<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, 2005

                                       OR

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

                                       OR

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

Date of event requiring this shell company report..........

Commission file number : 0-14884


                              SAND TECHNOLOGY INC.
              (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 - 12,818,189

Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act

                 Yes                                  No   X
                     -----                               -----

                                       1
<Page>

If this report is an annual or transition report, indicate by check mark if
the registrant is not required to file reports pursuant to Section 13 or 15
(d) of the Securities Exchange Act of 1934.

                 Yes                                  No   X
                     -----                               -----

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 whether the registrant is a large accelerated filer,
an accelerated filer, or a no-accelerated filer.

Large accelerated filer   X            Accelerated       Non-accelerated filer
                        -----          filer

If this report is an annual report, indicate by check mark whether the
registrant is a shell company.

                 Yes                                  No   X
                     -----                               -----

                                       2

<PAGE>

                                TABLE OF CONTENTS

<Table>
<S>                   <C>
PART I........................................................................4
         ITEM 1.      IDENTITY OF DIRECTORS, SENIOR MANAGEMENT
                      AND ADVISERS............................................4
         ITEM 2.      OFFER STATISTICS AND EXPECTED TIMETABLE.................4
         ITEM 3.      KEY INFORMATION.........................................4
         ITEM 4.      INFORMATION ON THE COMPANY.............................16
         ITEM 5.      OPERATING AND FINANCIAL REVIEW AND PROSPECTS...........23
         ITEM 6.      DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.............32
         ITEM 7.      MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS......42
         ITEM 8.      FINANCIAL INFORMATION .................................43
         ITEM 9.      THE OFFER AND LISTING..................................44
         ITEM 10.     ADDITIONAL INFORMATION.................................45
         ITEM 11.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
                      MARKET RISK............................................55
         ITEM 12.     DESCRIPTION OF SECURITIES OTHER THAN EQUITY
                      SECURITIES.............................................56

PART II......................................................................56
         ITEM 13.     DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES........56
         ITEM 14.     MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY
                      HOLDERS AND USE OF PROCEEDS............................56
         ITEM 15.     CONTROLS AND PROCEDURES................................59



         ITEM 16 A.   AUDIT COMMITTEE FINANCIAL EXPERT.......................60
         ITEM 16 B.   CODE OF ETHICS.........................................60
         ITEM 16 C.   PRINCIPAL ACCOUNTANT FEES AND SERVICES.................60
         ITEM 16 D.   EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT
                      COMMITTEES.............................................61
         ITEM 16 E.   PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND
                      AFFILIATED PURCHASERS..................................61


PART III.....................................................................62
         ITEM 17.     FINANCIAL STATEMENTS...................................62
         ITEM 18.     FINANCIAL STATEMENTS...................................62
         ITEM 19.     EXHIBITS...............................................89
</Table>


                                       3
<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 Technology Inc. ("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 26, 2006. 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 SAND Analytic
Server, SAND Searchable Archive, SAND DNA, 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. All other trademarks are the property
of their respective owners.

                                     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 2005
fiscal year and the notes relating to them (the "Financial Statements"), which
are included at Item 18 are presented in accordance with Canadian generally
accepted accounting principles


                                       4
<PAGE>

("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 the
Financial Statements that have been audited by Deloitte & Touche LLP, our
auditors. The information set forth below is not necessarily indicative of the
results of future operations and should be read in conjunction with, and is
qualified in its entirety by, the Financial Statements 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
                                         -----------------------------------------------------------------------------------------
                                            7/31/05            7/31/04             7/31/03            7/31/02           7/31/01
                                         --------------    ----------------   -----------------   ---------------    -------------
                                              CA                 CA                  CA                 CA                CA
<S>                                      <C>               <C>                <C>                 <C>                <C>
Rates of exchange
   At period end -- US$                       $1.22               $1.33               $1.40              $1.58            $1.53
   Average for the period                     $1.24               $1.34               $1.50              $1.57            $1.52

