           ($1,652)        ($12,510)              ($6,474)           ($4,120)        ($2,300)
   Loss from operations                        ($7,459)         ($1,797)             ($14,978)           ($9,147)        ($7,028)

Other Income (expense)                            $329            ($167)                 $166               $624             $85

Equity and Gain on Sale of Subsidiaries                         $11,757                                                   $4,076

Net (Loss) Income                              ($7,130)          $9,793              ($14,812)           ($8,523)        ($2,867)

Financial Position
   Working Capital                             $11,523          $19,133                $7,562            $22,204          $4,475
   Total Assets                                $15,991          $24,026               $15,528            $29,932          $9,071
   Total Liabilities                            $3,632           $4,344                $5,584             $5,237          $2,522
   Shareholders' Equity                        $12,359          $19,682                $9,944            $24,695          $6,549

Basic and diluted (loss) earnings
    per Share                                   ($0.55)           $0.74                ($1.12)            ($0.71)         ($0.32)
Weighted Average Numbers of Shares
   outstanding during each period (000's)       13,080           13,189                13,186             12,079           8,919
</Table>

Canadian Equivalent of U.S. $1.00
<Table>
<Caption>

MONTH ENDED                                               HIGH                                     LOW
-----------                                               ----                                     ---
<S>      <C>                                            <C>                                     <C>
December 2004                                           $ 1.2414                                $ 1.1837
November 2004                                           $ 1.2243                                $ 1.1759
October 2004                                            $ 1.2727                                $ 1.2180
September 2004                                          $ 1.3069                                $ 1.2616
August 2004                                             $ 1.3300                                $ 1.2978
July 2004                                               $ 1.3325                                $ 1.3071
</Table>

<Table>
<Caption>

                                                                       YEAR ENDED JULY 31

                                               2004            2003           2002            2001            2000
                                                               ----           ----            ----            ----
<S>                                            <C>            <C>             <C>             <C>             <C>
Average                                        $1.34          $1.50           $1.57           $1.52           $1.47
</Table>

                                       5

<Page>

On January 21, 2005, the exchange rate was CDN $1.2212 for U.S. $1.00.


B.  CAPITALIZATION AND INDEBTEDNESS

         Not applicable.


C.  REASONS FOR THE OFFER AND USE OF PROCEEDS

         Not applicable.


D.  RISK FACTORS

In addition to the other information in the Annual Report, the following factors
should be considered in evaluating SAND and our business. The risks and
uncertainties described below are not the only ones facing us. Additional risks
and uncertainties of which we are not presently aware or that we currently
consider immaterial, may also impair our business, our operating results and
financial condition.

RISKS ASSOCIATED WITH OUR FINANCIAL RESULTS

o   WE HAVE NOT BEEN PROFITABLE IN FOUR OUT OF OUR LAST FIVE FISCAL YEARS AND WE
    HAVE SOLD SOME LIQUID INVESTMENTS AND ASSETS TO FUND OUR OPERATIONS. WE MAY
    HAVE TO OBTAIN ADDITIONAL FINANCING TO FUND OUR FUTURE OPERATIONS.

         Because we have not been profitable in four out of our last five fiscal
years, we have had to fund our losses through a combination of sales of liquid
investments and assets. We incurred losses of $2,866,907 in fiscal 2000,
$8,522,676 in fiscal 2001, $14,812,001 in the fiscal 2002 and $7,129,930 for the
fiscal year ended July 31, 2004. Although, fiscal year 2003 was profitable, the
profit was due to the gain from the sale of ClarityBlue, which amounted to
$11,757,280. Had we not sold ClarityBlue, we would have shown a loss of
$1,964,199. We expect to continue to incur losses in the near future and
possibly longer. Although our expenses materially decreased as a result of the
sale of ClarityBlue, so did our revenue base and additional efforts will have to
be made to grow our sales force and build our marketing efforts to address the
USA and international markets as


                                       6

<Page>

well as other specific markets in order to achieve future sales growth. If our
efforts are not successful in continuing to create additional revenues, we may
be unable to achieve profitability in the future. If we do not achieve
profitability in the future, we would have to obtain additional financing to
fund our operations.

         We expect to continue to incur substantial operating expenses in the
foreseeable future in relation to our revenue base and our operating results
will be adversely affected if our revenues do not increase. We must, among other
things, continue to develop market awareness and acceptance of our products,
increase the scope of our operations, respond to competitive developments,
continue to attract, retain and motivate qualified personnel, and continue to
commercialize products incorporating advanced technologies. These efforts may
prove more expensive than we currently anticipate. We cannot assure you that we
will be successful in addressing these risks, and the failure to do so would
have a material adverse effect on our business, operating results and financial
condition.

o   OUR DIFFICULTY IN ACCURATELY FORECASTING OUR RESULTS FROM QUARTER TO QUARTER
    MAY AFFECT OUR CASH RESOURCES AND RESULT IN WIDE FLUCTUATIONS IN THE MARKET
    PRICE OF OUR STOCK.

         Our operating results have varied on a quarterly basis in the past and
may fluctuate significantly in the future as a result of a variety of factors
outside of our control. As a result, we may not be able to accurately predict
our necessary cash expenditures during each quarter or obtain timely financing
to cover any shortfalls. We also believe that period-to-period comparisons of
our operating results are not meaningful and that one should not rely on any
such comparisons as an indication of our future performance. In addition, it is
likely that in one or more future quarters, our operating results will fall
below the expectations of securities analysts and investors. In such event, the
trading price of our Class A common shares could be materially harmed. When the
market price of a company's stock drops significantly, shareholders often
institute securities class action lawsuits against that company. A lawsuit
against us could cause us to incur substantial costs and could divert the time
and attention of our management and other resources.

RISKS ASSOCIATED WITH OUR BUSINESS AND OPERATIONS

o   BECAUSE WE ARE NOW SEEKING TO SECURE EFFECTIVE PARTNERSHIPS WITH SYSTEMS
    INTEGRATORS AND APPLICATION VENDORS, IT MAY BE DIFFICULT FOR YOU TO EVALUATE
    OUR BUSINESS AND ITS PROSPECTS.

         Your evaluation of our business is more difficult because we are moving
to secure effective partnerships with systems integrators and application
vendors which may take some time to mature into predictable revenue producers.
Our prospects are difficult to predict and may change rapidly. You should
consider the risks, expenses and difficulties that we may encounter or incur as
a company now operating in a rapidly evolving market, including our substantial
dependence on a single line of products and our need to manage expanding
operations. Our business strategy may not be successful, and we may not
successfully address these risks.


                                       7

<Page>

o WE PLAN TO FURTHER DEVELOP OUR DIRECT SALES FORCE.

         Though we plan to continue to sell our products through a distribution
network of value-added resellers, resellers and distributors located in the
United States, Canada, the United Kingdom and Germany, direct sales will still
play an important role in developing important reference accounts in new
markets. Competition for sales personnel qualified for these positions is
intense. Many of our competitors have substantially greater resources than we do
or have dedicated greater resources to hiring qualified sales personnel. In
addition, turnover among our sales force tends to slow sales efforts until
replacement personnel are recruited and trained. We may not be able to attract
and retain the sales and marketing personnel we desire, even after spending
significant resources to do so, and the failure to do so could have a material
adverse effect on our business, operating results and financial condition.

o        WE DEPEND ON KEY PERSONNEL.

Our success depends to a significant degree upon the continued contributions of
our key management, engineering, sales and marketing personnel, many of whom
would be difficult to replace. We have an employment contract with and maintain
"key person" life insurance on only one employee, Arthur G. Ritchie, our
Chairman of the Board, President and Chief Executive Officer. We do not believe
the proceeds of Mr. Ritchie's life insurance would adequately compensate us for
his loss. We believe that our future success will also depend in large part upon
our ability to attract and retain highly skilled managerial, engineering, sales
and marketing, and finance personnel. Competition for qualified personnel
remains intense, and there can be no assurance that we will be successful in
attracting and retaining such personnel. We have in the past experienced
difficulties in hiring highly qualified sales and engineering personnel. The
loss of the services of any of our key personnel, the inability to attract or
retain qualified personnel in the future or delays in either hiring required
personnel or the rate at which new people become productive, particularly sales
personnel and engineers, could have a material adverse effect on our business,
operating results and financial condition.

o        OUR PRODUCT SALES CYCLE IS LENGTHY.

         The purchase of our products often requires significant,
executive-level investment and system design decisions by our customers. Sales
take a long time to conclude because we must provide a significant level of
education about the use and benefits of our products. We believe that many
companies are not yet fully aware of the benefits of enterprise-wide business
intelligence solutions, nor have such companies yet deployed business
intelligence solutions on an enterprise-wide basis. Accordingly, the sales cycle
associated with the purchase of the SAND Analytic Server is typically three to
nine months in length. During this period, a potential sale is subject to a
number of significant risks over which we have little or no control, including
customers' budgeting constraints and internal acceptance review procedures
including, in some instances, approval by the board of directors of the
customer. Based in part upon, among other things, our lengthy sales


                                       8

<Page>

cycle, the timing of sales is difficult to predict and our earnings and
operating results could vary significantly from quarter to quarter during our
current fiscal year. Excessive delay in product sales could have a material
adverse effect on our business, operating results and financial condition.

o WE MUST CONTINUE TO MAINTAIN AND GROW OUR INDIRECT SALES CHANNELS.

         Our success in maintaining our indirect channels, value-added
resellers, resellers and distributors is important to our ability to achieve
revenue growth and improved operating margins on product sales. Despite the fact
that we continue to invest significant resources to develop our indirect
channels, we may not be able to continue to attract and retain additional
companies in our indirect channels that will be able to market our SAND Analytic
Server effectively and will be qualified to provide timely and cost-effective
customer support and services. In addition, our agreements with companies in our
indirect channels do not restrict such companies from distributing competing
products, and in many cases, these agreements may be terminated by either party
without cause. We may not be able to successfully expand our sales through
indirect channels, and failure to do so could have a material adverse effect on
our business, operating results and financial condition.

o        WE OPERATE IN A HIGHLY COMPETITIVE MARKET.

         We compete in the highly competitive computer software industry as a
result of bringing our SAND Analytic Server and more recently the SAND
Searchable Archive to market. The market in which we operate is still developing
and is intensively competitive, highly fragmented, and characterized by rapidly
changing technology and evolving standards. Our current and potential
competitors offer a variety of software solutions and generally fall within
several categories:

- vendors of business intelligence software such as Cognos, Business Objects,
Crystal Decisions, SAP, Siebel and Hummingbird;

- vendors offering alternative approaches to delivering analysis capabilities to
users, such as MicroStrategy, Computer Associates, Hyperion Software and
Actuate;

- database vendors that offer products, which operate specifically with their
proprietary database, such as Microsoft, IBM, and Oracle Corporation:

- other companies that may in the future announce offerings of enterprise
business intelligence solutions.

         Our competitive position in our market is uncertain, 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 business intelligence 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.


                                       9

<Page>


         Current and potential competitors may make strategic acquisitions or
establish cooperative relationships among themselves or with third parties,
thereby increasing the ability of their products to address the needs of our
prospective customers. Our current or future indirect channel partners including
systems integrators and application vendors may establish cooperative
relationships with our current or potential competitors and limit our ability to
sell products through particular distribution channels. Such competition could
have a material adverse effect on our ability to enter into new licensing
agreements, and maintenance and support renewals for existing licensing
agreements, with respect to our products. Competitive pressures could also
require us to reduce the price of our products.

         We compete primarily on the basis of product features, time to market,
ease of use, product performance, product quality, analytical capability, 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.

         We cannot assure you that we will be able to compete successfully
against current and future competitors, and the failure to do so could have a
material adverse effect on our business, operating results and financial
condition.

o        AS WE EXPAND BEYOND NORTH AMERICA, WE ARE EXPOSED TO CERTAIN RISKS
         INHERENT IN DOING BUSINESS ON AN INTERNATIONAL LEVEL.

         Although the sale of ClarityBlue has reduced the importance of revenues
earned outside North America, these revenues are expected to be significant
nonetheless in the future. Sales to customers outside of North America,
including sales generated by our U.K. subsidiary, represented 68%, 89% and 72%
of our total revenue for fiscal 2002, 2003 and 2004, respectively. We now have
sales offices in the United Kingdom and Germany.

         A key component of our strategy is our planned expansion into
additional international markets. To facilitate this international expansion, we
need to localize our products for the additional foreign markets. If the
revenues generated by these expanded international operations do not offset the
expense of establishing and maintaining these foreign operations, there could be
a material adverse effect on our business, operating results and financial
condition. To date, we have only limited experience in developing localized
versions of our products and marketing and distributing our products
internationally. We cannot assure you that we will be able to successfully
localize, market, sell and deliver our products in these markets.

         There are also additional risks in doing business on an international
level, such as increased difficulty in controlling operating expenses,
unexpected changes in regulatory requirements, tariffs and other trade barriers,
difficulties in staffing and managing foreign operations, longer payment cycles,
problems in collecting accounts receivable, political instability, fluctuations
in currency exchange rates, seasonal reductions in business activity, and
potentially adverse tax consequences. These risks could adversely impact the
success of our international operations. We cannot assure you that one or more
of these factors will


                                       10

<Page>

not have a material adverse effect on our future international operations and,
consequently, on our business, operating results and financial condition.

WE CURRENTLY DEPEND ON SALES OF THE SAND ANALYTIC SERVER AND THE SAND SEARCHABLE
ARCHIVE TO GENERATE MOST OF OUR REVENUE.

         We expect sales of our SAND Analytic Server and SAND Searchable
Archive to constitute most of our revenue for the foreseeable future. If
customers do not purchase these products, we do not currently offer any other
products or services that would enable us to become profitable.

         The market for our products is characterized by rapidly changing
technology, evolving industry standards and customer requirements, emerging
competition, and frequent new product introductions. Our products incorporate a
number of advanced technologies, including a proprietary data analysis engine, a
distributed architecture, as well as Web access and delivery technology. We may
be required to change and improve our products in response to changes in
operating systems, applications, networking and connectivity software, computer
and communications hardware, programming tools and computer language technology.
As a result, the life cycle of our products is difficult to estimate. We attempt
to establish and maintain partner alliances with influential companies in a
variety of core technology areas to help us successfully respond to changing
technology, identify new product opportunities, or develop and bring new
products to market in a timely and cost-effective manner. Our failure to
establish such alliances could have a material adverse effect on our business,
operating results and financial condition.

         We have in the past experienced delays in software development and
there can be no assurance that we will not experience delays in connection with
our current or future product development activities. In particular, development
efforts in the UNIX server environment are complex, and we have in the past
encountered delays in developing products for this environment. Our failure, for
technological or other reasons, to develop and introduce new products and
product enhancements on a timely basis could have a material adverse effect on
our business, operating results and financial condition.

         In addition, we or our competitors may announce enhancements to
existing products, or new products that have the potential to supplant or
provide lower cost alternatives to our existing products. The introduction of
such enhancements or new products could render our existing products obsolete
and unmarketable. Furthermore, introduction by us of products with reliability,
quality or compatibility problems could result in reduced orders, delays in
collecting accounts receivable, and additional service costs. The failure to
introduce a new product or product enhancement on a timely basis could delay or
hinder market acceptance. Research and development efforts may require us to
expend significant capital and other resources. Any such event could have a
material adverse effect on our business, operating results and financial
condition.


                                       11

<Page>

o        WE DEPEND ON THE MARKET FOR ENTERPRISE BUSINESS INTELLIGENCE.

         We are focusing our selling efforts increasingly on larger,
enterprise-wide implementations of our SAND Analytic Server and our SAND
Searchable Archive, and we expect such sales to constitute an increasing
portion of any future revenue growth. To date, our selling efforts have
resulted in limited enterprise-wide implementations of our SAND Analytic
Server and our SAND Searchable Archive. While we have devoted resources to
promoting market awareness of our products and the needs our products address
(including training our sales personnel and demonstrating our products at
industry conferences and trade shows), we cannot assure you that these
efforts will be sufficient to build market awareness of the need for the
enterprise-wide implementations for business intelligence or acceptance of
our products. Failure of a significant market for enterprise business
intelligence products to fully develop, or failure of enterprise-wide
implementations of our products to achieve broad market acceptance, would
have a material adverse effect on our business, operating results and
financial condition.

o        AS A RESULT OF THEIR COMPLEXITY, OUR PRODUCTS MAY CONTAIN UNDETECTED
         ERRORS, FAILURES OR VIRUSES AND WE MAY BE SUBJECT TO PRODUCT LIABILITY
         CLAIMS FOR SUCH DEFECTS.

         Despite our testing of new products and their use by current and
potential customers when first introduced or when new enhancements are released,
we cannot assure you that there will be no defects or errors in new products or
enhancements in our commercial shipments. Although we have not experienced
material adverse effects resulting from any such defects and errors to date, we
cannot assure you that defects and errors will not be found in new products or
enhancements, resulting in loss of revenues, delay in market acceptance or
damage to our reputation, which could have a material adverse effect upon our
business, operating results and financial condition. While our license
agreements with our customers typically contain provisions designed to limit our
exposure for potential claims based on errors or malfunctions of our products,
it is possible, however, that these provisions may not be effective under the
laws of certain jurisdictions. Although we have not experienced any product
liability claims to date, the sale and support of our products entails the risk
of such claims. Although we carry insurance against product liability risks, we
cannot assure you that such insurance would be adequate to cover a potential
claim. A product liability claim brought against us could have a material
adverse effect on our business, operating results and financial condition.

o        THERE IS LIMITED PROTECTION OF OUR 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 seven United States
patents. We cannot assure you that our patents will not be invalidated,
circumvented or challenged, or that the rights granted under our patents will
provide competitive advantages to us. Others may develop technologies that are
similar or


                                       12

<Page>

superior to our technology or design around any patent that may be owned by us.
Despite our efforts to protect our proprietary rights, unauthorized parties may
attempt to copy aspects of our products or to obtain and use information that we
regard as proprietary. Policing unauthorized use of our products is difficult,
and while we are unable to determine the extent to which piracy of our software
products exists, we can expect software piracy to be a persistent problem. In
addition, the laws of some foreign countries do not protect our proprietary
rights as fully as do the laws of the United States and Canada. There can be no
assurance that our means of protecting our proprietary rights in North America
or abroad will be adequate. We have entered into source code escrow agreements
with a number of our customers and indirect channel partners requiring release
of source code under certain conditions. The provision of source code escrows
may increase the likelihood of misappropriation by third parties. Although we
are not currently aware of any claims asserted by third parties that we infringe
on their intellectual property, we expect that in the future software product
developers will increasingly be subject to infringement claims as the number of
products and competitors in our industry segment grows and the functionality of
products in different industry segments overlaps. Any such claims, with or
without merit, could be time consuming to defend, result in costly litigation,
divert management's attention and resources, cause product shipment delays or
require us to enter into royalty or licensing agreements which may not be
available on terms acceptable to us, if at all. In the event of a successful
claim of product infringement against us and our failure or inability to license
the infringed or similar technology, our business, operating results and
financial condition would be materially adversely affected.

o        WE DEPEND TO A CERTAIN EXTENT ON SOFTWARE PRODUCTS FROM THIRD PARTY
SUPPLIERS

         We have incorporated software that we license from third parties
into SAND solutions such as Nucleus Query which was based on software from
Brio Technology (now Hyperion Solutions) as well as software that may be
integrated with our internally-developed software and used in our products to
perform key functions. We cannot assure you that these third-party software
licenses will be available to us on terms acceptable to us or indeed that our
suppliers will remain in business. Our inability to obtain or maintain any
such software licenses could result in shipment delays or reductions until
equivalent software could be developed, identified, licensed and integrated,
which could have a material adverse effect on our business, operating results
and financial condition.

RISKS WHICH MAY AFFECT THE VALUE OF OUR CLASS A COMMON SHARES

o        SHARES ELIGIBLE FOR FUTURE SALE.

         Sales of a substantial number of our Class A common shares in the
public market could adversely affect the market price for our Class A common
shares.

         The exercise of existing outstanding warrants and options and the
number of Class A common shares available for future issuance may substantially
dilute the value of our Class A common shares.

         We are authorized to issue an unlimited number of Class A common
shares, of which 12,818,189 shares are outstanding as of January 21, 2005, and
we have reserved an additional 1,351,000 Class A common shares for future
issuance. The issuance of these


                                       13

<Page>

authorized or reserved shares could substantially dilute the equity interest of
our existing shareholders and could result in a significant decrease to the
market price of our Class A common shares. We have granted rights to purchase
1,351,000 Class A common shares to directors, officers, employees and
consultants upon the exercise of options at prices ranging from US$0.69 to
US$7.00 per share.

o        THE PRICE OF OUR CLASS A COMMON SHARES ON THE NASDAQ SMALLCAP MARKET
         HAS BEEN AND IS LIKELY TO CONTINUE TO BE VOLATILE.

         Our Class A common shares are currently listed on the Nasdaq SmallCap
Market System ("NASDAQ"). The trading price of our common shares has been and is
likely to be highly volatile. Our share price, which has ranged from a low of
US$0.65 to a high of US$1.40 during the past twelve months, could be subject to
wide fluctuations in response to a variety of factors, including actual or
anticipated variations in quarterly operating results, volatile economic
conditions, new products offered by us or our competitors, changes in financial
estimates by securities analysts and other events or factors that may be beyond
our control. In addition, the stock markets in general, and the NASDAQ SmallCap
Market and the equity markets for software companies in particular, have over
the past years experienced extraordinary price and volume volatility and a
significant cumulative overall decline. Such volatility and decline have
adversely affected the stock prices for many companies irrespective of or
disproportionately to the operating performance of these companies. These broad
market and industry factors may materially and adversely further affect the
market price of our Class A common shares, regardless of our actual operating
performance.

o        OUR CLASS A COMMON SHARES MAY BE DELISTED FROM THE NASDAQ MARKET SYSTEM

         We have received notice from the staff of NASDAQ that the price of our
Class A common shares has closed for thirty consecutive days below the minimum
US$1.00 per share required for continued listing on the Smallcap Market System.
The notice indicated that we have at least until January 31, 2005 to regain
compliance. This deadline may be extended by another 180 days if NASDAQ
determines that we meet the NASDAQ SmallCap Market initial listing criteria
except for the bid price criteria. One last extension may be available if we
still satisfy the initial listing criteria until the next shareholders meeting,
which may be in the latter months of the 2005 calendar year, provided that we
commit to seek shareholder approval for a reverse stock split before the next
shareholder meeting and to promptly thereafter effect the reverse stock split.
If we do not regain compliance when required by this time schedule, the staff of
NASDAQ will provide us a written notification that our securities will be
delisted. The delisting of our Class A common shares from the SmallCap Market
System may result in a significantly less active market for those shares.

o        EXISTING STOCKHOLDERS WILL CONTINUE TO EXERCISE EFFECTIVE CONTROL OVER
         US

         Our senior management and directors, together with entities affiliated
with such individuals, beneficially own approximately 27.2% of our Class A
common shares. Arthur G. Ritchie, our Chairman of the Board, President and Chief
Executive Officer and a


                                       14

<Page>

director of SAND, beneficially owns approximately 16.9% of SAND's Class A common
shares. Jerome Shattner, Executive Vice President, beneficially owns 8.0% of our
Class A common shares, while George Wicker, Executive Vice President of SAND
Technology Corporation, beneficially owns 2.1% of our Class A common shares.
Other senior management or directors own approximately 0.2% 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 SAND's directors and the
determination of many corporate actions. This concentration of ownership could
have the effect of delaying or preventing a change in control of SAND.

o        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.


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 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. The registered office of the Company and its
principal place of business is located at 215 Redfern Avenue, Suite 410,
Westmount, Quebec, Canada, H3Z 3L5. Our telephone number is (514) 939-3477.

         Some years ago, an important part of our business was the sale and
service of mainframe peripheral products manufactured by Hitachi, Ltd. of Japan,
through Hitachi Data Systems Inc. ("HDS Canada"). HDS Canada marketed a broad
range of information processing solutions, including enterprise servers, storage
subsystems, peripheral products and professional services. Sand was the legal
and beneficial owner of 40% of the issued and outstanding shares of HDS Canada;
Hitachi Data Systems Corporation ("HDSC") of Santa Clara, California was the
legal and beneficial owner of the remaining 60%. In August 1999, Sand sold its
40% interest in HDS Canada to HDSC for a cash consideration of approximately
$7,300,000 and withdrew from the mainframe computer market and the peripheral
hardware market.

                                       15

<Page>

         We then fully shifted our focus to the design, development, marketing
and support of software products that enable users to retrieve usable business
information from large amounts of data and to providing specialized systems
integration services related to those products. Our software products,
collectively known as the SAND Analytic Server, are designed to provide an
efficient and cost-effective way for business users to make fast easy inquiries
of large databases without the intervention of specialist information technology
professionals, and to store that data with orders of magnitudes greater and more
efficiently than what is generally possible using more traditional database
products. The SAND Analytic Server, which incorporates the patent-protected
Nucleus database engine and other Nucleus derived products, facilitates the use
of data mining, query, reporting and other classes of on-line analytical
applications, thereby enabling more effective management of customer
relationships, supply chains and other critical business processes. Our products
permit more timely and accurate decisions right across the extended enterprise,
making "business intelligence" a key component of operational excellence.
Customers in Europe and North America now use our solutions for both analytical
and operational purposes, including, amongst others, market segmentation CRM
analytics, Web analytics, Business Performance Management and strategic
planning. The addition in 2004 of the SAND Searchable Archive to our portfolio
enhances our ability to deliver in these areas and adds capability in the
efficient storage and retrieval of large amounts of historic data, facilitating
regulatory and compliance applications such as Sarbanes-Oxley and Basel II.

         Initially SAND offered products primarily 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 under the operating name ClarityBlue. ClarityBlue
concentrated on developing a strong competitive practice utilizing the SAND
Analytic Server 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.

         With the growth of ClarityBlue's successes in the market place, we were
faced with ever-increasing demands for resources to fuel that growth. Often,
ClarityBlue contracts involved investment in staff and infrastructure on our
part that would only be recovered from the client over multiple years. At the
same time, while ClarityBlue was generating strong reference customers for SAND
products and proving their effectiveness as a platform for systems integrators
to competitively stage large projects - our preferred distribution channel - the
systems integration community - was wary of our "in-house" competition.

                  As a result, the decision was taken to sell ClarityBlue. On
July 31, 2003, Sand sold its wholly-owned subsidiary ClarityBlue Limited
(previously named Sand Technology (U.K.) Limited) ("ClarityBlue") for total
proceeds of approximately $20 million to a group of investors which included
members of the senior management of ClarityBlue. Venture capital investors and
Barclays Bank plc. funded the purchase. We received cash of approximately $20
million for the sale of ClarityBlue.


                                       16

<Page>

         The Company has not made any material capital expenditures during the
past three fiscal years and has no material capital commitments planned for the
current fiscal year.

B.  BUSINESS OVERVIEW

         We should be viewed as a company which has established its commitment
to a rapidly evolving industry which seeks to improve the business
professional's ability to make timely, fact-based business decisions. The
industry analysts we consulted, who understood the need for us to initially
"seed" ClarityBlue in order to provide "proof statements" of our product
capabilities, began questioning, as did our management, whether a company of our
size had the resources to both grow an integrator division and capitalize on the
opportunity presented by the growing market acceptance of the SAND Analytic
Server products.

The sale of ClarityBlue enabled us to resolve a number of issues and provided us
with the following benefits:

         o        We are able to focus our resources around the SAND Analytic
                  Server which incorporates the patent protected Nucleus data
                  base engine and other Nucleus derived products, while
                  considerably reducing our operational run-rate.

         o        We retain ClarityBlue as a customer for our SAND Analytic
                  Server.

         o        We can continue to leverage the success of the ClarityBlue
                  model to recruit other systems integrators without the spectre
                  of unfair competition.

         o        We still have a direct commercial presence in the United
                  Kingdom through the novation of customer contracts formerly
                  serviced by ClarityBlue.

         o        We received cash of approximately $20 Million for the sale of
                  ClarityBlue thereby stabilizing the Company in the eyes of
                  prospective business partners and customers.

         Because of ClarityBlue's demonstrated competitive edge through using
the SAND Analytic Server as a high performance systems integration platform, we
are able to move with increased speed to secure effective partnerships with
organizations acknowledged for their thought leadership in key application
areas. While it may take some time for these partnerships with systems
integrators and application vendors to mature into predictable
revenue-producers, we now have the ability to both attract and develop these
channels and to continue to benefit commercially from the continued success of
ClarityBlue.

         Our revenues will continue to 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, the marketing and the distribution of
our products, and generally support our expanding operations.


                                       17

<Page>

Products and Services

         We have developed a unique data storage and manipulation architecture
known as the SAND Analytic Server, 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 to be better managers.


         The SAND Analytic Server, based on our patented tokenized database
engine, can best be viewed as an enterprise platform technology that enables
organizations to maximize the business value of corporate information by
supporting better business decisions through intuitive interactive data access.
The SAND Analytic Server or the Nucleus products upon which it is based, is
already being used to provide fast measurable business benefit in the retail,
finance, healthcare, transportation, telecommunication, manufacturing,
government and insurance sectors. These customers, often at the recommendation
of systems integrators, are using our products in support of strategic corporate
initiatives including e-business, customer relationship management, reporting,
supply chain management, risk analysis and management, product trend and
profitability analysis, fraud detection, emerging markets, 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.

         Our SAND Analytic Server incorporates a number of advanced
technologies. Its development has already required and will continue to require
substantial investment in research and development. For example, substantial
work and expenditures were required to develop the Intel-based Microsoft WIN/NT
and WIN/95 versions of Nucleus. In fiscal 1999, development work was completed
on an advanced version of the Nucleus Prototype Warehouse/Mart. The Nucleus
Massively Parallel Server Option (MPSO), a major architectural enhancement to
the Nucleus Product Suite, was made available in December 1999. During fiscal
2002, important advancements were made in the ability to quickly and efficiently
load even larger volumes of data into the SAND Analytic Server and in the
ability of the SAND Analytic Server to support an even wider variety of
applications by more efficient interfacing with industry-standard applications
and data extraction tools.

         In September 2004, we made available Release 3.2 of our
high-performance SAND Analytic Server. Release 3.2 augments the proven
scalability and query speed of previous versions of the Nucleus data
management technology on which it is based, by significantly enhancing the
speed of loading and updating data for analysis as well as adding further
support for open industry-standard business intelligence tools through more
flexible open database connectivity.

         In September 2004 we introduced a second product, the SAND Searchable
Archive. This product builds on SAND's knowledge of advanced data management

                                       18

<Page>

to create a highly compressed database for storing data that is not of immediate
need to an organization but that will be required over time for either historic
analysis or regulatory or compliance purposes. Application has been made to
obtain a broad patent covering the conceptual use of this technology.

         The SAND Searchable Archive is substantially smaller than a
traditional relational database but can be searched directly by business
users using standard "business intelligence" tools. This is a breakthrough
product and the technology has particular relevance to the current
information technology environment where volumes of corporate data are
growing at an exponential rate.

         The SAND Searchable Archive works with data from any corporate
database and over time is suitable for version customization to support
particular third party vendors' products. An initial contract is in place
with SAP to develop a specialized version to support its customers' specific
challenges in managing data growth.

         The SAND Analytic Server and the SAND Searchable Archive incorporate
a number of advanced technologies. Its development has already required, and
will continue to require, substantial investment in research and development.

         Sales of the Company's products and services are not subject to
seasonal variations.

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

Marketing and Sales

         Our corporate headquarters are located in Montreal, Canada, where we
also have development and sales resources. We have offices in Kenilworth, New
Jersey, McLean, Virginia and Pasadena, California, through Sand Technology
Corporation to provide for the development and distribution of the SAND
Analytic Server and future products in the United States.

         Following the sale of ClarityBlue, we relocated our offices in the
United Kingdom to Basingstoke, southwest of London. We have an office in
Hamburg, Germany, through Sand Technology Deutschland GmbH.

         Sales to customers outside North America, including sales generated
by our U.K. subsidiary, represented 68%, 89% and 72% of our total revenue for
fiscal 2002, 2003 and 2004, respectively.

         We have alliances or commercial relationships with, among others,
SAP, IBM, Microsoft, Oracle, Hyperion Software, ATOS Origin, DunnHumby, FDI
and TopEnd Solutions.

                                       19

<Page>

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

         Our long term direction for our high performance analytical
infrastructure products is to insure that these products become a recognized
platform for advanced analytical applications and strategic systems integration
assignments. While we will continue to a limited degree to pioneer vertical and
application markets through our own direct sales efforts, our long term
distribution strategy is to engage a network of industry-leading analytical
solutions providers, both application vendors and systems integrators, to
incorporate the SAND Analytic Server and the SAND Searchable Archive as a key
part of their offering.


Competition

         We compete in the highly competitive computer software industry as a
result of bringing our SAND Analytic Server and more recently the SAND
Searchable Archive to market. The market in which we operate is still developing
and is intensively competitive, highly fragmented, and characterized by rapidly
changing technology and evolving standards. Our current and potential
competitors offer a variety of software solutions and generally fall within
several categories:

- vendors of business intelligence software such as Cognos, Business Objects,
Crystal Decisions, SAP, Siebel and Hummingbird;

- vendors offering alternative approaches to delivering analysis capabilities to
users, such as MicroStrategy, Computer Associates, Hyperion Software and
Actuate;

- database vendors that offer products, which operate specifically with their
proprietary database, such as Microsoft, IBM, and Oracle Corporation;

- other companies that may in the future announce offerings of enterprise
business intelligence solutions.

         Our competitive position in our market is uncertain, 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 business intelligence 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, time to market,
ease of use, product performance, product quality, analytical capability, 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.


                                       20

<Page>

Proprietary Rights

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

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

         The Company has been issued seven patents by the United States
Patent and Trademark Office which provide protection for the SAND Analytic
Server which incorporates the Nucleus database engine and other Nucleus derived
products.

         The Company has also filed applications in accordance with the Patent
Cooperation Treaty (the "PCT"). The PCT is a multilateral treaty that was
concluded in Washington in 1970 and entered into force in 1978. It is
administered by the International Bureau of the World Intellectual Property
Organization (the "WIPO"), headquartered in Geneva, Switzerland. The PCT
facilitates the obtaining of protection for inventions where such protection is
sought in any or all of the PCT contracting states. It provides for the filing
of one patent application (the "international application"), with effect in
several contracting states, instead of filing several separate national and/or
regional patent applications. At the present time, an international application
may include designation for regional patents in respect of contracting states
party to regional patent treaties. The PCT does not eliminate the necessity of
prosecuting the international application in the national phase of processing
before the national or regional offices, but it does facilitate such prosecution
in several important respects by virtue of the procedures carried out first on
all international applications during the international phase of processing
under the PCT. The formalities check, the international search and (optionally)
the international preliminary examination carried out during the international
phase, as well as the automatic deferral of national processing which is
entailed, give the applicant more time and a better basis for deciding whether
and in what countries to further pursue the application.

         The Company holds registered trademarks and trademarks. SAND Technology
and Nucleus are registered trademarks, and Nucleus Server, N:VECTOR, Nucleus
Exploration Warehouse, Nucleus Exploration Mart, Nucleus Exploration Data
Warehouse, Nucleus Octopus, SAND Online and MPSO are registered trademarks of
Sand Technology Inc. and Nucleus Virtual Database (VDB), NUCLEUS POWERED!,
Nucleus Adviser, SAND Analytic Server, SAND Analytic Warehouse, See what's on
the Horizon, Analytics @ the Speed of Business, and all related Sand-and
Nucleus-based marks and designs are trademarks of Sand Technology Inc.


                                       21

<Page>

C.  ORGANIZATIONAL STRUCTURE

         The Company owns and controls the following active subsidiaries and
Sand Technology Ireland Limited owns 100% of the voting securities of Sand
Technology Deutschland GmbH, an entity existing under the laws of Germany, and
of Sand Technology Limited, a company existing under the laws of England:
<Table>
<Caption>

                                                                                            PERCENTAGE OF VOTING
                     SUBSIDIARY                   JURISDICTION OF INCORPORATION                SECURITIES HELD
       <S>                                                <C>                                       <C>
       Sand Technology Corporation                          Delaware                                100%
       STSI Licensing, LLC                                 New Jersey                               100%
       Sand Technology Ireland Limited                       Ireland                                100%
</Table>


D. PROPERTY, PLANTS AND EQUIPMENT

         As at July 31, 2004, we leased a total of approximately 17,885 square
feet of office space in four cities across North America, approximately 416
square feet in the United Kingdom and 602 square feet in Germany. The weighted
average annualized cost per square foot of the space occupied is $24.04
including real estate taxes and operating expenses. No lease extends beyond
March 31, 2011.


ITEM 5.  OPERATING AND FINANCIAL REVIEW AND PROSPECTS

A.  OPERATING RESULTS

         The following discussion should be read in conjunction with the
consolidated financial statements beginning at page F-1, the Cautionary
Statement Regarding Forward-Looking Statements above and the Risk Factors
described in Item 3 above.

CRITICAL ACCOUNTING POLICIES

         We periodically review our financial reporting and disclosure practices
and accounting policies to ensure that our financial reporting and disclosure
system provides accurate and transparent information relative to the current
economic and business environment. As part of the process, we have reviewed our
selection, application and communication of critical accounting policies and
financial disclosures. We note that we have determined that our critical
accounting policies relating to our core ongoing business


                                       22

<Page>

activities are primarily those that relate to revenue recognition. Other
important accounting policies are described in Note 1 to our consolidated
financial statements.

REVENUE RECOGNITION

SOURCES OF REVENUE

        In the fiscal year ended July 31, 2004, our revenue was primarily
derived from the licensing of our products, the provision of related services,
including installation, training and maintenance support. We recognize revenue
from our license agreements when all the following conditions are met:

o       We have an executed license agreement with the customer;
o       We have delivered the software product to the customer;
o       The amount of the fees to be paid by the customer is fixed and
        determinable; and
o       Collection of these fees is deemed probable.

        Often, software license agreements are multiple-element arrangements
since they include related maintenance and implementation fees. In those cases
where implementation and maintenance fees are significant components, the entire
arrangement fee is allocated to each element based on the relative fair values
of license, maintenance and implementation.