Results of Operations
   Revenue                                   $6,096              $5,349             $31,683            $13,922          $11,259
   Research and Development Costs           ($3,272)            ($3,309)            ($3,311)           ($4,888)         ($3,924)
   Selling, General and Administrative
   Expenses                                 ($8,318)            ($7,605)           ($16,582)          ($16,033)        ($11,202)
   Amortization                               ($277)              ($242)            ($1,077)           ($1,505)         ($1,160)
   Cost of Sales and Product Support        ($1,754)            ($1,652)           ($12,510)           ($6,474)         ($4,120)
   Loss from operations                     ($7,525)            ($7,459)            ($1,797)          ($14,978)         ($9,147)

Other Income (Expense)                         $162                $329               ($167)              $166             $624

Equity and Gain on Sale of Subsidiaries                                             $11,757

Net Income (Loss)                           ($7,363)            ($7,130)             $9,793           ($14,812)         ($8,523)

Financial Position
   Working Capital                           $4,205             $11,523             $19,133             $7,562          $22,204
   Total Assets                              $7,935             $15,991             $24,026            $15,528          $29,932
   Total Liabilities                         $3,100              $3,632              $4,344             $5,584           $5,237
   Shareholders' Equity                      $4,835             $12,359             $19,682             $9,944          $24,695

Basic and diluted earnings (Loss)            ($0.57)             ($0.55)              $0.74             ($1.12)          ($0.71)
   per Share
Weighted Average Number of Shares
outstanding during each period (000's)       12,860              13,080              13,189             13,186           12,079
</TABLE>

The same data, presented in conformity with US GAAP, is shown on the next page.


                                       5
<PAGE>

<TABLE>
<CAPTION>
                                               (Dollars in Thousands (000's) except for Per Share Data and Rates of Exchange)
                                                                              FISCAL YEAR ENDED
                                         -----------------------------------------------------------------------------------------
                                            7/31/05            7/31/04             7/31/03            7/31/02           7/31/01
                                         --------------    ----------------   -----------------   ---------------    -------------
                                              CA                 CA                  CA                 CA                CA
<S>                                      <C>               <C>                <C>                 <C>                <C>
Rates of exchange
   At period end -- US$                          $1.22             $1.33               $1.40               $1.58            $1.53
   Average for the period                        $1.24             $1.34               $1.50               $1.57            $1.52

Results of Operations
   Revenue                                      $6,096            $5,349             $31,683             $13,922          $11,259
   Research and Development Costs              ($3,272)          ($3,309)            ($3,311)            ($4,888)         ($3,924)
   Selling, General and Administrative
   Expenses                                    ($8,318)          ($7,605)           ($16,582)           ($16,033)        ($11,202)
Amortization                                     ($277)            ($242)            ($1,077)            ($1,505)         ($1,160)
   Cost of Sales and Product Support           ($1,754)          ($1,652)           ($12,510)            ($6,474)         ($4,120)
   Loss from Operations                        ($7,525)          ($7,459)            ($1,797)           ($14,978)         ($9,147)

Other Income (Expense)                            $162              $329               ($167)               $166             $624

Equity and Gain on Sale of
    Subsidiaries                                                                     $11,757

Net Income (Loss)                              ($7,363)          ($7,130)             $9,793            ($14,812)         ($8,523)

Financial Position
   Working Capital                              $4,205           $11,523             $19,133              $7,562          $22,204
   Total Assets                                 $7,935           $15,991             $24,026             $15,528          $29,932
   Total Liabilities                            $3,100            $3,632              $4,344              $5,584           $5,237
   Shareholders' Equity                         $4,835           $12,359             $19,682              $9,944          $24,695

Basic and diluted earnings (Loss)
    per Share                                   ($0.57)           ($0.55)              $0.74              ($1.12)          ($0.71)
Weighted Average Numbers of Shares
   outstanding during each period (000's)       12,860            13,080              13,189              13,186           12,079
</Table>

Canadian Equivalent of U.S. $1.00

<TABLE>
<CAPTION>
MONTH ENDED                                               HIGH                                   LOW
-----------                                               ----                                   ---
<S>                                                     <C>                                    <C>
December 2005                                           $1.1731                                $1.1518
November 2005                                           $1.1937                                $1.1669
October 2005                                            $1.1882                                $1.1647
September 2005                                          $1.1888                                $1.1627
August 2005                                             $1.2185                                $1.1871
July 2005                                               $1.2436                                $1.2027
</TABLE>