PRODUCT REVENUE

        Currently, product revenue consists of the following:

o       Fixed License Fee - one-time license fee in exchange for a license with
        a perpetual term or a time-limited term or for a fixed number of copies.
        We typically recognize the license fees in the period during which the
        contract is executed and delivered, provided that we have
        vendor-specific objective evidence of fair value and all revenue
        recognition criteria are met.

o       Reseller Arrangements - the reseller generally pays a non-refundable
        licensing fee for our software. We recognize revenue associated with a
        non-refundable license fee when we have met our revenue recognition
        criteria.

        During fiscal 2004, a marginal portion of our revenues came from
solution sales in addition to software and services models. For all contracts we
make a determination as to whether the service element is essential to the
functionality of the other elements of the arrangement. We also make a
determination, including the contractual commitment to refund or pay penalties,
related to the successful delivery under each agreement. Where the service
element is essential or where the arrangement involves significant customization
or modification of the software, recognition of revenue is based on using the
percentage of completion method based either on inputs or on outputs as dictated


                                       23

<Page>

by the specific contracts. For those contracts, there will likely be an increase
in the time between when the contract is signed and when we record the revenue.

         SAND reports the revenue on a gross basis only if it acts as the
principal in the transaction and assumes the risks and rewards of ownership,
such as the risk of loss for collection, delivery, and returns. In cases where
these conditions are not met, we record the revenue based on the net amount
retained.

         Our customers have traditionally been and continue to be reluctant to
make large commitments in up-front license fees, especially in a tight capital
budget allocation process that our customers generally face internally.
Therefore, our revenues from license and maintenance arrangements have been and
are expected to be lower until our customers begin to increase their levels of
capital expenditures. The lack of a sufficient quantity of customer transactions
may make it difficult for us to allocate specific revenue amounts to license
sales of new products. As a result, we will be using the residual method to
record revenues for such new product sales. Under this method, for arrangements
where we have undelivered elements, which are typically services and
maintenance, we will record the remaining value of the contract as license
revenue after allocating full value to the undelivered elements.

SERVICE REVENUE

IMPLEMENTATION AND CUSTOMER SERVICE FEES

         Revenue from implementation and customer services include fees for
implementation of our product offerings, consulting and training services. We
currently rely, and expect to continue to rely, upon a combination of our own
resources and third-party consulting organizations to deliver these services
to our customers. Customers are charged a fee based on time and expenses.
Depending on the circumstances of specific contracts, revenues from
implementation and customer service fees are recognized as the services are
performed or as contractual milestones and acceptance criteria are met.

MAINTENANCE FEES

         We receive revenue from maintaining and servicing our products for
customers. The maintenance fee is typically equal to a specified percentage of
the customer's license fee. If associated with the fixed-fee license model, the
maintenance revenues received will be recorded as deferred revenue and
recognized on a straight-line basis over the contract period.


                                       24
<Page>

RESULTS OF OPERATIONS
FISCAL 2004 COMPARED WITH FISCAL 2003

Revenue

         Our sales in fiscal 2004 were $5,349,214, a decrease of 83% from sales
of $31,682,536 in fiscal 2003.

         Our sales in fiscal 2004 in North America were $1,503,184, a decrease
of 56% from sales of $3,423,142 in fiscal 2003. In Europe, sales in fiscal 2004
were $3,846,030, a decrease of 86% from sales of $28,259,394 in fiscal 2003.

         The substantial decrease in our revenues for fiscal 2004 is
associated primarily with the change in business model. In fiscal 2003, our
ClarityBlue division generated significant revenue associated with its
systems integration and implementation assignments in Europe. Although our
new model allows these types of assignments, the significance of these
systems integration and implementation revenues have decreased substantially.
In North America, the decrease in revenue stems from caution related to sales
and marketing expenses while we fully engage the new partner sales model.

Selling, General and Administrative Expenses

         Selling, general and administrative expenses include salaries,
commissions and other personnel-related costs, the impact of foreign exchange
gains and losses, travel expenses, advertising programs and other promotional
activities associated with the selling and marketing of our Nucleus Product
Suite. Selling, general and administrative expenses decreased by 54% to
$7,604,541 for the fiscal year ended July 31, 2004 from $16,581,789 for the
fiscal year ended July 31, 2003. The decrease is primarily due to the disposal
of ClarityBlue and lower sales related costs such as commissions. The decrease
was partially offset by the increased costs associated with marketing and sales
efforts to address different industry segments in North America and at the
international level. During fiscal 2005, SAND anticipates that selling, general
and administrative expenses may decline as a percentage of total revenues.

Research and Development Expenses

         Research and development expenses consist primarily 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 remained constant at $3,308,789 for the fiscal year
ended July 31, 2004 compared to $3,310,709 for the fiscal year ended July 31,
2003. The relatively constant amount devoted to research and development
expenses in absolute dollars reflects an actual reduction in costs of over 9%
offset by a lower level of tax incentives received. This level of expenditures
also reflects the current stage of development of the SAND Analytic Server and
the SAND Searchable


                                       25

<Page>

Archive. We believe that significant investment for research and development is
essential to maintain product and technical leadership and expect that we will
continue to commit substantial resources to research and development in the
future. However, for fiscal 2005 we expect that research and development
expenditures will not vary significantly in absolute dollars.

Cost of Sales

         Cost of sales consists primarily of the costs related to the sale of
third-party software, including certain license fees and royalties, and costs
related to providing support services. Cost of sales decreased by 87% to
$1,652,369 for the fiscal year ended July 31, 2004 from $12,510,215 for the
fiscal year ended July 31, 2003. This decrease reflects the decrease in revenue.
Cost of revenues from services may vary due to the mix of services provided by
SAND's personnel, relative to services provided by outside consultants and to
varying levels of expenditures necessary to build the service sector.

Operations

         Losses from operations were higher for the fiscal year ended July 31,
2004, reaching an amount of $7,458,973 as compared to a loss of $1,797,002 for
the fiscal year ended July 31, 2003. This reflects the transitional nature of
fiscal 2004 from the sale of ClarityBlue towards the new business model of SAND.
Also, the Company incurred expenditures in improving our SAND Analytic Server,
bringing our SAND Searchable Archive to market and in establishing the
infrastructure associated with our direct sales force in different industry
segments. There can be no assurance that we will be profitable on a quarterly or
annual basis in the future. Future operating results will depend on many
factors, including the demand for our products, the level of product and price
competition, our success in selling our products, namely the SAND Analytic
Server and the SAND Searchable Archive, and establishing our direct sales force
and distribution channels, the state of the market for our products and general
economic conditions.

FISCAL 2003 COMPARED WITH FISCAL 2002

Revenue

         Our sales in fiscal 2003 were $31,682,536, an increase of 128% from
sales of $13,922,077 in fiscal 2002.

         Our sales in fiscal 2003 in North America were $3,423,142, a decrease
of 23% from sales of $4,417,697 in fiscal 2002. In Europe, sales in fiscal 2003
were $28,259,394, an increase of 197% from sales of $9,504,380 in fiscal 2002.

         The increase in sales was primarily due to increased market acceptance
for our SAND Analytic Server, increased selling activities resulting from a
larger and more


                                       26


<Page>

effective sales force, an increase in the average size of our significant
transactions, an increase in the number of transactions and related
implementations, and an increased customer base demanding training, consulting,
implementation and support services. In North America, the decreased revenue
resulted from limiting our expenditures relative to direct sales as well as
dealing with the productivity issues associated with direct sales, all while we
started to build effective partner strategies.

Selling, General and Administrative Expenses

         Selling, general and administrative expenses include salaries,
commissions and other personnel-related costs, the impact of foreign exchange
gains and losses, travel expenses, advertising programs and other promotional
activities associated with the selling and marketing of our Nucleus Product
Suite. Selling, general and administrative expenses excluding amortization
increased by 3% to $16,581,789 for the fiscal year ended July 31, 2003 from
$16,033,249 for the fiscal year ended July 31, 2002. The increase was
primarily due to foreign exchange fluctuation where the company recorded a
$638,897 loss compared to foreign exchange gain of $1,236,840 for the fiscal
year ended July 31, 2002. This increase was significantly offset by the
decrease in bad debt expense due to an unusual item in 2002 that was not
repeated in 2003.

Research and Development Expenses

         Research and development expenses consist primarily 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 decreased by 32% to $3,310,709 for the fiscal year
ended July 31, 2003 from $4,887,581 for the fiscal year ended July 31, 2002. As
a percentage of total revenues, research and development expenses were 10%
compared to 35% for the year ended July 31, 2002. The decline in the amount
devoted to research and development expenses as a percentage of total revenues
reflected the current stage of development of the SAND Analytic Server. We
believe that continuing investment for research and development is essential to
maintain product and technical leadership and expect that we will continue to
commit substantial resources to research and development in the future.

Cost of Sales

         Cost of sales consists primarily of the costs related to the sale of
third-party software, including certain license fees and royalties, and costs
related to providing support services. Cost of sales increased by 93% to
$12,510,215 for the fiscal year ended July 31, 2003 from $6,473,974 for the
fiscal year ended July 31, 2002. This increase, which reflected the increase in
revenues, is primarily due to increased costs associated with software licenses
and salaries and other personnel-related expenses incurred in providing support
services in response to increased demand for maintenance and support services.
Cost of revenues from services may vary due to the mix of services provided by
SAND's personnel


                                       27


<Page>

relative to services provided by outside consultants and to varying levels of
expenditures necessary to build the service sector.

Operations

         Income from operations substantially improved for the fiscal year ended
July 31, 2003, reaching an operating loss, before taxes, of $1,797,002 as
compared to an operating loss of $14,977,714 for the fiscal year ended July 31,
2002, an improvement that reduced the loss by 88%. We started to reap the
benefits and the favourable results flowing from the substantial expenditures
incurred in bringing our SAND Analytic Server to market and in further
establishing the infrastructure associated with our direct sales force to
support our products. There can be no assurance that we will be profitable on a
quarterly or annual basis in the future. Future operating results will depend on
many factors, including the demand for our products, the level of product and
price competition, our success in selling our SAND Analytic Server and
establishing our direct sales force and distribution channels, the state of the
market for our products and general economic conditions.


B.  LIQUIDITY AND CAPITAL RESOURCES

         Cash and cash equivalents at July 31, 2004 were $12,601,393 compared
with $20,344,426 at July 31, 2003. The decrease is mainly due to operating
activities which used cash in an amount of $7,530,932. Investing activities
used cash in an amount of $529,742 while financing activities generated
$317,641 as a result of the collection of the Balance of Sale receivable from
ClarityBlue. We believe that we have sufficient internal resources available
to fund our expected working capital requirement through fiscal 2005

         We are not subject to material market risk exposures, except for risks
related to interest rate fluctuations and foreign currency exchange rates.

         Our exposure to market rate risk for changes in interest rates relates
primarily to our investment portfolio. We have not used derivative financial
instruments in our investment portfolio. We invest in high quality issuers and
limit the amount of our credit exposure with any one issuer. We are averse to
principal loss and ensure the safety and preservation of our invested funds by
limiting default, market and reinvestment risk. We do not make use of a bank
line of credit and do not have any long-term debt.

         Our international sales are generally denominated and collected in
foreign currencies. We have not historically undertaken foreign exchange hedging
transactions to cover the potential foreign currency exposure. In fiscal 2004,
we incurred a loss on foreign currency translations from our foreign
subsidiaries in an amount of $112,344.

         On October 15, 2002, the Company announced an open market share
repurchase program under which it could repurchase, up to a maximum of 692,345
of its outstanding Class A common shares from October 23, 2002 to October 23,
2003. As at


                                       28


<Page>

October 23, 2003, a total of 115,200 Class A common shares had been repurchased
at an average price of US$1.03 per share.

         On December 17, 2003, the Company announced a new share repurchase
program under which it could repurchase up to a maximum of 654,710 of its
outstanding Class A common shares from December 22, 2003 to December 22, 2004.
As at December 22, 2004, a total of 276,038 Class A common shares had been
repurchased at an average price of US$0.88 per share.

         The impact of inflation has not been material to the business of the
Company over the past five years.

         The Company has no material capital commitments for the current fiscal
year.


C.  RESEARCH AND DEVELOPMENT

         Our strategy emphasizes developing and introducing on a timely and
cost-effective basis products that offer functionality and performance equal
to or better than competitive product offerings. We believe that our future
success depends upon our ability to develop and market products which meet
changing user needs, and to successfully anticipate or respond to changes in
technology and standards on a cost-effective and timely basis.

         Research and development expenses consist primarily 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 remained constant at $3,308,789
for the fiscal year ended July 31, 2004 from $3,310,709 for the fiscal year
ended July 31, 2003. As a percentage of total revenues, research and
development expenses increased to 62% for the year ended July 31, 2004
compared to 10% for the year ended July 31, 2003. The increase in the amount
devoted to research and development expenses as a percentage of total
revenues reflects the disposal of the ClarityBlue division, the results of
which were part of the 2003 figures, which was not the case in fiscal 2004.
We believe that significant investment for research and development is
essential to maintain product and technical leadership and expect that we
will continue to commit substantial resources to research and development in
the future. Research and development expenses were $4,887,581 for the fiscal
year ended July 31, 2002. For fiscal 2005, we expect that research and
development expenditures will not vary significantly in absolute dollars.

D. TREND INFORMATION

         At the end of the 2002 fiscal year and during the 2003 fiscal year, we
further consolidated the systems integration portion of our business, which had
been growing in importance over fiscal 2002. In order to actively pursue major
systems integration assignments in parallel with developing marketing
relationships with other major systems


                                       29


<Page>

integrators whereby they would employ the SAND Analytic Server in their
initiatives, and to do so in a manner that was not seen by potential systems
integration partners as direct competition, we rebranded our own systems
integration division under the operating name ClarityBlue. ClarityBlue
concentrated on developing a strong competitive practice and associated
intellectual property base on assignments utilizing the SAND Analytic Server
product. The product division, operating as Sand Technology, continued to
develop and market the SAND Analytic Server and other Nucleus derived products
directly and through distribution undertakings. Thus, during fiscal 2003,
revenues included solution sales in addition to software and solutions models.

         We sold ClarityBlue Limited on July 31, 2003 to a group of investors
which included members of senior management of ClarityBlue. The Company is now
able to focus its resources around the SAND Analytic Server product set while
considerably reducing its operational run-rate.

         As a result of this shift in focus, we should be viewed as a company
which has redoubled its commitment to a rapidly evolving industry which seeks to
improve the business professional's ability to make timely, fact-based business
decisions. Our long term direction for our high performance analytical
infrastructure products is to insure that these products become a recognized
platform for advanced analytical applications and strategic systems integration
assignments. While we will continue to a limited degree to pioneer vertical and
application markets through our own direct sales efforts, our long term
distribution strategy is to engage a network of industry-leading analytical
solutions providers, both application vendors and systems integrators, to
incorporate the SAND Analytic Server and the SAND Searchable Archive as a key
part of their offering. Our revenues will continue to 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.
It is anticipated that the proportion of revenue from service fees will continue
to expand more rapidly than that related to software licenses. The state of the
order book and costs and selling prices do not present any significant trend
since the latest financial year. 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 and
the marketing and distribution of our products, and generally support our
operations.

         The purchase of the SAND Analytic Server and the SAND Searchable
Archive often requires significant executive-level investment and system
design decisions by our customers. Our product sales cycle is therefore
lengthy and the timing of sales is difficult to predict as well as sales made
by the analytical solution providers, both application vendors and systems
integrators, with whom we work. This situation is expected to continue to
prevail. We believe that quarterly period-to-period comparisons of our
operating results are not meaningful and one should not rely on such
comparisons as an indication of our future performance.

         We are not aware of any other trends, uncertainties, demands,
commitments or events which are reasonably likely to have a material effect upon
our net sales or revenues, income from continuing operations, profitability,
liquidity or capital resources.


                                       30


<Page>

E. OFF-BALANCE SHEET ARRANGEMENTS

         The Company does not have any off-balance sheet arrangements that have
had, or are reasonably likely to have, a current or future effect on the
Company's financial condition, changes in financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures or capital
resources that is material to investors.

F. TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS

         The Company is committed under operating leases for a total amount of
approximately $1,631,000. The minimum payments due in each of the following
years are as follows:

<Table>
<Caption>
                                                  $

                       <S>                     <C>
                       2005                    466,000
                       2006                    381,000
                       2007                    296,000
                       2008                    244,000
                       2009                    244,000
</Table>

ITEM 6.  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A.  DIRECTORS AND SENIOR MANAGEMENT

         The following table sets forth information as of January 21, 2005
concerning the directors and senior management of the Company:
<Table>
<Caption>

                                                                                           CLASS A COMMON SHARES
                                                                                           BENEFICIALLY OWNED OR
                                                                                           OVER WHICH CONTROL OR
        NAME                      PRINCIPAL OCCUPATION             DIRECTOR SINCE          DIRECTION IS EXERCISED
  <S>                       <C>                                         <C>                         <C>
  Arthur G. Ritchie         Director, Chairman of the Board,            1983                      2,169,138
                            President and Chief Executive
                            Officer of Sand

  Steve Dennison            Director, Financial Director                2002                          5,100
                            Lynx Express

  Douglas S. Pryde          Director, Barrister and Solicitor           2001                              -

  Jerome Shattner           Director, Executive                         2000                      1,023,000
                            Vice-President of Sand

  Martin Shindler           Director, Accountant and                    1987                          2,140
                            Business Consultant
</Table>

                                       31


<Page>

<Table>
<Caption>

                                                                                           CLASS A COMMON SHARES
                                                                                           BENEFICIALLY OWNED OR
                                                                                           OVER WHICH CONTROL OR
       NAME                       PRINCIPAL OCCUPATION             DIRECTOR SINCE          DIRECTION IS EXERCISED
  <S>                       <C>                                         <C>                         <C>
  George Wicker             Director, Executive                         1996                        274,950
                            Vice-President
                            Sand Technology Corporation

  Gilles Therrien           Vice-President, Finance and                 ---                           1,000
                            Administration and Chief
                            Financial Officer, Sand

  Robert Thompson           Vice-President, Marketing, Sand             ---                               -
                            Technology Corporation

  Michael McCool            Chief Scientist for Nucleus, Sand           ---                               -

  Georges Dube              Corporate Secretary, Sand                   ---                          19,000
</Table>

         Arthur Ritchie has been a director and Chief Executive Officer of Sand
since he co-founded the Company in 1983. Prior to the inception of Sand, he was
one of four principals of LGS Data Processing Consultants Inc., a Canadian
information processing consulting firm. Prior to 1979, he was employed by IBM in
South Africa, Europe and Canada, in successive capacities as a systems
engineering professional and in a variety of management and marketing roles.

         Steve Dennison was appointed Financial Director of Lynx Express Limited
in 2003, one of the United Kingdom's largest transportation companies, having
held the position of Commercial Director since 1999. During the four previous
years, he was Finance Director and Corporate Secretary for Red Star Parcels
Limited. From 1988 to 1995, Mr. Dennison who is a qualified Chartered
Accountant, was with KPMG most recently as Corporate Finance Manager. He holds a
Bsc (Hons) in Management Science from the University of Manchester.

         Douglas Pryde was a member and a partner of the law firm of Lavery, de
Billy and its predecessor firms from 1965 to 2001.

         Jerome Shattner was a co-founder of Sand and was an executive with Sand
in the early 1980s until Sand formed a joint venture in Canada with National
Advanced Systems in 1987. Mr. Shattner was President of the joint venture, NAS
Canada Inc. (which was renamed Hitachi Data Systems Inc.) from 1987 to 1999.
Prior to the inception of Sand, he was one of the four principals of LGS Data
Processing Consultants Inc., a Canadian information processing consulting firm.
Prior to 1979, he was employed by IBM in Canada in a variety of management and
marketing roles.

         Martin Shindler has since 1964 been the president of a firm of
accountants and business consultants located in Florida.


                                       32


<Page>

         George Wicker held executive level positions in general management,
program management and finance with Lockheed Martin Corporation and its
predecessor corporations during a thirty-two 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.

         Gilles Therrien is the former Vice-President, Finance and
Administration of M3i Systems Inc., a software company formerly majority-owned
by Hydro-Quebec. Following the sale of M3i Systems Inc., Mr. Therrien held the
position of Treasurer of the purchaser, Cognicase Inc., in addition to his
position at M3i Systems Inc. Mr. Therrien is a member of the Canadian Institute
of Chartered Accountants and he served for many years as an Audit Professional
with accounting firms, including Deloitte & Touche, following his studies in
Management and Public Accountancy at McGill University in Montreal.

         Robert Thompson is former Chairman and CEO of QueryObject Systems
and served for many years as a marketing executive with Cognos Corporation in
Ottawa, Ontario, Burlington, Massachusetts and Nieuwegein, Netherlands. Prior
to specializing in technology marketing, he was principal of an advertising
agency and owner of a film and audio-visual production company. Mr. Thompson
graduated from Ryerson University in Toronto.

         Michael McCool has been Chief Scientist of Sand since 1993 where he has
been charged with the successful commercialization of a software-only version of
Nucleus. From 1987 to 1992, he was a Senior Systems Architect with Nucleus
International Corporation. In prior years, he was a software engineer (SMTS)
with Teledyne Controls (1986-1987), a systems analyst/programmer with Optical
Research Associates (1984-1986) and an embedded systems programmer with Applied
Research Laboratories (1982-1984).

         Georges Dube is currently and has been a Partner of Lavery, de Billy, a
law firm, for more than ten years. Mr. Dube served as a director of Sand from
1996 to 2001.

         During the year and in the ordinary course of business, we consulted
and continue to consult with Lavery, de Billy.

         There are no family relationships between any director or executive
officer and any other director or executive officer other than between Martin
Shindler and Jerome Shattner who are uncle and nephew.

         There is no arrangement or understanding between any director or
executive officer and any other person pursuant to which the director was
elected or the executive officer was appointed.


B.  COMPENSATION

         For the fiscal year ended July 31, 2004, the aggregate cash
remuneration including salaries and bonuses accrued by Sand for payment to six
(6) executive officers relative to services rendered in all capacities to the
Company and its subsidiaries during all or part of the fiscal year as
applicable, was $1,024,283.


                                       33


<Page>

         For the fiscal year ended July 31, 2004 each director, other than those
directors who are salaried executive officers of Sand, was paid a basic annual
retainer of $5,000 for serving as a director plus an additional amount of $1,500
per year for serving as a member of a standing committee of the Board of
Directors.

         As of January 1, 2005, each director, other than those directors who
are salaried officers of Sand, will be paid a basic annual retainer of $15,000
for serving as a director and an additional amount of $1,500 per year for
serving as a member of a committee of the Board of Directors except for the
Chairman of the Audit Committee who will be paid an additional amount of $5,000
per year.

         The aggregate value of other compensation did not exceed the lesser of
$10,000 times the number of executive officers or ten percent (10%) of the cash
compensation paid to such executive officers.

         No amounts have been set aside or accrued by the Company or its
subsidiaries to provide pension, retirement or similar benefits to its directors
or executive officers. There are no service contracts which provide directors
with benefits upon termination of employment as a director.

Employment Agreement

         Arthur G. Ritchie, Chairman of the Board, President and Chief Executive
Officer and a Director of Sand, entered into an employment agreement ("the
Agreement") with Sand upon the expiry of his previous employment agreement on
December 31, 1993. The Agreement, effective January 1, 1994 was for an initial
term of five (5) years and is automatically extended for additional periods of
twelve (12) months each unless Sand or Mr. Ritchie shall have given the other a
notice of termination of the Agreement not less than three (3) months prior to
the end of its term. The Agreement provides that Mr. Ritchie shall be paid an
annual base salary, such bonuses as may from time to time be payable pursuant to
any bonus program which is offered to senior officers or as may from time to
time be payable at the discretion of the Board of Directors and a fee of one
percent (1%) of the gross revenues resulting from the licensing, sale or other
disposition of the Nucleus Data Base System for so long as the System is
delivered as a stand-alone product of the Company. Mr. Ritchie was paid a base
salary of $218,153 during each of the fiscal years ended July 31, 2004, 2003 and
2002 and the Board of Directors approved the payment of cash bonuses of $395,973
and $48,055 to Mr. Ritchie for the fiscal years ended July 31, 2003 and July 31,
2002. Mr. Ritchie does not hold any outstanding stock options which have not
been exercised under the 1996 Stock Incentive Plan or the 1996 Stock Option Plan
of the Company. No payments have been made to date relative to the licensing,
sale or other dispositions of the Nucleus Data Base Systems. In the event the
employment of Mr. Ritchie (i) is terminated by Sand for any reason other than
for Cause (as defined in the Agreement) or death or (ii) is terminated by Mr.
Ritchie for Good Reason (as defined in the Agreement), Mr. Ritchie will be
entitled to receive, among other things, a lump sum payment equivalent to two
(2) times the sum of his then current annual base salary and the amount of the
bonuses received by him in the immediate past year and Mr. Ritchie shall
continue for a period of two (2) years to participate in all benefit plans and
programs of Sand to the extent such participation is possible, and, if such
continued participation is barred, to receive amounts


                                       34


<Page>

equal to the out-of-pocket costs of participation in plans and programs
providing substantially similar benefits. On January 1, 2005, the employment of
Mr. Ritchie was automatically extended to December 31, 2005 on terms similar to
those in the Agreement.

Employee Compensation Plan

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

1996 STOCK INCENTIVE PLAN

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

         The Incentive Plan is administered by a committee (the "Committee")
consisting of not less than two (2) members of the Board of Directors each of
whom is a "disinterested person" as defined under the UNITED STATES SECURITIES
AND EXCHANGE ACT OF 1934 and an "outside director" as defined in the UNITED
STATES INTERNAL REVENUE CODE. The Incentive Plan permits the granting of
incentive stock options on terms designed to gain certain advantages under
United States Federal income tax law.

         The term and number of Common Shares covered by each option, as well as
the permitted frequency of exercise of such options, are determined by the
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. An option is to
be exercised within a period of ten (10) years after the date on which the
option is granted. The exercise price of each option for Common Shares is not
less than the closing price of the Common Shares on the Nasdaq Market System 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


                                       35


<Page>

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.

         As at January 21, 2005, 800,500 options had been granted and remained
outstanding under the Incentive Plan and 275,500 options remained available for
grant.

         During the fiscal year ended July 31, 2004, the Committee granted
options to purchase an aggregate of 230,000 Common Shares to seven (7) employees
at exercise prices which vary from US$1.00 to US$5.00 per share which were not
less than the respective closing prices of the Common Shares on the Nasdaq
Market System on the day prior to each grant. 19,500 options were cancelled. No
options were exercised.

         During the period August 1, 2004 to January 24, 2005, the Committee did
not grant any options to purchase Common Shares. 155,000 options were cancelled.
No options were exercised.

1996 STOCK OPTION PLAN

         On July 8, 1996, the Board of Directors adopted the 1996 Stock Option
Plan (the "Option Plan") pursuant to which the beneficiaries selected by a
committee of the Board of Directors may be granted options to subscribe for
Common Shares. The Option Plan was confirmed, approved and ratified by the
shareholders of the Company at the Annual and Special Meeting of the
shareholders held on December 17, 1996. On November 9, 1999, by resolution, the
directors of the Company amended the Option Plan to increase the maximum
aggregate number of options to purchase Common Shares which may be granted under
the Option Plan. This resolution of the directors was confirmed, approved and
ratified by the shareholders of the Company at the Annual and Special Meeting of
the shareholders held on December 17, 1999. The total number of Common Shares of
the Company authorized for grants of options is 900,000 (as adjusted to reflect
the share subdivision on a two-for-one basis on December 31, 1996), subject to
adjustment to take into account changes in the capital structure of the Company.

         The Option Plan is administered by a committee (the "Committee")
consisting of not less than two (2) members of the Board of Directors each of
whom is a "disinterested person" as defined under the UNITED STATES SECURITIES
AND EXCHANGE ACT OF 1934 and an "outside director" as defined in the UNITED
STATES INTERNAL REVENUE CODE.

         The term and number of Common Shares covered by each option, as well as
the permitted frequency of exercise of such options, are determined by the
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. An option is to
be exercised within a period of ten (10) years after the date on which the
option is granted. The exercise price of each option for Common Shares is not
less than the price of the Common Shares as determined by the


                                       36


<Page>

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 January 21, 2005, 550,500 options had been granted and remained
outstanding under the Option Plan and 173,500 options remained available for
grant.

         During the fiscal year ended July 31, 2004, the Committee granted
options to purchase an aggregate of 31,000 Common Shares to five (5) employees
at exercise prices which vary from US$1.07 to US$1.17 per share which were not
less than the respective closing prices of the Common Shares on the Nasdaq
Market System on the day prior to each grant. 10,500 options were cancelled. No
options were exercised.

         During the period August 1, 2004 to January 21, 2005, the Committee
granted options to purchase an aggregate of 35,500 Common Shares to four
employees at an exercise price of US$1.00 per share which was not less than the
closing price of the Common Shares on the Nasdaq Market System on the day prior
to the grant. 8,000 options were cancelled. No options were exercised.

C.  BOARD PRACTICES

         Governance processes are subject to ongoing review and assessment by
the Board of Directors to maintain high standards of corporate governance in a
rapidly changing environment.

         The Company is aware that certain additional corporate governance
protections will be required to be put into place under the provisions of
changes to corporate governance requirements in Canada and the United States.
The Company anticipates that it will be in compliance with such proposed changes
as they become effective, if not earlier.

         Pursuant to the CANADA BUSINESS CORPORATIONS ACT (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.

         Pursuant to the CANADA BUSINESS CORPORATION ACT, the Board of Directors
is required to manage, or supervise the management of, the affairs and business
of the Company. The principal responsibilities of the Board are to supervise and
evaluate management, to oversee the conduct of the business of the Company, to
set policies


                                       37


<Page>

appropriate for the business of the Company and to approve corporate strategies
and goals. The Board is to carry out its mandate in a manner consistent with the
fundamental objective of enhancing shareholder value.

         The Board of Directors has adopted a Charter which sets out the duties
and responsibilities of the Board of Directors.

         In discharging its duty of stewardship over the Company, the Board
expressly undertakes the following specific duties and responsibilities: (i)
adopting, supervising and providing guidance on the strategic planning process
of the Company and approving a strategic plan which takes into account, among
other things, the opportunities and risks of the business of the Company; (ii)
identifying the principal risks of the business of the Company and ensuring the
implementation of appropriate risk management systems; (iii) ensuring that the
Company has management of the highest calibre and maintaining adequate and
effective succession planning for senior management; (iv) placing limits on
authority of management; (v) overseeing the integrity of the internal control
and management information systems of the Company; (vi) overseeing the
communications policy of the Company with its shareholders and with the public
generally; (vii) providing for the independent functioning of the Board; and
(viii) adopting, monitoring and, where appropriate, granting waivers from the
Standards of Ethical Conduct that governs the behaviour of directors, officers
and employees of the Company.

         The Board of Directors has also adopted Standards of Ethical Conduct
which apply to all directors and officers of the Company.


COMMITTEES OF THE BOARD OF DIRECTORS

         The Board has established two committees: the Audit Committee and the
Option Committee. Committee members are appointed annually following the annual
meeting of the shareholders of the Company.

AUDIT COMMITTEE

         Messrs. Dennison, Pryde and Shindler, all of whom are non-management
and unrelated directors, currently comprise the Audit Committee. Mr. Dennison is
Chairman of the Audit Committee. Messrs. Dennison, Pryde and Shindler satisfy
the current requirements of The Nasdaq Stock Market, Inc. relating to the
independence and the qualification of the members of the Audit Committee.

         The Audit Committee has adopted a formal Charter that details its
mandate.

         The Audit Committee has also 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


                                       38


<Page>

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.

         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 unaudited interim financial statements of the
Company; (c) recommending to the Board the firm of independent auditors to be
nominated for appointment by shareholders at each annual general meeting of the
Company and, where necessary, the removal of the independent auditors of the
Company; (d) reviewing the scope and adequacy of audits to be conducted by the
independent auditors of the Company; (e) adopting and annually reassessing
formal terms of reference for the independent auditors of the Company; (f)
monitoring and evaluating the independence and performance of the independent
auditors of the Company; (g) pre-approving all non-audit services to be provided
to the Company by its independent auditors prior to the commencement of such
services; (h) reviewing all post-audit management letters containing the
recommendations of the independent auditors of the Company and 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) monitoring the compliance of the Company with legal and
regulatory requirements related to financial reporting and disclosure; (k)
monitoring and evaluating the adequacy of the internal accounting and audit
procedures of the Company; (l) reviewing and ensuring the acceptability of the
accounting principles of the Company; (m) identifying the principal financial
risks of the Company; (n) overseeing reporting on internal controls of
management and ensuring that management has designed and implemented an
effective system of internal controls; (o) reviewing, and if deemed advisable,
approving all related party transactions as defined in the governing legislation
of the Company; (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.

         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 intention, 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.

OPTION COMMITTEE

         Messrs. Pryde and Shindler, both of whom are non-management and
unrelated directors, currently comprise the Option Committee which administers
the 1996 Stock Incentive Plan and the 1996 Stock Option Plan.


                                       39


<Page>

         The Option Committee is appointed by the Board of Directors to
administer the 1996 Stock Incentive Plan and the 1996 Stock Option Plan which
are described under the heading "Executive Remuneration" above.

D.  EMPLOYEES

         On July 31, 2004, the Company had 70 employees, including 39 full-time
employees with Sand, and 18 full-time employees with Sand Technology Corporation
("Sand USA"), 3 full-time employees with Sand Technology Limited ("Sand UK") and
5 full-time employees with Sand Technology Deutschland GmbH ("Sand Germany").
Moreover, the Company had 5 part-time employees, 2 with Sand, 1 with Sand USA, 1
with Sand UK and 1 with Sand Germany.

         On July 31, 2003, the Company had 64 employees, including 39 full-time
employees with Sand, and 15 full-time employees with Sand Technology Corporation
("Sand USA"), 2 full-time employees with Sand Technology Limited ("Sand UK") and
4 full-time employees with Sand Technology Deutschland GmbH ("Sand Germany").
Moreover, the Company had 4 part-time employees, 2 with Sand, 1 with Sand USA
and 1 with Sand UK.

         On July 31, 2002, the Company had 115 employees, including 48 full-time
employees with Sand, and 19 full-time employees with Sand Technology Corporation
("Sand USA"), 37 full-time employees with Sand Technology (U.K.) Limited (which
changed its name to ClarityBlue Limited) ("ClarityBlue") and 7 full-time
employees with Sand Technology Deutschland GmbH ("Sand Germany"). Moreover, the
Company had 4 part-time employees, 1 with Sand, 2 with Sand USA and 1 with
ClarityBlue.

         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. The decrease in the number of employees since the end of the fiscal
year ended July 31, 2002 is due to the sale of ClarityBlue on July 31, 2003.

E.  SHARE OWNERSHIP

         Information as to the share ownership of the directors and executive
officers of the Company is found under Item 6 - "Directors, Senior Management
and Employees" under "Directors and Senior Management" under "Compensation" -
"1996 Stock Incentive Plan" and "1996 Stock Option Plan", and under Item 7 -
"Major Shareholders".


                                       40


<Page>


ITEM 7.  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

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 (5%)
percent of the votes attached to Class A Common Shares of the Company at January
24, 2005:
<Table>
<Caption>

                                APPROXIMATE NUMBER OF CLASS                        PERCENTAGE OF CLASS A
                                 A SHARES OWNED, CONTROLLED                         COMMON SHARES OWNED,
                                         OR DIRECTED                               CONTROLLED OR DIRECTED
                            -------------------------------------             --------------------------------
<S>                                      <C>                                               <C>
Arthur G. Ritchie                        2,169,138                                         16.9%

Jerome Shattner                          1,023,000                                         8.0%
</Table>

         The total number of Class A Common Shares owned, controlled or directed
by the senior management and directors of Sand as a group, to our knowledge, is
3,494,328, or approximately 27.2%, at January 21, 2005.

         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 January 21, 2005, 9,551,842 Class A Common
Shares were held of record by 469 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 corporation, 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

         On July 31, 2003, Sand sold its wholly-owned subsidiary, ClarityBlue
Limited (previously named Sand Technology (U.K.) Limited), for total proceeds of
approximately $20 million to a group of investors which included members of
senior management of the subsidiary and Duncan Painter who was a member of the
Board of Directors of Sand. The Company provided warranties for claims against
ClarityBlue Limited for matters existing prior to the sale. The warranties for
tax matters expire in calendar 2010 and in calendar 2005 for other warranties.


                                       41


<Page>

         Sand maintains directors' and officers' liability insurance which,
subject to the provisions and exclusions contained in the policy, protects the
directors and officers, as such, against any claims made during the term of
their office against any of them for a wrongful act, provided they acted
honestly and in good faith with a view to the best interests of Sand. The policy
provides coverage with a limit of US$5,000,000 per loss per policy period,
subject to a deductible of US$250,000 per securities claim and US$250,000 per
other claim. The current annual premium is paid entirely by Sand and amounts to
approximately US$150,000. To the extent permitted by law, Sand has entered into
an indemnification agreement with each of its directors and senior officers.

C.  INTERESTS OF EXPERTS AND COUNSEL

         Not applicable.


ITEM 8.  FINANCIAL INFORMATION

A.  CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

         The Consolidated Financial Statements of the Company are included in
this Annual Report on Form 20-F beginning on page 62.

B.  SIGNIFICANT CHANGES

         No significant change has occured since the date of the Consolidated
Financial Statements of the Company included in this Annual Report on Form
20-F.