<TABLE>
<CAPTION>
                                                                       YEAR ENDED JULY 31
                                               ---------------------------------------------------------------------
                                                2005           2004            2003            2002            2001
                                                ----           ----            ----            ----            ----
<S>                                            <C>             <C>             <C>             <C>             <C>
Average                                        $1.24           $1.34           $1.50           $1.57           $1.52
</TABLE>


                                       6
<PAGE>

On January 20, 2006, the exchange rate was CDN $1.1527 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 this Report, the following factors
should be considered in evaluating SAND and our business. The risks and
uncertainties described below are not the only ones facing us. Additional risks
and uncertainties of which we are not presently aware or that we currently
consider immaterial, may also impair our business, our operating results and
financial condition.


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 $8,522,676 in fiscal
2001, $14,812,001 in the fiscal 2002, $7,129,930 in fiscal 2004 and
$7,363,054 for the fiscal year ended July 31, 2005. 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 North American and international markets as
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


                                       7
<PAGE>

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.

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


                                       8
<PAGE>

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 and the SAND Searchable Archive 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 cycle, the
timing of sales is difficult to predict and our earnings and operating results
could vary significantly from quarter to quarter during our current fiscal year.
As a result of the long sales cycle, it may take us a substantial amount of time
to generate revenue from our sales effort.


                                       9
<PAGE>

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 and SAND
Searchable Archive 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 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.

    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


                                       10
<PAGE>

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, some
potential customers may be reluctant to work with us due to our fluctuating
stock price or our financial condition.

    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 89%, 72% and 52%
of our total revenue for fiscal 2003, 2004 and 2005, 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 not have a material adverse effect on our future
international operations and, consequently, on our business, operating results
and financial condition.


                                       11
<PAGE>

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.

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, our SAND Searchable Archive and
our Nucleus Product Suite, and we expect such sales to constitute an increasing
portion of any


                                       12
<PAGE>

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

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 and twenty-eight foreign patents. We cannot assure you
that our patents will not be invalidated, circumvented or challenged, or that
the rights granted under our patents will provide competitive advantages to
us. Others may develop technologies that are similar or superior to our
technology or design around any patent that may be owned by us. 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.

                                       13
<PAGE>

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 could be materially adversely affected.

    Finally, we may rely upon certain software that we license from third
parties, including software that may be integrated with our internally-developed
software and used in our products to perform key functions. We cannot assure you
that these third-party software licenses will be available to us on terms
acceptable to us or indeed that our suppliers will continue to support their
software or remain in business. 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.

    We are authorized to issue an unlimited number of Class A common shares, of
which 12,818,189 shares are outstanding as of January 20, 2006, and we have
reserved an additional 1,072,000 Class A common shares for future issuance. The
issuance of these authorized or reserved shares could substantially dilute the
equity interest of our existing shareholders and could result in a significant
decrease to the market price of our Class A common shares. We have granted
rights to purchase 1,072,000 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.


                                       14
<PAGE>

o    THE PRICE OF OUR CLASS A COMMON SHARES ON THE OTC BULLETIN BOARD IS LIKELY
     TO BE VOLATILE.

    Our Class A common shares are currently listed on the OTC Bulletin Board
("OTCBB") under the symbol SNDTF.OB. Prior to August 9, 2005, our class A common
shares were traded on the Nasdaq SmallCap Market. Our share price, which has
ranged from a low of US$0.22 to a high of US$0.98 during the past twelve months,
could be subject to wide fluctuations. The volume of trading in our Class A
common shares on the OTCBB has not been substantial. As a result, even small
dispositions or acquisitions of our class A common shares in the public market
could cause the market price to fall or increase substantially. Our share price
could also be subject to wide fluctuations in response to broad market and
industry factors, actual or anticipated variations in quarterly operating
results, volatile economic conditions, new products offered by us or our
competitors, changes in financial estimates by securities analysts and other
events or factors that may be beyond our control.