ITEM 9.  THE OFFER AND LISTING

A.  OFFER AND LISTING DETAILS

         The following table presents the closing high and low sales prices of
our Class A Common Shares stated in United States dollars as reported by NASDAQ
for the following periods:
<Table>
<Caption>

MONTH ENDED                                                                     U.S. $
-----------                                                                     ------
                                                               HIGH                                 LOW
                                                               ----                                 ---
<S>                                                           <C>                                  <C>
To January 21, 2005                                           $0.81                                $0.74
December 2004                                                 $0.90                                $0.72
November 2004                                                 $0.87                                $0.70
October 2004                                                  $0.91                                $0.75
September 2004                                                $1.08                                $0.70
August 2004                                                   $0.83                                $0.70
July 2004                                                     $0.95                                $0.75
</Table>

<Table>
<Caption>

QUARTER ENDED                                                                   U.S. $
-------------                                                                   ------
                                                               HIGH                                 LOW
                                                               ----                                 ---
<S>                                                           <C>                                  <C>
October 2004                                                  $1.08                                $0.70
</Table>

                                       42


<Page>

<Table>
<Caption>

QUARTER ENDED                                                                   U.S. $
-------------                                                                   ------
                                                               HIGH                                 LOW
                                                               ----                                 ---
<S>                                                           <C>                                  <C>
July 2004                                                     $1.26                                $0.75
April 2004                                                    $1.35                                $1.04
January 2004                                                  $1.61                                $0.83
October 2003                                                  $1.27                                $1.07
July 2003                                                     $1.35                                $0.80
April 2003                                                    $1.22                                $0.52
January 2003                                                  $1.16                                $0.58
October 30, 2002                                              $1.30                                $0.53
</Table>

<Table>
<Caption>

FISCAL YEAR ENDED JULY 31                                                       U.S. $
-------------------------                                                       ------
                                                               HIGH                                 LOW
                                                               ----                                 ---
<S>                                                           <C>                                  <C>
2004                                                          $1.61                                $0.75
2003                                                          $1.35                                $0.52
2002                                                          $4.27                                $0.89
2001                                                          $7.75                                $2.969
2000                                                          $9.875                               $3.375
</Table>


B.  PLAN OF DISTRIBUTION

         Not applicable.

C.  MARKETS

         Our Class A Common Shares are listed on the Nasdaq SmallCap Market and
trade under the symbol SNDT. There is no non-United States trading market for
our Class A Common Shares.

D.  SELLING SHAREHOLDERS

         Not applicable.


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 CANADA BUSINESS CORPORATIONS ACT (the "CBCA"). The Articles of the
Company place no restrictions upon the Company's objects and purposes.

                                       43


<Page>

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 votes cast by
shareholders of the Company who being


                                       44


<Page>

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 hold 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.


                                       45


<Page>

CHANGE IN CONTROL OF COMPANY

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

         A shareholder rights plan (the "Rights Plan") was adopted by the Board
of Directors on November 12, 2003 and made effective on November 17, 2003. The
Rights Plan was ratified, confirmed and approved by the shareholders of Sand at
the Annual and Special Meeting of Shareholders held on December 16, 2003.

         Under applicable securities legislation in Canada, a take-over bid is
generally understood to mean an offer to acquire outstanding voting or equity
securities of a class of a corporation that, together with shares already owned
by the bidder and certain parties related to the bidder, amount to 20% or more
of the outstanding securities of that class. The existing legislative framework
for take-over bids presents certain concerns for shareholders, which has led
many Canadian companies to adopt shareholder rights plans. In particular, this
framework permits a take-over bid to expire 35 days after it is initiated. The
result is that shareholders may fail, in the absence of the Rights Plan, to
realize the maximum value for their shares. The Board of Directors is of the
view that shareholders, as well as the Board of Directors, need more than 35
days to consider a take-over bid and make a reasoned and careful decision
regarding such bid, or to consider actual or possible competing take-over bids.

         The purpose of the Rights Plan is to ensure adequate time for
shareholders of Sand to assess the merits of a take-over bid without undue
pressure. The Rights Plan gives the Board of Directors time to consider
alternatives, which may allow shareholders to receive full and fair value for
their Common Shares. In addition, the Rights Plan restricts creeping
accumulations of shares through a combination of market purchases up to the 20%
threshold and exempt acquisitions (such as pursuant to a private arrangement)
that can be unfair to shareholders.

         The Rights Plan does not affect the duty of the Board of Directors to
act honestly and in good faith with a view to the best interests of the Company
and its shareholders. Indeed, the Board of Directors believes that the Rights
Plan remains an appropriate mechanism to ensure that the Board of Directors will
be able to discharge its responsibility to assist shareholders in responding to
a take-over bid. In adopting the Rights Plan, the Board of Directors does not
intend to prevent a change of control of the Company or to secure the
continuance of current Management or the directors currently in office. The
Rights Plan is not part of a plan by Management to adopt a series of
anti-takeover measures. The Rights Plan does not preclude any shareholder from
using the proxy mechanism under the CANADA BUSINESS CORPORATIONS ACT and
securities laws to promote a change in the Management or direction of the
Company, and has no effect on the rights of holders of outstanding Common Shares
of the Company to requisition a meeting of


                                       46


<Page>

shareholders in accordance with the provisions of applicable corporate and
securities legislation, or to enter into agreements with respect to voting their
Common Shares.

OWNERSHIP THRESHOLD

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

DESCRIPTION OF SHARE CAPITAL

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

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


                                       47


<Page>

         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 whether such
         rate, amount or method of calculation shall be subject to change or
         adjustment in the future, the currency or currencies of payment of
         dividends, the consideration and the terms and conditions of any
         purchase for cancellation, retraction or redemption rights (if any)
         (but in no event shall the voting rights attributable to a Class B
         Share exceed those attributable to a Class A Common Share), the
         conversion or exchange rights attached thereto (if any), the voting
         rights attached thereto (if any), and the terms and conditions of any
         share purchase plan or sinking fund with respect thereto. Before the
         issue of the first shares of a series, the Board of Directors of the
         Company shall send to the Director (as defined in the CANADA BUSINESS
         CORPORATIONS ACT) articles of amendment containing a description of
         such series including the designation, rights, privileges, restrictions
         and conditions determined by the Board of Directors of the Company.

         Ranking of Class B Shares.  No rights, privileges, restrictions or
         conditions attached to a series of Class B Shares may confer upon a
         series a priority in respect of dividends or return of capital over any
         other series of Class B Shares then outstanding. The Class B Shares are
         entitled to priority over the common shares of the Company and over any
         other shares of the Company ranking junior to the Class B Shares with
         respect to priority in the payment of dividends and the distribution of
         assets in the event of the liquidation, dissolution or winding-up of
         the Company, whether voluntary or involuntary, or any other
         distribution of the assets of the Company among its shareholders for
         the purpose of winding-up its affairs. If any cumulative dividends or
         amounts payable on a return of capital in respect of a series of Class
         B Shares are not


                                       48


<Page>

         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 CANADA BUSINESS CORPORATIONS ACT (as from time
to time amended, varied or replaced) and prescribed in the by-laws of the
Company with respect to meetings of shareholders. On every poll taken at a
meeting of holders of Class B Shares as a class, each holder entitled to vote
thereat shall have one vote in respect of each Class B Share held by him.

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


                                       49


<Page>

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

         On July 31, 2003, Sand sold its wholly-owned subsidiary, ClarityBlue
Limited (previously named Sand Technology (U.K.) Limited), for total proceeds of
approximately $20 million to a group of investors which included members of
senior management of the subsidiary and Duncan Painter who was a member of the
Board of Directors of Sand. The Company provided warranties for claims against
ClarityBlue Limited for matters existing prior to the sale. The warranties for
tax matters expire in calendar 2010 and in calendar 2005 for other warranties.

         Sand entered into a Shareholder Rights Plan Agreement dated as of
November 17, 2003 with CIBC Mellon Trust Company, as rights agent. Information
as to the shareholder rights plan of Sand is found under Item 10 - "Additional
Information" under "Change in Control of Company".


D.  EXCHANGE CONTROLS

         There are no governmental laws, decrees, or regulations in Canada
relating to restrictions on the export or import of capital, or affecting the
remittance of interest, dividends, or other payments to non-resident holders on
the Company's Class A Common Shares, other than withholding tax requirements.
Any remittances of dividends to United States residents are subject to a 15%
withholding tax (5% if the shareholder is a corporation owning at least 10% of
the outstanding voting shares of the Company) pursuant to Article X of the
reciprocal tax treaty between Canada and the United States. See "Item 10 -
Additional Information - E - Taxation".

         To the knowledge of the Company, except as provided in the INVESTMENT
CANADA ACT (the "Act") enacted on June 20, 1985, as amended, as further amended
by the NORTH AMERICAN FREE TRADE AGREEMENT (NAFTA) IMPLEMENTATION ACT (Canada)
and the WORLD TRADE ORGANIZATION (WTO) AGREEMENT IMPLEMENTATION ACT, there are
no limitations specific to the rights of non-Canadians to hold or vote the
common shares of the Company under the laws of Canada or the Province of Quebec
or in the charter documents of the Company.

         Management of the Company considers that the following general summary
fairly describes those provisions of the Act pertinent to an investment by an
American investor in the Company.

         The Act requires a non-Canadian making an investment which would result
in the acquisition of control of a Canadian business, the gross value of the
assets of which exceed certain threshold levels or the business activity of
which is related to Canada's


                                       50


<Page>

cultural heritage or national identity, to either notify, or file an application
for review with the Director of Investments, Industry Canada who administers
provisions of the Act. Under the Act, control of a corporation is deemed to be
acquired through the acquisition of a majority of the voting shares of a
corporation, and is presumed to be acquired where one-third or more, but less
than a majority of the voting shares of a corporation are acquired, unless it
can be established that the Company is not controlled in fact through the
ownership of voting shares.

         The notification procedure involves a brief statement of information
about the investment on a prescribed form which is required to be filed with
Investment Canada by the investor at any time up to 30 days following
implementation of the investment. It is intended that investments requiring only
notification will proceed without government intervention unless the investment
is in a specific type of business activity related to Canada's cultural heritage
and national identity.

         If an investment is reviewable under the Act, an application for review
in the form prescribed is required to be filed with Investment Canada prior to
the investment taking place and the investment may not be implemented until the
review has been completed and the Minister responsible for Investment Canada is
satisfied that the investment is likely to be of net benefit to Canada. If the
Minister is not satisfied that the investment is likely to be of net benefit to
Canada, the non-Canadian must not implement the investment or, if the investment
has been implemented, may be required to divest himself of control of the
business that is the subject of the investment.


E.  TAXATION

CERTAIN CANADIAN FEDERAL INCOME TAX CONSIDERATIONS

         The following summary of certain Canadian federal income tax
considerations generally applicable in respect of the Company's Class A Common
Shares reflects the Company's opinion. The tax consequences to any particular
holder of Class A Common Shares will vary according to the status of that holder
as an individual, trust, corporation or member of a partnership, the
jurisdictions in which that holder is subject to taxation, the place where that
holder is resident and, generally, according to that holder's particular
circumstances. This summary is applicable only to holders who are resident in
the United States, have never been resident in Canada for tax purposes, deal at
arm's length with the Company, hold their Class A Common Shares as capital
property and who will not use or hold the Class A Common Shares in carrying on
business in Canada.

         This summary is based upon the provisions of the Income Tax Act of
Canada and the regulations thereunder (collectively, the "Tax Act", or "ITA")
and the Canada-United States Tax Convention as amended by the Protocols thereto
(the "Tax Convention") as at the date of this Form 20-F and the current publicly
known administrative practices of the Canada Customs and Revenue Agency. This
summary does not take into account Canadian provincial income tax
considerations.


                                       51


<Page>

         This summary is not exhaustive of all possible income tax
considerations pertaining to the Class A Common Shares. It is not intended as
legal or tax advice to any particular holder of Class A Common Shares and should
not be so construed. Each holder should consult his own tax advisor with respect
to the income tax consequences applicable to him in his own particular
circumstances.

DISPOSITION OF CLASS A COMMON SHARES

         Under the Tax Act, a gain from the disposition of Common Shares by a
non-resident of Canada will generally not be subject to Canadian tax, provided
the shareholder (and/or persons who do not deal at arm's length with the
shareholder) have not held a "substantial interest" in the Company (25% or more
of the shares of any class of the Company's share capital) at any time in the
five years preceding the disposition. Even if a gain would have been taxable
under the Tax Act, generally, the Tax Convention will exempt from Canadian
taxation any capital gain realized by a resident of the United States, provided
that the value of the Class A Common Shares is not derived principally from real
property situated in Canada. It is likely that this exemption would apply to the
Class A Common Shares of the Company.

         Where a holder disposes of Class A Common Shares to the Company
(unless the Company acquired the common shares in the open market in the
manner in which shares would normally be purchased by any member of the
public in the open market), this will result under the TAX ACT in a deemed
dividend to the holder equal to the amount by which the consideration paid by
the Company exceeds the paid-up capital of such shares. The amount of such
dividend will be subject to withholding tax as described below.

DIVIDENDS

         In the case of any dividends paid to non-residents of Canada, the
Canadian tax is withheld by the Company, which remits only the net amount of
such dividend to the shareholder. By virtue of Article X of the Tax Convention,
the rate of tax on dividends paid to residents of the United States is generally
limited to 15% of the gross dividend (or 5% in the case of certain corporate
shareholders owning shares of the Company entitling the shareholder to at least
10% of the Company's voting shares). In the event the provisions of the Tax
Convention are not applicable, the rate of Canadian withholding tax imposed on
non-residents according to the TAX ACT is 25% of the deemed gross dividend.


F.  DIVIDENDS AND PAYING AGENTS

         Not applicable.


                                       52


<Page>

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 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, 450 Fifth Street NW, 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.


I.  SUBSIDIARY INFORMATION

         Not applicable.


ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         We are not subject to material market risk exposures, except for risks
related to interest rate fluctuations and foreign currency exchange rates.

         Our exposure to market rate risk for changes in interest rates relates
primarily to our investment portfolio. We have not invested in market risk
sensitive instruments such as derivative financial instruments or derivative
commodity instruments. We invest in high quality issuers and limit the amount of
our credit exposure with any one issuer. We are averse to principal loss and
ensure the safety and preservation of our invested funds by limiting default,
market and reinvestment risk. We do not make use of a bank line of credit and we
do not have any long term debt.

         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


                                       53


<Page>

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 or British pounds into Canadian dollars have been included in our
results of operations.

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

         Not applicable.


                                     PART II


ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

         None.


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

         A shareholder rights plan (the "Rights Plan") was adopted by the Board
of Directors on November 12, 2003 and made effective on November 17, 2003. The
Rights Plan was ratified, confirmed and approved by the shareholders of Sand at
the Annual and Special Meeting of Shareholders held on December 16, 2003.

Summary of the Rights Plan

         The principal terms of the Rights Plan are summarized below.
Capitalized terms used but not defined in this summary are used as defined in
the Rights Agreement. The summary is qualified by reference to the actual
provisions of the Rights Agreement.

Rights

         One Right will be issued and will attach to each outstanding Common
Share of the Corporation. A Right only becomes exercisable upon the occurrence
of a Flip-In Event, which is a transaction by which a person becomes an
Acquiring Person and which otherwise does not meet the requirements of a
Permitted Bid. Prior to a Flip-In Event, the Rights are priced at CDN$100 per
share. If a Flip-In Event occurs, each Right issued under the Rights Plan
thereafter will entitle all holders, other than the Acquiring Person, to
purchase that number of Common Shares of the Corporation having an aggregate
market value equal to twice CDN$100 per share for CDN$100 per share. This
purchase will cause substantial


                                       54


<Page>

dilution to the person or group of persons attempting to acquire control of the
Corporation, other than by way of a Permitted Bid. The Rights expire on the
termination of the Rights Plan, unless redeemed before such time.

Acquiring Person

         An Acquiring Person is generally a person who becomes the beneficial
owner of 20% or more of the outstanding Common Shares of the Corporation. Under
the Rights Plan, there are various exceptions to the definition of Acquiring
Person, including:

         o        a person who acquires 20% or more of the outstanding Common
                  Shares due to (i) acquisitions of Common Shares by the
                  Corporation, (ii) pro rata distributions of Common Shares by
                  the Corporation, (iii) acquisitions of Common Shares upon
                  exercise of Convertible Securities acquired pursuant to
                  certain exempt transactions, (iv) an amalgamation, merger or
                  other statutory procedure requiring shareholder approval, or
                  (v) the issuance of Common Shares on an exempt private
                  placement basis (subject to certain limits); and

         o        underwriters who obtain Common Shares for the purpose of a
                  public distribution.

Beneficial Ownership

         The thresholds for triggering the Rights Plan are based on the
percentage of shares that are Beneficially Owned by a person or its Affiliates
or Associates. This is defined in terms of legal or equitable ownership of
common shares. In addition, a person is deemed to be the Beneficial Owner of
Common Shares in circumstances where that person or its Affiliates or
Associates, and any other person acting jointly or in concert with such person,
has a right to acquire Common Shares within 60 days. There are various
exceptions to this definition set forth in the Rights Plan.

Permitted Bid

         If a Take-over Bid is structured as a Permitted Bid, a Flip-In Event
will not occur and the Rights will not become exercisable. Permitted Bids must
be made by means of a take-over bid circular and comply with the following:

         o        the Take-over Bid must be made to all shareholders other than
                  the bidder;

         o        the Take-over Bid must not permit the bidder to take up any
                  Common Shares that have been tendered pursuant to the
                  Take-over Bid prior to the expiry of a period not less than 60
                  days after the Take-over Bid is made, and then only if at such
                  time more than 50% of the Common Shares held by the
                  Independent Shareholders (which term generally includes
                  shareholders other than the bidder, its Affiliates, Associates
                  and persons acting jointly or in concert with the bidder),
                  have been tendered pursuant to the Take-over Bid and not
                  withdrawn;

                                       55


<Page>


         o        the Take-over Bid must contain an irrevocable and unqualified
                  provision that, unless it is withdrawn, Common Shares may be
                  tendered at any time during the 60 day period referred to in
                  the immediately preceding paragraph and that any Common Shares
                  deposited pursuant to the Take-over Bid may be withdrawn until
                  they have been taken up and paid for; and

         o        the Take-over Bid must contain an irrevocable and unqualified
                  provision that, if more than 50% of the Common Shares held by
                  Independent Shareholders are tendered pursuant to the
                  Take-over Bid within the 60-day period, then the bidder must
                  make a public announcement of that fact and the Take-over Bid
                  must then remain open for an additional 10 business days from
                  the date of such public announcement.

         The Rights Plan also allows a Competing Permitted Bid to be made while
a Permitted Bid is in existence. A Competing Permitted Bid is a Take-over Bid
that is made after a Permitted Bid has been made, but prior to its expiry, that
satisfies all of the requirements of a Permitted Bid, except that (i) no Common
Shares will be taken up or paid for until the later to occur of the date which
is generally 35 days after the date the Take-over Bid is made and the 60th day
after the date of the Permitted Bid that is then outstanding, and (ii) at the
close of business on the date Common Shares are first taken up or paid for, more
than 50% of the then outstanding Common Shares held by Independent Shareholders
have been tendered in such Take-over Bid and not withdrawn. If this 50%
requirement is satisfied, the applicable bidder must make a public announcement
of that fact and the Take-over Bid must remain open for tenders of Common Shares
for at least ten business days after the date of such public announcement.

         The requirements of a Permitted Bid and a Competing Permitted Bid
enable shareholders to decide whether the Take-over Bid or any Competing
Permitted Bid is adequate on its own merits, without being influenced by the
likelihood that a Take-over Bid will succeed. Moreover, if there is sufficient
support for a Take-over Bid such that at least 50% of the Common Shares held by
Independent Shareholders have been tendered to it, a shareholder who has not yet
tendered to that bid will have a further 10 business days in which to decide
whether to withdraw its Common Shares from a Competing Take-over Bid, if any,
and whether to tender to the Take-over Bid.

Waiver and Redemption

         Until the occurrence of a Flip-In Event as to which the Board of
Directors has not issued a waiver, the Board of Directors may elect to redeem
all but not less than all of the then outstanding Rights at a redemption price
of $0.0001 (subject to adjustment) per Right. In addition, until the occurrence
of a Flip-In Event as to which the Board of Directors has not issued a waiver,
the Board of Directors may determine to waive the application of the Rights Plan
to any Flip-In Event.


                                       56


<Page>

         The Board of Directors may also waive the application of the Rights
Plan to any Flip-In Event if the Board determines that the Person became an
Acquiring Person by inadvertence and without any intention to become, or
knowledge that it would become, an Acquiring Person and such Person has reduced
its Beneficial Ownership of Common Shares such that at the time of the granting
of a waiver, such Person is no longer an Acquiring Person. The Board of
Directors will be deemed to have redeemed the Rights at the Redemption Price on
the date that the Person making the Permitted Bid, Competing Permitted Bid or
Take-over Bid in respect of which the Board of Directors has waived or been
deemed to waive the application of the Rights Plan, has taken up and paid for
the Common Shares pursuant to the applicable bid.

Termination

         The Rights Plan will expire, subject to certain conditions, at the
close of the annual meeting of shareholders of the Corporation in 2005 and every
two year anniversary thereafter and so on unless the continuation of the Rights
Plan for each such two year period (or other period approved by the Independent
Shareholders) is approved by the Independent Shareholders of the Corporation.

Shareholder Approval

         In order for the Rights Agreement to remain effective, the Rights
Agreement must be ratified by a resolution passed by a majority of the votes
cast by Independent Shareholders who vote at the Meeting. For this purpose,
"Independent Shareholders" mean holders of Common Shares excluding (i) any
Acquiring Person, (ii) an Offeror, with certain exceptions, (iii) any Affiliate
or Associate of such Acquiring Person or Offeror; (iv) any person acting jointly
or in concert with such Acquiring Person or Offeror; or (v) any trustee or
administrator of any employee benefit plan or trust for the benefit of employees
of the Corporation or a Subsidiary of the Corporation, unless the beneficiaries
of such plan direct the manner in which the shares are to be voted.


ITEM 15. CONTROLS AND PROCEDURES

         "Disclosure controls and procedures" are controls and other procedures
that are designed to ensure that information required to be disclosed by us in
the reports we file with the Securities and Exchange Commission is recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and forms and that the information is accumulated and communicated
to our management, including our Chief Executive Officer and our Chief Financial
Officer, as appropriate to allow timely decisions regarding required disclosure.
We carried out an evaluation of the effectiveness of the design and operation of
our disclosure controls and procedures as of the end of the fiscal year covered
by this Annual Report on Form 20-F. This evaluation was carried out under the
supervision and with the participation of our management, including our Chief
Executive Officer and our Chief Financial Officer. Based upon that evaluation,
our Chief Executive Officer and our Chief Financial Officer concluded that our
disclosure controls and


                                       57


<Page>

procedures are effective. There have been no changes in our internal control
over financial reporting during the period covered by this report that have
materially affected, or are reasonably likely to materially affect, our
internal controls over financial reporting.


ITEM 16 A.  AUDIT COMMITTEE FINANCIAL EXPERT

         Messrs. Dennison, Pryde and Shindler, all of whom are non-management
and unrelated directors, currently comprise the Audit Committee. Mr. Dennison is
Chairman of the Audit Committee. Messrs. Dennison, Pryde and Shindler satisfy
the current requirements of The Nasdaq Stock Market, Inc., relating to the
independence and the qualification of the members of the Audit Committee.

         Steve Dennison was appointed Financial Director of Lynx Express Limited
in 2003, one of the United Kingdom's largest transportation companies, having
held the position of Commercial Director since1999. During the four previous
years, he was Finance Director and Corporate Secretary for Red Star Parcels
Limited. From 1988 to 1993, Mr. Dennison who is a qualified Chartered
Accountant, was with KPMG most recently as Corporate Finance Manager. He holds a
Bsc (Hons) in Management Science from the University of Manchester.

         Our Board of Directors has determined that Mr. Dennison qualifies as an
"audit committee financial expert".


ITEM 16 B.  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 Company that immediately follows the
grant of such waiver. No waiver has been granted to date. A copy of our
"Standards of Ethical Conduct" is filed as Exhibit 11.1 to this Annual Report on
Form 20-F.


ITEM 16 C.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

Deloitte & Touche LLP served as our auditors for the fiscal years ended July 31,
2003 and July 31, 2004.

Audit Fees and Audit-Related Fees

         Deloitte & Touche LLP billed the Company $128,192 in fiscal 2004
($259,060 in fiscal 2003) for professional services rendered for the audit of
the Annual Consolidated Financial


                                     58


<Page>

Statements and services that are normally provided in connection with statutory
and regulatory filings. Audit-related services provided included review of the
Company's quarterly financial statements and accounting advice on certain
matters. From that amount, $7,000 was related to fiscal 2004 while $121,192 was
related to fiscal 2003.

Tax Fees

         Deloitte & Touche LLP billed the Company $102,450 in fiscal 2004
($148,920 in fiscal 2003) for professional services rendered for tax compliance,
tax advice, and tax planning. The taxation advisory services provided related
primarily to corporate international tax planning, the preparation of corporate
tax returns and specific tax advice on research and development tax credit
payments.

Other Fees

         Other than the audit and tax services described above, Deloitte &
Touche LLP did provide other services for which it billed $25,950 to the Company
in fiscal 2004 ($14,600 in fiscal 2003). Other services provided included
assistance and review of the Company's filings with the SEC and advice relative
to compliance with the Sarbanes-Oxley Act.

Audit Committee Pre-Approval Policies

         All audit and non-audit services performed by Deloitte & Touche LLP are
pre-approved by the Audit Committee of the Company.


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

         None.


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

         On October 15, 2002, the Company announced an open market share
repurchase program under which it could repurchase, up to a maximum of 692,345
of its outstanding Class A common shares from October 23, 2002 to October 23,
2003. As at October 23, 2003, a total of 115,200 Class A common shares had been
repurchased at an average price of US$1.03 per share.


                                       59


<Page>

<Table>
<Caption>
-------------------------------------------------------------------------------------------------------------------------
                                                                                                 (d) Maximum Number (or
                                                                           (c) Total Number of     Approximate Dollar
                                                                            Shares (or Units)     Value) of Shares (or
                           (a) Total Number of   (b) Average Price Paid   Purchased as Part of   Units) that May Yet Be
                            Shares (Or Units)     per Share (or Units)     Publicly Announced      Purchased Under the
         Period                 Purchased               per month           Plans or Programs       Plans or Programs
-------------------------------------------------------------------------------------------------------------------------

<S>                                <C>                      <C>              <C>                           <C>
October 2002                        1,000                   0.80              1,000                        n/a
-------------------------------------------------------------------------------------------------------------------------
November 2002                       9,700                   0.82              9,700                        n/a
-------------------------------------------------------------------------------------------------------------------------
March 2003                         34,400                   0.8027           34,400                        n/a
-------------------------------------------------------------------------------------------------------------------------
August 2003                        18,900                   1.1565           18,900                        n/a
-------------------------------------------------------------------------------------------------------------------------
September 2003                     27,900                   1.216            27,900                        n/a
-------------------------------------------------------------------------------------------------------------------------
October 2003                       23,300                   1.1425           23,300                        n/a
-------------------------------------------------------------------------------------------------------------------------
</Table>

         On December 17, 2003, the Company announced a new share repurchase
program under which it could repurchase up to a maximum of 654,710 of its
outstanding Class A common shares from December 22, 2003 to December 22, 2004.
As at December 22, 2004, a total of 276,038 Class A common shares had been
repurchased at an average price of US$0.88 per share.
<Table>
<Caption>
-------------------------------------------------------------------------------------------------------------------------
                                                                                                 (d) Maximum Number (or
                                                                           (c) Total Number of     Approximate Dollar
                                                                            Shares (or Units)     Value) of Shares (or
                           (a) Total Number of   (b) Average Price Paid   Purchased as Part of   Units) that May Yet Be
                            Shares (Or Units)     per Share (or Units)     Publicly Announced      Purchased Under the
         Period                 Purchased               per month           Plans or Programs       Plans or Programs
-------------------------------------------------------------------------------------------------------------------------
<S>                                <C>                   <C>                      <C>                    <C>
December 2003                      16,000                0.9275                   16,000                  n/a
-------------------------------------------------------------------------------------------------------------------------

March 2004                         13,100                1.0900                   13,100
-------------------------------------------------------------------------------------------------------------------------

April 2004                          8,776                 1.0909                   8,776
-------------------------------------------------------------------------------------------------------------------------

June 2004                          45,000                 0.9965                  45,000
-------------------------------------------------------------------------------------------------------------------------

July 2004                          13,800                 0.8104                  13,800
-------------------------------------------------------------------------------------------------------------------------

August 2004                        21,100                 0.7510                  21,100
-------------------------------------------------------------------------------------------------------------------------

September 2004                     38,400                 0.9163                  38,400
-------------------------------------------------------------------------------------------------------------------------

October 2004                       28,300                 0.8333                  28,300
-------------------------------------------------------------------------------------------------------------------------

November 2004                      47,100                 0.7788                  47,100
-------------------------------------------------------------------------------------------------------------------------

December 2004                      44,462                 0.8338                  44,462
-------------------------------------------------------------------------------------------------------------------------
</Table>

                                       60
<Page>

                                    PART III

ITEM 17. FINANCIAL STATEMENTS

         Not Applicable.


ITEM 18. FINANCIAL STATEMENTS

         The Consolidated Financial Statements of the Company are included in
this Annual Report on Form 20-F beginning on page 62.



                                       61



<Page>


CONSOLIDATED FINANCIAL STATEMENTS OF

SAND TECHNOLOGY INC.

JULY 31, 2004, 2003 AND 2002


                                       62


<Page>


SAND TECHNOLOGY INC.
TABLE OF CONTENTS
-------------------------------------------------------------------------------

<Table>
<Caption>

<S>                                                                         <C>
Auditor's report............................................................64


Consolidated balance sheets.................................................65


Consolidated statements of operations.......................................66


Consolidated statements of shareholders' equity.............................67


Consolidated statements of cash flows.......................................68


Notes to the consolidated financial statements...........................69-85
</Table>


                                       63

<Page>

[LETTERHEAD]


AUDITORS' REPORT

To the Shareholders of
Sand Technology Inc.

We have audited the consolidated balance sheets of Sand Technology Inc. as at
July 31, 2004 and 2003 and the consolidated statements of operations,
shareholders' equity and cash flows for each of the years in the three-year
period ended July 31, 2004. These financial statements are the responsibility of
the Corporation's management. Our responsibility is to express an opinion on
these financial statements based on our audits.

We conducted our audits in accordance with Canadian generally accepted auditing
standards and auditing standards of the Public Company Accounting Oversight
Board in the United States of America. These standards require that we plan and
perform an audit to obtain reasonable assurance whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Corporation as at July 31, 2004
and 2003 and the results of its operations and its cash flows for each of the
years in the three-year period ended July 31, 2004 in accordance with Canadian
generally accepted accounting principles.


/s/ Deloitte & Touche LLP
Chartered Accountants

September 17, 2004


COMMENTS BY INDEPENDENT AUDITORS FOR U.S. READERS ON CANADA-U.S.
REPORTING DIFFERENCES

In the United States of America, reporting standards for auditors require the
addition of an explanatory paragraph (following the opinion paragraph) when
there are changes in accounting principles that have a material effect on the
comparability of the Corporation's financial statements, such as the changes
described in Note 1 in the financial statements. Our report to the Shareholders
and Board of Directors, dated September 17, 2004, is expressed in accordance
with Canadian reporting standards, which do not require a reference to such
changes in accounting principles in the auditors' report when the change is
properly accounted for and adequately disclosed in the financial statements.

/s/ Deloitte & Touche LLP
Chartered Accountants

September 17, 2004



                                       64
<Page>



SAND TECHNOLOGY INC.
CONSOLIDATED BALANCE SHEETS
AS AT JULY 31, 2004 AND 2003
(IN CANADIAN DOLLARS)

<Table>
<Caption>
-------------------------------------------------------------------------------------------------------------------
                                                                                    2004                 2003
-------------------------------------------------------------------------------------------------------------------
                                                                                      $                    $
<S>                                                                               <C>                  <C>
ASSETS
Current assets
    Cash and cash equivalents                                                     12,601,393           20,344,426
    Accounts receivable                                                            2,364,655            2,340,868
    Prepaid expenses                                                                 188,680              203,331
    Balance of sale receivable (Note 2)                                                    -              588,483
-------------------------------------------------------------------------------------------------------------------
                                                                                  15,154,728           23,477,108

Capital assets, net (Note 3)                                                         392,585              548,719
Other asset (Note 4)                                                                 443,388                    -
-------------------------------------------------------------------------------------------------------------------
                                                                                  15,990,701           24,025,827
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------

LIABILITIES

Current liabilities
    Accounts payable and accrued liabilities                                       1,881,113            2,979,643
    Deferred revenue                                                               1,554,785            1,139,609
    Deferred credits                                                                 195,581              224,917
-------------------------------------------------------------------------------------------------------------------
                                                                                   3,631,479            4,344,169
-------------------------------------------------------------------------------------------------------------------

Commitments and contingencies (Note 8)

SHAREHOLDERS' EQUITY
    Common stock (Note 5)
        Authorized
           An unlimited number of Class "A" common shares,
               without par value
        Issued and outstanding
           12,997,551 Class "A" common shares
               (13,164,327 in 2003)                                               38,556,828           39,051,564
        Contributed surplus (Note 5(b))                                               49,000               --
    Deficit                                                                      (26,246,606)         (19,369,906)
-------------------------------------------------------------------------------------------------------------------
                                                                                  12,359,222           19,681,658
-------------------------------------------------------------------------------------------------------------------
                                                                                  15,990,701           24,025,827
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
</Table>


               See notes to the consolidated financial statements.


                                       65
<Page>

SAND TECHNOLOGY INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JULY 31, 2004, 2003 AND 2002
(IN CANADIAN DOLLARS)

<Table>
<Caption>
-------------------------------------------------------------------------------------------------------------------
                                                                2004                2003                 2002
-------------------------------------------------------------------------------------------------------------------
                                                                  $                   $                    $

<S>                                                          <C>                  <C>                  <C>
REVENUE                                                       5,349,214           31,682,536           13,922,077
-------------------------------------------------------------------------------------------------------------------

Operating expenses
    Cost of sales and product support                         1,652,369           12,510,215            6,473,974
    Research and development, net (Note 6)                    3,308,789            3,310,709            4,887,581
    Amortization of capital and other asset                     242,488            1,076,825            1,504,987
    Selling, general and administrative
        expenses                                              7,604,541           16,581,789           16,033,249
-------------------------------------------------------------------------------------------------------------------
Total operating expenses                                     12,808,187           33,479,538           28,899,791
-------------------------------------------------------------------------------------------------------------------

Loss from operations                                         (7,458,973)          (1,797,002)         (14,977,714)
-------------------------------------------------------------------------------------------------------------------

Other income
    Interest income                                             329,043               14,939              165,713
    Gain on sale of subsidiary (Note 2)                               -           11,757,280                    -
-------------------------------------------------------------------------------------------------------------------
                                                                329,043           11,772,219              165,713
-------------------------------------------------------------------------------------------------------------------

(Loss) income before income taxes                            (7,129,930)           9,975,217          (14,812,001)
-------------------------------------------------------------------------------------------------------------------

Income taxes (Note 7)
    Current                                                           -               13,136                    -
    Future                                                            -              169,000                    -
-------------------------------------------------------------------------------------------------------------------
                                                                      -              182,136                    -
-------------------------------------------------------------------------------------------------------------------
NET (LOSS) INCOME                                            (7,129,930)           9,793,081          (14,812,001)
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------

Basic and diluted (loss) earnings per share (Note 5)              (0.55)                0.74                (1.12)
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------

Basic and diluted weighted average number
    of common shares outstanding                             13,079,649           13,189,124           13,186,194
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
</Table>


APPROVED BY THE BOARD OF DIRECTORS




/s/ Arthur G. Ritchie                          /s/ Douglas S. Pryde, Director
ARTHUR G. RITCHIE, DIRECTOR                    DOUGLAS S. PRYDE, DIRECTOR


               See notes to the consolidated financial statements.



                                       66
<Page>


SAND TECHNOLOGY INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED JULY 31, 2004, 2003 AND 2002
(IN CANADIAN DOLLARS)
--------------------------------------------------------------------------------

<Table>
<Caption>
                                                    COMMON STOCK
                                      ----------------------------------------
                                                                                  Contributed
                                              SHARES            AMOUNT              SURPLUS              DEFICIT
                                      -----------------------------------------------------------------------------
                                                                 $                     $                     $
<S>                                     <C>                  <C>                  <C>                 <C>
BALANCE, JULY 31, 2001                  13,153,427           39,125,112                               (14,429,738)

Net loss                                                                                              (14,812,001)

Exercise of stock options                   56,000               60,239                                         -
-------------------------------------------------------------------------------------------------------------------
BALANCE, JULY 31, 2002                  13,209,427           39,185,351                               (29,241,739)

Net income                                                                                              9,793,081

Share repurchase                           (45,100)            (133,787)                                   78,752
-------------------------------------------------------------------------------------------------------------------
BALANCE, JULY 31, 2003                  13,164,327           39,051,564                               (19,369,906)

Net loss                                                                                               (7,129,930)

Stock-based compensation
    (Note 5(b))                                                                       49,000

Share repurchase                          (166,776)            (494,736)                                  253,230
-------------------------------------------------------------------------------------------------------------------
BALANCE, JULY 31, 2004                  12,997,551           38,556,828               49,000          (26,246,606)
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
</Table>


               See notes to the consolidated financial statements.


                                       67
<Page>


SAND TECHNOLOGY INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JULY 31, 2004, 2003 AND 2002
(IN CANADIAN DOLLARS)

<Table>
<Caption>
-------------------------------------------------------------------------------------------------------------------
                                                                2004                2003                 2002
-------------------------------------------------------------------------------------------------------------------
                                                                  $                   $                    $
<S>                                                          <C>                 <C>                  <C>
OPERATING ACTIVITIES
    Net income (loss)                                        (7,129,930)           9,793,081          (14,812,001)
    Items not affecting cash
        Amortization of capital and other
           assets                                               242,488            1,076,825            1,504,987
        Stock-based compensation                                 49,000                    -                    -
        Gain on sale of subsidiary                                    -          (11,757,280)                   -
        Provision for loan receivable                                 -              100,000                    -
        Future income taxes                                           -              169,000                    -

    Changes in non-cash operating
        working capital items
           Accounts receivable                                  (23,787)          (4,509,208)           2,098,952
           Inventories                                                -             (228,341)            (160,507)
           Prepaid expenses                                      14,651             (926,014)            (174,058)
           Accounts payable and accrued liabilities          (1,098,530)           4,977,197             (144,872)
           Deferred revenue                                     415,176              695,600              237,894
-------------------------------------------------------------------------------------------------------------------
                                                             (7,530,932)            (609,140)         (11,449,605)
-------------------------------------------------------------------------------------------------------------------

INVESTING ACTIVITIES
    Increase in other assets                                   (471,100)                   -               (9,278)
    Purchase of capital assets                                  (58,642)          (1,995,167)          (1,386,306)
    Proceeds from sale of subsidiary, net of cash
        and cash equivalents disposed                                 -           17,663,577                    -
-------------------------------------------------------------------------------------------------------------------
                                                               (529,742)          15,668,410           (1,395,584)
-------------------------------------------------------------------------------------------------------------------

FINANCING ACTIVITIES
    Issuance of common shares                                         -                    -               60,239
    Repurchase of common shares                                (241,506)             (55,035)                   -
    Balance of sale receivable                                  588,483             (588,483)                   -
    Deferred credits                                            (29,336)             (29,337)             254,254
-------------------------------------------------------------------------------------------------------------------
                                                                317,641             (672,855)             314,493
-------------------------------------------------------------------------------------------------------------------

(Decrease) increase in cash and cash equivalents             (7,743,033)          14,386,415          (12,530,696)
Cash and cash equivalents, beginning of year                 20,344,426            5,958,011           18,488,707
-------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS,
    END OF YEAR                                              12,601,393           20,344,426            5,958,011
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------

There was a nominal amount of interest paid and no income taxes paid during the
three-year period ended July 31, 2004.

Non-cash operating and investing activities
    Transaction costs incurred from sale of
        subsidiary                                                    -            1,462,768                    -
</Table>


               See notes to the consolidated financial statements.



                                       68
<Page>


SAND TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2004, 2003 AND 2002
(IN CANADIAN DOLLARS)
--------------------------------------------------------------------------------


The Corporation is involved in the design, development, marketing and support of
software products and services that enable users to retrieve usable business
information from large amounts of data. The software products, collectively
known as the SAND Analytic Server, are designed to provide an efficient and
cost-effective way for business users to make fast easy inquiries of large
databases without the intervention of specialist Information Technology
professionals. The Corporation is considered to have only one reportable
business segment.

1.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

        USE OF ESTIMATES

        These financial statements have been prepared in accordance with
        Canadian generally accepted accounting principles, which require
        management to make estimates and assumptions that affect the reported
        amounts of assets and liabilities and the disclosure of contingent
        liabilities at the date of the financial statements, and the reported
        amounts of revenue and expenses during the reporting period. Actual
        results could differ from those estimates.

        BASIS OF CONSOLIDATION

        The consolidated financial statements include the accounts of the
        Corporation and its wholly-owned subsidiaries. All intercompany
        transactions and balances have been eliminated.

        REVENUE RECOGNITION

        The Corporation generates revenues principally through two sources:
        software licences and services. Software licence revenues are normally
        generated from licencing the perpetual use of the Corporation's software
        products. Service revenues are generated from sales of maintenance,
        implementation, consulting and training services performed for customers
        that licence the Corporation's products.

        Revenue from the sale of software licence agreements are recognized upon
        delivery of software if persuasive evidence of an arrangement exists,
        collection is probable, the fee is fixed or determinable and
        vendor-specific evidence of an arrangement exists to allocate the total
        fee to the different elements of an arrangement. Vendor-specific
        objective evidence 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.

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

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

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

        Amounts received in advance of the delivery of products or performance
        of services are classified as deferred revenue.



                                       69
<Page>


SAND TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2004, 2003 AND 2002
(IN CANADIAN DOLLARS)
--------------------------------------------------------------------------------


1.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

        CASH AND CASH EQUIVALENTS

        Cash and cash equivalents include unrestricted cash and highly liquid
        investments.

        CAPITAL ASSETS

        Capital assets are recorded at cost and are amortized over their
        estimated useful lives using the straight-line method over the following
        periods:
<Table>
                    <S>                           <C>
                    Furniture and equipment                   5 years
                    Computer equipment                        3 years
                    Leasehold improvements        over the lease term
</Table>

        OTHER ASSETS

        Other assets comprise contract costs and acquired technology.

        (i)  Contract costs

             Contract costs are comprised of an amount paid to the vendor upon
             the transfer of a long-term service contract and will be amortized
             ratably over the term of the contract.

        (ii) Acquired technology

             The Corporation records its acquired technology at cost and
             amortizes such assets over their estimated useful lives using the
             straight-line method at an annual rate of 20%.


                                       70
<Page>

SAND TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2004, 2003 AND 2002
(IN CANADIAN DOLLARS)
--------------------------------------------------------------------------------

1.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

        RESEARCH AND DEVELOPMENT COSTS

        Research costs are charged to operations in the period in which they are
        incurred. Development costs are expensed as incurred unless a project
        meets the criteria under Canadian generally accepted accounting
        principles for deferral and amortization. The Corporation has not
        deferred any such development costs to date. Related tax credits are
        recorded as a reduction of research and development expenses.

        INCOME TAXES

        Income taxes are accounted for using the liability method of tax
        allocation. Future income tax assets and liabilities are determined
        based on deductible or taxable temporary differences between the
        financial statement values and tax values of assets and liabilities,
        using enacted income tax rates expected to be in effect for the year in
        which the differences are expected to reverse.

        DEFERRED CREDITS

        Deferred credits include deferred lease inducements, which are amortized
        on a straight-line basis over the term of the lease.

        DISPOSAL OF LONG-LIVED ASSETS AND DISCONTINUED OPERATIONS

        In 2003, the Corporation early adopted the recommendations of Canadian
        Institute of Chartered Accountants ("CICA") Handbook Section 3475,
        "Disposal of Long-lived Assets and Discontinued Operations." This
        Section provides guidance on the recognition, measurement, presentation
        and disclosure of long-lived assets to be disposed of. It replaced the
        disposal provisions of Property, Plant and Equipment, Section 3061, as
        well as Discontinued Operations, Section 3475. The Section:

          o    Provides criteria for classifying assets as held for sale;

          o    Requires an asset classified as held for sale to be measured at
               fair value less cost to sell;

          o    Provides criteria for classifying a disposal as a discontinued
               operation; and

          o    Specifies presentation and disclosure for discontinued operations
               and other disposals of long-lived assets.

        The adoption of this new Section did not have a material impact on the
        consolidated financial statements.


                                       71
<Page>

SAND TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2004, 2003 AND 2002
(IN CANADIAN DOLLARS)
--------------------------------------------------------------------------------


1.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

        FOREIGN EXCHANGE TRANSLATION

        Revenue, expenses and acquisition of non-monetary assets denominated in
        foreign currencies are translated into Canadian dollars at rates
        prevailing on the transaction dates. Monetary assets and liabilities are
        translated at rates in effect at the balance sheet date.

        The accounts of the subsidiaries included in the consolidated financial
        statements are translated into Canadian dollars using the temporal
        method. Under this method, monetary items are translated at exchange
        rates in effect at the balance sheet dates; non-monetary items are
        translated at historical exchange rates. Revenue and expenses are
        translated at average exchange rates for the year, with the exception of
        amortization of assets, which is translated at the same historical
        exchange rates as the related assets. Translation losses and gains are
        included in operations.

        EARNINGS PER SHARE

        Per share computations are based on the weighted average number of
        shares outstanding during the year. The dilutive effect of options is
        determined using the treasury stock method.

        NEW ACCOUNTING POLICIES ADOPTED

        (i)   Stock-based compensation and other stock-based payments

              In September 2003, the CICA amended Section 3870 of the CICA
              Handbook, "Stock-Based Compensation and Other Stock-Based
              Payments", effective for fiscal years beginning on or after
              January 1, 2004. The amendments of the section require the
              adoption of the fair-value based method for all stock-based awards
              and the recognition of an expense in the financial statements. The
              Corporation early adopted the amendments on a prospective basis
              effective August 1, 2003, as permitted by the standard. The
              adoption of this amendment resulted in stock-based compensation in
              the amount of $49,000, included in selling, general and
              administrative expenses (see Note 5(b)).

              Prior to August 1, 2003, the Corporation recorded no compensation
              cost on the grant of stock options to employees (see Note 5(b)).



                                       72
<Page>

SAND TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2004, 2003 AND 2002
(IN CANADIAN DOLLARS)
--------------------------------------------------------------------------------

1.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

        RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)

        (ii)  Guarantees

              As of August 1, 2003, the Corporation adopted the new
              recommendations of CICA Accounting Guideline 14, "Disclosure of
              Guarantees". This guideline provides assistance regarding the
              identification of guarantees and requires a guarantor to disclose
              the significant details of guarantees that have been given,
              regardless of whether or not it will have to make payments under
              the guarantees.

              In the normal course of its operations, the Corporation has
              entered into agreements that contain certain features which meet
              the definition of a guarantee under the guidance provided by
              Accounting Guideline 14.

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

              The nature of these obligations prevents the Corporation from
              making a reasonable estimate of the maximum potential amount it
              could be required to pay. Historically, the Corporation has not
              made any payments under such obligations. The adoption of these
              recommendations did not have an impact on the Corporation's
              consolidated financial statements.

              In addition, the Corporation has provided warranties as part of
              the sale of its subsidiary described in Note 2 for claims against
              it for conditions existing prior to the sale.

        (iii) As of August 1, 2003, the Corporation adopted the new
              recommendations of CICA Handbook Section 3063, "Impairment of
              long-lived assets". This Section provides guidance on the
              recognition, measurement and disclosure of the impairment of
              long-lived assets. It replaces the write-down provisions in
              Section 3061 "Property, plant and equipment". The provisions of
              the Section require an impairment loss for a long-lived asset to
              be held and used to be recognized when its carrying amount exceeds
              the sum of the undiscounted cash flows expected from its use and
              eventual disposition. The impairment loss is measured as the
              amount by which its carrying amount exceeds its fair value. The
              adoption of this recommendation did not have an impact on the
              Corporation's consolidated financial statements.



                                       73
<Page>

SAND TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2004, 2003 AND 2002
(IN CANADIAN DOLLARS)
--------------------------------------------------------------------------------

1.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

        RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)

        (iv)  As of August 1, 2003, the Corporation adopted the new
              recommendations of CICA Accounting Guideline 13, "Hedging
              relationships". This guideline deals with the identification,
              documentation, designation and effectiveness of hedges and also
              the discontinuance of hedge accounting, but does not specify hedge
              accounting methods. The adoption of this recommendation did not
              have an impact on the Corporation's consolidated financial
              statements.

        FUTURE ACCOUNTING CHANGES

        The CICA has issued the following new Handbook Sections, none of which
        are expected to have a material impact on the Corporation's consolidated
        financial statements.

        (i)   Handbook Section 3110, "Asset retirement obligations", focuses on
              the recognition and measurement of liabilities for obligations
              associated with the retirement of property, plant and equipment
              when those obligations result from the acquisition, construction,
              development or normal operation of the assets. The standard is
              effective for fiscal years beginning on or after January 1, 2004
              and is not expected to have a material impact on the Corporation's
              consolidated financial statements.

        (ii)  Accounting Guidelines 15, "Consolidation of variable interest
              entities", provides clarification on the consolidation of those
              entities defined as "variable interest entities", when equity
              investors are not considered to have a controlling financial
              interest or they have not invested enough equity to allow the
              entity to finance its activities without additional subordinated
              financial support from other parties. Variable interest entities
              are commonly referred to as special purpose entities. The
              guideline comes into effect in fiscal years beginning on or after
              November 1, 2004 and is not expected to have a material impact on
              the Corporation's consolidated financial statements.



                                       74
<Page>

SAND TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2004, 2003 AND 2002
(IN CANADIAN DOLLARS)
--------------------------------------------------------------------------------

2.      SALE OF SUBSIDIARY

        On July 31, 2003, the Corporation sold its wholly-owned subsidiary,
        ClarityBlue Limited ("CBL") for total proceeds of $19,893,485
        ((pound)8,841,548), to a group of investors, which included members of
        senior management, resulting in a gain on disposal in the amount of
        $11,757,280 ((pound)5,225,458) as follows:

<Table>
<Caption>
                                                                                                           $
        <S>                                                                                            <C>
        Proceeds:
         Cash consideration received at closing                                                        19,305,002
         Balance of sale receivable, non-interest bearing                                                 588,483
        -----------------------------------------------------------------------------------------------------------
                                                                                                       19,893,485
        Less transactions costs                                                                         1,462,768
        -----------------------------------------------------------------------------------------------------------
        Net proceeds                                                                                   18,430,717

        Net assets disposed                                                                             6,673,437
        -----------------------------------------------------------------------------------------------------------
        Gain on disposal                                                                               11,757,280
        -----------------------------------------------------------------------------------------------------------
        -----------------------------------------------------------------------------------------------------------


        Net assets disposed of:
        Assets
         Cash and cash equivalents                                                                      2,229,908
         Accounts receivable                                                                            8,485,258
         Inventory                                                                                        433,631
         Prepaid expenses                                                                               1,288,229
         Capital assets                                                                                 2,751,656
        -----------------------------------------------------------------------------------------------------------
                                                                                                       15,188,682
        -----------------------------------------------------------------------------------------------------------

        Liabilities
         Accounts payable and accrued liabilities                                                       6,717,100
         Deferred revenue                                                                               1,629,145
         Future income tax liabilities                                                                    169,000
        -----------------------------------------------------------------------------------------------------------
                                                                                                        8,515,245
        -----------------------------------------------------------------------------------------------------------
                                                                                                        6,673,437
        -----------------------------------------------------------------------------------------------------------
        -----------------------------------------------------------------------------------------------------------
</Table>

        The Corporation provided warranties for claims against CBL for
        conditions existing prior to the sale. All warranties expire in fiscal
        2005, except for the warranties related to tax matters, which will
        expire in fiscal 2010. A provision related to those warranties was made
        in the determination of the gain.



                                       75
<Page>

SAND TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2004, 2003 AND 2002
(IN CANADIAN DOLLARS)
--------------------------------------------------------------------------------

3.     CAPITAL ASSETS

<Table>
<Caption>
                                                                                    2004
                                                        -----------------------------------------------------------
                                                                                 Accumulated           Net book
                                                              Cost              amortization             value
                                                       ----------------     -----------------    -----------------
                                                                $                     $                    $
        <S>                                                   <C>                    <C>                  <C>
        Furniture and equipment                                 320,113              305,050               15,063
        Computer equipment                                      444,753              255,313              189,440
        Leasehold improvements                                  287,610               99,528              188,082
        -----------------------------------------------------------------------------------------------------------
                                                              1,052,476              659,891              392,585
        -----------------------------------------------------------------------------------------------------------
        -----------------------------------------------------------------------------------------------------------
</Table>

<Table>
<Caption>
                                                                                   2003
                                                        -----------------------------------------------------------
                                                                                Accumulated             Net book
                                                              Cost              amortization              value
                                                        ----------------     -----------------    -----------------
                                                                $                     $                    $

        <S>                                                   <C>                    <C>                  <C>
        Furniture and equipment                                 347,700              285,733               61,967
        Computer equipment                                      419,154              149,913              269,241
        Leasehold improvements                                  287,610               70,099              217,511
        -----------------------------------------------------------------------------------------------------------
                                                              1,054,464              505,745              548,719
        -----------------------------------------------------------------------------------------------------------
        -----------------------------------------------------------------------------------------------------------
</Table>

        Amortization expense for capital assets amounted to $214,776 in 2004
        ($1,031,395 in 2003 and $556,006 in 2002).

4.      OTHER ASSETS

<Table>
<Caption>
                                                               2004                                      2003
                                   -----------------------------------------------------------    -----------------
                                                           Accumulated            Net book             Net book
                                         Cost             amortization              value                value
                                   ----------------     ----------------     -----------------    -----------------
                                           $                    $                     $                    $

        <S>                                <C>                   <C>                 <C>                <C>
        Contract costs                     471,100               27,712              443,388                    -
        -----------------------------------------------------------------------------------------------------------
        -----------------------------------------------------------------------------------------------------------
</Table>

        The acquired technology was fully amortized as of July 31, 2003; as a
        result, it is not presented. Amortization expense for contract costs and
        acquired technology amounted to $27,712 in 2004 ($45,430 in 2003 and
        $948,981 in 2002).



                                       76
<Page>

SAND TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2004, 2003 AND 2002
(IN CANADIAN DOLLARS)
--------------------------------------------------------------------------------

5.      COMMON STOCK

        (a) AUTHORIZED

        An unlimited number of Class "A" common shares without par value

        2004 TRANSACTIONS

        On October 15, 2002, the Corporation announced that its Board of
        Directors had authorized a share repurchase program under which it may
        repurchase up to a maximum of 692,345 of its outstanding Class "A"
        common shares from October 23, 2002 to October 23, 2003. During the
        year, the Corporation repurchased 70,100 Class "A" common shares for
        $111,668 under this program. On December 17, 2003, the Corporation
        announced that its Board of Directors had authorized a share repurchase
        program under which it may repurchase up to a maximum of 654,710 of its
        outstanding Class "A" common shares from December 22, 2003 to December
        22, 2004. The Corporation repurchased 96,676 Class "A" common shares for
        $129,838 under this program.

        2003 TRANSACTIONS

        On October 15, 2002, the Corporation announced that its Board of
        Directors had authorized a share repurchase program under which it may
        repurchase up to a maximum of 692,345 of its outstanding Class "A"
        common shares from October 23, 2002 to October 23, 2003. During the
        year, the Corporation repurchased 45,100 Class "A" common shares for
        $55,035 under this program.

        (b) STOCK OPTION PLANS

        The Corporation has two stock option plans. Under the 1996 Stock
        Incentive Plan, the Corporation may grant options to its regular
        full-time employees and those of its subsidiaries up to a maximum of
        1,100,000 common shares. Under the 1996 Stock Option Plan, the
        Corporation may grant options to its regular full-time employees and
        non-employee directors and those of its subsidiaries up to a maximum of
        900,000 common shares. Under both plans, the exercise price of each
        option is not less than the market price of the Corporation's shares on
        the Nasdaq National Market System on the day prior to the date of grant.
        Options vest equally over a five-year period and the options' maximum
        term is ten years.



                                       77
<Page>


SAND TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2004, 2003 AND 2002
(IN CANADIAN DOLLARS)
--------------------------------------------------------------------------------

5.     COMMON STOCK (CONTINUED)

        (b) STOCK OPTION PLANS (CONTINUED)
        Activity in the stock option plans for 2004, 2003 and 2002 was as
        follows:

<Table>
<Caption>
                                                2004                       2003                       2002
                                     --------------------------   ------------------------    ---------------------
                                                    WEIGHTED                     Weighted                 Weighted
                                                     AVERAGE                      average                 average
                                       OPTIONS      EXERCISE        Options      exercise      Options   exercise
                                       (000S)         PRICE         (000s)         price       (000s)      price
        -----------------------------------------------------------------------------------------------------------
                                       NUMBER          $US          Number          $US        Number       $US
        -----------------------------------------------------------------------------------------------------------
<S>                                      <C>          <C>               <C>        <C>            <C>        <C>
        Outstanding,
        Beginning of year                1,247        2.41              849        3.52           1,389      4.53
          Granted                          261        1.16              571        1.28             333      3.20
          Exercised                          -           -                -           -              56      0.67
          Forfeited                         30        4.58              173        4.08             817      5.30
        -----------------------------------------------------------------------------------------------------------

        Outstanding,
           end of year                   1,478        2.15            1,247        2.41             849      3.52
        -----------------------------------------------------------------------------------------------------------

        Options exercisable,
           end of year                     592        2.83              411        3.09             324      2.84
        -----------------------------------------------------------------------------------------------------------
        -----------------------------------------------------------------------------------------------------------
</Table>

        The following table summarizes significant ranges of outstanding options
        held by directors, officers, and employees as of July 31, 2004:


<Table>
<Caption>
                                                         OPTIONS OUTSTANDING                  OPTIONS EXERCISABLE
                                           ---------------------------------------------  -------------------------
                                                             Weighted        Weighted                     Weighted
                                                              average         average                      average
                                               Options       remaining       exercise         Options     exercise
        Range of exercise prices               (000s)          life            price          (000s)        price
        -----------------------------------------------------------------------------------------------------------
          ($US)                                Number         Years             US$           Number         US$

        <S>                                    <C>            <C>               <C>           <C>            <C>
        < 1.00                                      160           1.97           0.69             160          0.69
        1.00 to 1.99                                894           8.62           1.06             152          1.07
        3.00 to 3.99                                 20           1.97           3.38              20          3.38
        4.00 to 4.99                                 48           3.45           4.40              48          4.40
        5.00 to 5.99                                324           6.71           5.07             184          5.12
        6.00 to 6.99                                 28           5.05           6.36              25          6.37
        7.00 to 7.99                                  4           4.34           7.00               3          7.00
        -----------------------------------------------------------------------------------------------------------
                                                  1,478           7.14           2.15             592          2.83
        -----------------------------------------------------------------------------------------------------------
        -----------------------------------------------------------------------------------------------------------
</Table>


                                       78
<Page>


SAND TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2004, 2003 AND 2002
(IN CANADIAN DOLLARS)
--------------------------------------------------------------------------------

5.      COMMON STOCK (CONTINUED)

        (b) STOCK OPTION PLANS (CONTINUED)

        The following table presents the weighted average assumptions used to
        determine the stock-based compensation expense, included in selling,
        general and administrative expenses for the year ended July 31, 2004,
        using the Black-Scholes option-pricing model.

<Table>
        <S>                                                              <C>
        Compensation cost                                                $49,000

        Dividend yield                                                         -
        Expected volatility                                                  52%
        Risk-free interest rate                                             4.4%
        Expected life                                                    7 YEARS
        Number of options granted                                        261,000
</Table>

        For stock options granted to employees during 2003, had the Corporation
        determined compensation cost based on the fair values of the stock
        options at grant dates, consistent with the method recommended under
        CICA Handbook Section 3870, the Corporation's earnings would have been
        reported at the pro forma amounts indicated below:

<Table>
<Caption>
                                                                                      2004               2003
                                                                                 ----------------------------------
                                                                                        $                  $

        <S>                                                                       <C>                   <C>
        Net (loss) income, as reported                                            (7,129,930)           9,793,081
        Fair value of stock-based compensation                                       (93,686)            (104,763)
        -----------------------------------------------------------------------------------------------------------
        Pro forma net (loss) income                                               (7,223,616)           9,688,318
        -----------------------------------------------------------------------------------------------------------

        Pro forma basic and diluted (loss) earnings per share                          (0.55)                0.73
        -----------------------------------------------------------------------------------------------------------
        -----------------------------------------------------------------------------------------------------------
</Table>

        The fair value of stock options granted during 2003 was estimated using
        the Black-Scholes option pricing model using the following weighted
        average assumptions:

<Table>
        <S>                                                             <C>
        Risk-free interest rate                                            4.80%
        Dividend yield                                                         -
        Expected volatility                                                  87%
        Weighted average expected life                                   7 YEARS
</Table>

        (c) EARNINGS (LOSS) PER SHARE

        For the years presented, the Corporation had outstanding options that
        could potentially dilute the earnings (loss) per share, but were
        excluded as they were anti-dilutive.


                                       79
<Page>



SAND TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2004, 2003 AND 2002
(IN CANADIAN DOLLARS)
--------------------------------------------------------------------------------

6.      RESEARCH AND DEVELOPMENT

        Investment tax credits netted against research and development expenses
        amounted to $370,496 ($747,426 and $612,519 in 2003 and 2002,
        respectively).

7.      INCOME TAXES

        The reconciliation of income taxes at Canadian statutory rates with the
        reported income taxes is as follows:

<Table>
<Caption>
                                                                                      2004               2003
                                                                                 ----------------------------------
                                                                                        $                  $
        <S>                                                                         <C>                <C>
        Income taxes (recovery) at Canadian statutory rates                        (2,266,000)          3,216,000
        Non-taxable amounts                                                                 -            (628,000)
        Utilization of losses carried forward                                               -          (2,979,864)
        Non-recording of benefit from losses carried forward                       (2,266,000)            574,000
        -----------------------------------------------------------------------------------------------------------
        Total income tax expense                                                            -             182,136
        -----------------------------------------------------------------------------------------------------------
        -----------------------------------------------------------------------------------------------------------
</Table>

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


<Table>
<Caption>
                                                                                     2004               2003
                                                                                 ----------------------------------
                                                                                        $                  $
        <S>                                                                        <C>                  <C>
        Future tax assets
           Losses carried forward                                                  10,000,000           8,100,000
           Capital assets                                                             164,000             210,000
           Research and development                                                 2,900,000           1,300,000
        -----------------------------------------------------------------------------------------------------------
                                                                                   13,064,000           9,610,000

        Future tax liabilities
           Investment tax credits                                                      64,000             236,000
        -----------------------------------------------------------------------------------------------------------
        Net future income taxes                                                    13,000,000           9,374,000

        Less: valuation allowance                                                 (13,000,000)         (9,374,000)
        -----------------------------------------------------------------------------------------------------------
        Net future income taxes                                                             -                   -
        -----------------------------------------------------------------------------------------------------------
        -----------------------------------------------------------------------------------------------------------
</Table>

        The Corporation has losses carried forward to reduce future taxable
        income for Canadian federal and provincial, US, United Kingdom and
        German tax purposes of approximately $7,100,000 and $6,700,000,
        $17,000,000, $146,000 and $3,800,000, respectively, expiring at various
        dates to 2019. In addition, the Corporation has research and development
        expenditures carried forward of approximately $7,700,000, which can be
        used to reduce taxable income at any time in the future, and investment
        tax credits of approximately $2,300,000, which can be applied against
        future federal income taxes payable, expiring at various dates to 2014.
        The benefits of these items have not been recognized in the financial
        statements.


                                       80
<Page>

SAND TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2004, 2003 AND 2002
(IN CANADIAN DOLLARS)
--------------------------------------------------------------------------------


8.      COMMITMENTS

        The Corporation is committed under operating leases for a total amount
        of approximately $1,631,000. The minimum payments due in each of the
        forthcoming years are as follows:

<Table>
<Caption>
                                                        $

                      <S>                            <C>
                      2005                           466,000
                      2006                           381,000
                      2007                           296,000
                      2008                           244,000
                      2009                           244,000
</Table>

9.      SEGMENTED INFORMATION

        The Corporation is considered to have only one business segment.

        The Corporation has two reportable geographic segments. Both the North
        American and European segments distribute a full range of Nucleus
        Exploration series products, including the Nucleus Exploration
        Mart/Warehouse and the Nucleus Prototype Mart/Warehouse. The accounting
        policies of the segments are the same as described in the summary of
        significant accounting policies. The Corporation evaluates segment
        performance based on income before taxes. Sales for each segment are
        based on the location of the third party customer. All intercompany
        transactions between segments have been eliminated.

<Table>
<Caption>
                                                          North America         Europe            Total
                                                          -------------         ------            -----
      <S>                                                 <C>                   <C>               <C>
      2004
      Revenue                                                 1,503,184          3,846,030         5,349,214
      Loss before taxes                                      (6,799,588)          (330,342)       (7,129,930)
      Identifiable assets                                    12,077,507          3,913,194        15,990,701

      2003
      Revenue                                                 3,423,142         28,259,394        31,682,536
      Income before taxes                                     7,670,884          2,304,333         9,975,217
      Identifiable assets                                    19,596,545          4,429,282        24,025,827

      2002
      Revenue                                                 4,417,697          9,504,380        13,922,077
      Loss before taxes                                     (10,927,783)        (3,884,218)      (14,812,001)
      Identifiable assets                                     5,797,886          9,729,912        15,527,798
</Table>


                                       81
<Page>


SAND TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2004, 2003 AND 2002
(IN CANADIAN DOLLARS)
--------------------------------------------------------------------------------

10.     FINANCIAL INSTRUMENTS

        FAIR VALUE OF FINANCIAL INSTRUMENTS

        The carrying amount of the Corporation's financial assets and
        liabilities included in the current and non-current assets and current
        and non-current liabilities approximate their fair values at July 31,
        2004.

        CREDIT RISK

        The Corporation's exposure to credit risk as of July 31, 2004, is equal
        to the carrying amount of its financial assets.

        CONCENTRATION OF CREDIT RISK

        Credit risk concentration with respect to trade receivables is limited
        due to the relatively large size of the Corporation's customers.

        CURRENCY RISK

        The Corporation operates internationally and is exposed to market risk
        principally from changes in foreign currency rates. The Corporation does
        not hold any financial instruments that mitigate this risk.

11.    SIGNIFICANT CUSTOMERS

        For the year ended July 31, 2004, the Corporation generated
        approximately 36% of its revenues from two customers (26% from two
        customers in 2002).

12.    COMPARATIVE FIGURES

       Certain figures for prior years have been reclassified in order to
       conform to the presentation adopted in the current year.



                                       82
<Page>

SAND TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2004, 2003 AND 2002
(IN CANADIAN DOLLARS)
--------------------------------------------------------------------------------

13.     RECONCILIATION OF CANADIAN AND UNITED STATES
        GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

        The Corporation does not have material differences between Canadian and
        United States generally accepted accounting principles.

        The following items present other supplementary disclosures required
        under United States generally accepted accounting principles.

        COMPREHENSIVE INCOME

        The Corporation has adopted Statement of Financial Accounting Standards
        ("SFAS") No. 130, "Reporting Comprehensive Income". There are no
        material differences between the Corporation's net loss as reported and
        its comprehensive income as defined by SFAS 130. Accordingly, a separate
        Statement of comprehensive income has not been presented.

        STOCK-BASED COMPENSATION

        The Corporation accounts for its stock-based compensation for accounts
        granted prior to August 1, 2003 using the intrinsic value method
        prescribed by the Accounting Principles Board Opinion No.25, "Accounting
        for Stock Issued to Employees". U.S. GAAP requires companies that follow
        this method to make pro forma disclosures of net income and earnings per
        share, as if the fair value based methodology prescribed by SFAS No.123,
        "Accounting for Stock Based Compensation", had been applied for the
        periods presented. For options granted as of August 1, 2003, the
        Corporation has adopted the fair value method, on a prospective basis,
        in accordance with SFAS No.148.

        The following table presents net earnings and earnings per share in
        accordance with U.S. GAAP on a pro forma basis, giving effect to the pro
        forma compensation expense relating to stock options granted to
        employees prior to August 1, 2003, in accordance with SFAS 123.

<Table>
<Caption>
                                                          JULY 31, 2004         JULY 31, 2003        JULY 31, 2002
                                                        ----------------     -----------------    -----------------
                                                                $                     $                    $

        <S>                                                  <C>                   <C>                <C>
        Net (loss) income, as reported                       (7,129,930)           9,793,081          (14,812,001)
        Pro forma (expense) compensation benefit               (615,749)            (482,038)             301,420
        -----------------------------------------------------------------------------------------------------------
        Pro forma net income (loss)                          (7,745,679)           9,311,043          (14,510,581)
        -----------------------------------------------------------------------------------------------------------
        -----------------------------------------------------------------------------------------------------------

        Pro forma basic earnings (loss) per share                 (0.59)                0.71                (1.10)
        -----------------------------------------------------------------------------------------------------------
        -----------------------------------------------------------------------------------------------------------
</Table>


                                       83
<Page>


SAND TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2004, 2003 AND 2002
(IN CANADIAN DOLLARS)
--------------------------------------------------------------------------------

13.     RECONCILIATION OF CANADIAN AND UNITED STATES
        GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)

        STOCK-BASED COMPENSATION (CONTINUED)

        The Corporation recognized a compensation benefit of $301,420 in 2002,
        which resulted from the reversal of a previously recorded stock
        compensation expense on the forfeiture of unexercised options. The
        benefit is reconciled as follows: (1) stock compensation expense
        $597,381 in 2002 for employee-based stock option plans in accordance
        with SFAS 123 and (2) reversal of previously recorded stock compensation
        expense on the forfeiture of an unexercised option of $898,801 in 2002.

        SFAS 123 requires that the pro forma compensation expense be recognized
        over the vesting period based on the fair value of options granted to
        employees. The pro forma compensation expense presented above has been
        estimated using the Black Scholes option pricing model. In order to
        perform the calculation, the following weighted average assumptions were
        used for fiscal years 2004, 2003 and 2002.

<Table>
<Caption>
                                                          JULY 31, 2004         JULY 31, 2003        JULY 31, 2002
                                                        ----------------     -----------------    -----------------

        <S>                                                   <C>                   <C>                 <C>
        Risk-free interest rate                                 4.40%                 4.80%               4.75%
        Dividend yield                                             -%                    -%                  -%
        Volatility factor of the expected market
           price of the Corporation's common stock                52%                   87%                 89%
        Term to maturity                                      7 YEARS               7 years             7 years
</Table>

        RECENT ACCOUNTING PRONOUNCEMENTS

        In May 2003, the FASB issued the SFAS No. 150, "Accounting for Certain
        Financial Instruments with Characteristics of both Liabilities and
        Equity". This statement establishes standards for how an issuer
        classifies and measures in its balance sheet certain financial
        instruments with characteristics of both liabilities and equity. In
        accordance with the standard, financial instruments that embody
        obligations for the issuer are required to be classified as liabilities.
        This statement is effective for financial instruments entered into or
        modified after May 31, 2003, and will otherwise be effective at the
        beginning of the first period commencing after June 15, 2003. The
        adoption of SFAS 150 did not have an impact on the Corporation's
        business, results of operations or financial position.


                                       84
<Page>

SAND TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2004, 2003 AND 2002
(IN CANADIAN DOLLARS)
--------------------------------------------------------------------------------

13.     RECONCILIATION OF CANADIAN AND UNITED STATES
        GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)

        In January 2003, the FASB issued Interpretation ("FIN") No. 46
        "Consolidation of Variable Interest Entities." FIN 46 clarifies the
        application of Accounting Research Bulletin No. 51 - Consolidated
        Financial Statements to those entities defined as "Variable Interest
        Entities" (more commonly referred to as special purpose entities) in
        which equity investors do not have the characteristics of a "controlling
        financial interest" or do not have sufficient equity at risk for the
        entity to finance its activities without additional subordinated
        financial support from other parties. FIN 46 applies immediately to all
        Variable Interest Entities created after January 31, 2003, and by the
        beginning of the first interim or annual reporting period commencing
        after June 15, 2003 for Variable Interest Entities created prior to
        February 1, 2003. The adoption of FIN 46 did not have an impact on the
        Corporation's business, results of operations or financial position.


                                       85
<Page>

ITEM 19.          EXHIBITS
<Table>
<Caption>
EXHIBITS

          <S>                    <C>
          1.1*                   Articles of Incorporation, as amended on December 20, 1996 and December 31, 1996

          1.2**                  Amendment to Articles of Incorporation dated January 1, 2000.

          1.3*******             By-Laws approved, confirmed and ratified by the shareholders on December 17, 2002

          4.1***                 Sand Technology Systems International Inc. 1996 Stock Option Plan

          4.2****                Sand Technology Systems International Inc. 1998 Stock Option Plan

          4.3**                  Common  Share  Purchase  Agreement  dated  May 26,  2000  between  Registrant  and
                                 Sundowner Investments Limited

          4.4**                  Registration  Rights Agreement dated May 26, 2000 between Registrant and Sundowner
                                 Investments Limited

          4.5**                  Common  Shares and  Warrants  Purchase  Agreement  dated May 24, 2000  between the
                                 Registrant and AMRO International, S.A.

          4.6**                  Amendment  to Common  Share  Purchase  Agreement  dated June 26, 2000  between the
                                 Registrant and Sundowner Investments Limited

          4.7*****               Agreement  dated July 31, 2000 between the  Registrant  and Nucleus  International
                                 Corporation

          4.8******              Heads of  Agreement  dated  November  6, 2000  between the  Registrant,  Ladenburg
                                 Thalmann & Co. Inc., Sundowner Investments Limited and AMRO International S.A.

          4.9******              Purchase Agreement dated November 22, 2000 with Sprott Securities Inc.

          4.10******             Escrow Agreement dated November 22, 2000 among the Registrant,  Sprott  Securities
                                 and Aird & Berlis
</Table>


                                       86


<Page>

<Table>

          <S>                    <C>
          4.11******             Escrow Agreement dated November 28, 2000 among the Registrant,  Sprott  Securities
                                 and Aird & Berlis

          4.12*******            Purchase and Sale Agreement  dated July 31, 2003 between Sand  Technology Inc. and
                                 ClarityBlue Holdings Limited

          4.13*******            Shareholder  Rights Plan Agreement  between Sand  Technology  Inc. and CIBC Mellon
                                 dated November 17, 2003

          6.1                    Statement detailing computation of per share earnings

          8.1                    Subsidiaries

          11.1*******            Standards of Ethical Conduct

          12.1                   Certification  of  Chief  Executive   Officer  Pursuant  to  Section  302  of  the
                                 Sarbanes-Oxley Act of 2002

          12.2                   Certification  of  Chief  Financial   Officer  Pursuant  to  Section  302  of  the
                                 Sarbanes-Oxley Act of 2002

          13.1                   Certification  of  Periodic  Financial  Report  Pursuant  to  Section  906  of the
                                 Sarbanes-Oxley Act of 2002, U.S.C. Section 1350

          13.2                   Certification  of  Periodic  Financial  Report  Pursuant  to  Section  906  of the
                                 Sarbanes-Oxley Act of 2002, U.S.C. Section 1350

          15.1                   Consent of Deloitte & Touche

          15.2*******            Audit Committee Charter

          15.3*******            Board of Directors Charter
</Table>

------------------------------------------------------

*        Incorporated by reference from the Registrant's Form 20-F Annual Report
         for the fiscal year ending July 31, 1996.

**       Incorporated by reference from Amendment No. 1 to the Registrant's Form
         F-2 Registration Statement (333-12216) filed on August 18, 2000.

***      Incorporated by reference from the Registrant's Form S-8 Registration
         Statement (333-7462).

****     Incorporated by reference from the Registrant's Form S-8 Registration
         Statement (333-8538).


                                       87


<Page>

*****    Incorporated by reference from the Registrant's Form 20-F Annual Report
         for the fiscal year ending July 31, 2000.

******   Incorporated by reference from the Registrant's Form F-3 Registration
         Statement (333-51014).


*******  Incorporated by reference from the Registrant's Form 20-F Annual Report
         for the fiscal year ending July 31, 2002.

*******  Incorporated by reference from the Registrant's Form 20-F Annual Report
         for the fiscal year ending July 31, 2003.

                                       88


<Page>


                                   SIGNATURES


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



                                              SAND TECHNOLOGY INC.





                                              /s/ Arthur G. Ritchie
                                              ----------------------------------
January 27, 2005                              Arthur G. Ritchie
                                              Chairman of the Board,
                                              President and Chief Executive
                                              Officer


                                       89