o    EXISTING STOCKHOLDERS WILL CONTINUE TO EXERCISE EFFECTIVE CONTROL OVER US

    Our senior management and directors, together with entities affiliated with
those individuals, beneficially own approximately 29.2% of our Class A common
shares. Arthur G. Ritchie, our Chairman of the Board, President and Chief
Executive Officer and a director of SAND, beneficially owns approximately 18.3%
of SAND's Class A common shares. Jerome Shattner, Executive Vice President,
beneficially owns 8.2% of our Class A common shares, while George Wicker, a
director of SAND, beneficially owns 2.1% of our Class A common shares. Other
senior management or directors own approximately 0.6% of our Class A common
shares. These shareholders may, as a practical matter, continue to be able to
control the election of the directors of SAND and the determination of many
corporate actions. This concentration of ownership could have the effect of
delaying or preventing a change in control of SAND.

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.


                                       15
<PAGE>

o   THE RIGHTS THAT MAY HAVE BEEN AND MAY IN FUTURE BE GRANTED TO OUR
    SHAREHOLDERS MAY ALLOW OUR BOARD AND MANAGEMENT TO DETER A POTENTIAL
    ACQUISITION OF OUR COMPANY

    Our Board of Directors adopted a shareholder rights plan which was ratified
by our shareholders on December 16, 2003. The approval of the renewal and
confirmation of the shareholder rights plan by the directors on November 21,
2005 was ratified confirmed and approved by the shareholders at the Annual and
Special Meeting of Shareholders on December 15, 2005. Under the plan, rights to
purchase Class A common shares have been issued to holders of Class A common
shares. The rights become exercisable under certain circumstances in which
someone acquires 20% or more of our outstanding Class A common shares. As a
result of the plan, anyone wishing to take-over the company may be forced under
certain circumstances to negotiate a transaction with our Board of Directors and
management or comply with certain bid criteria in order not to trigger the
exercise of rights. This could prolong the take-over process and, arguably,
deter a potential bidder.


ITEM 4.  INFORMATION ON THE COMPANY

A.  HISTORY AND DEVELOPMENT OF THE COMPANY

    SAND 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.

    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
interest in HDS Canada to HDSC and withdrew from the mainframe computer market
and the peripheral hardware market.

    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 and SAND Searchable Archive, are
designed to provide an efficient and cost-effective way for business users to
make fast easy inquiries of large databases without the intervention of
Information Technology professionals, and to store that data with orders of
magnitude

                                       16
<PAGE>

greater and more efficiently than what is generally possible using more
traditional database products. The SAND Analytic Server, which incorporates
SAND's patent-protected Nucleus database engine and other Nucleus derived
products, facilitates the use of data mining, query, reporting and other
classes of on-line analytical applications, thereby enabling more effective
management of customer relationships, supply chains and other critical
business processes. Our products permit more timely and accurate decisions
across the extended enterprise, making "business intelligence" a key
component of operational excellence. Customers in Europe and North America
now use SAND's 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.

    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 with the 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.


Sale of ClarityBlue

    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.

    Meanwhile, 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.

    As a result, the decision was taken to sell the ClarityBlue division by
means of a management buyout to the management team operating ClarityBlue, which
was completed in 2003.


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


                                       17
<PAGE>

make timely, fact-based business decisions and to help large enterprises
maintain cost-effective and timely access to enormous amounts of data.

    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.


Products and Services

    We have developed a unique data storage and manipulation product 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.


                                       18
<PAGE>

    In 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. This was followed in
2005 by a significant update to Version 4 (currently Release 4.2) incorporating
many features to allow high-performance scalability for multiple users and huge
amounts of data.

    In September 2004 we introduced a second patent protected product, the SAND
Searchable Archive. This product builds on SAND's strength in advanced data
management 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, and to generally
help manage the data explosion in industry by maintaining rapid access to huge
volumes of "nearline" data.

    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
technology and has particular impact on 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. Their 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


                                       19
<PAGE>

provide for the development and distribution of the SAND Analytic Server and
future products in the United States.

    We have relocated our offices in the United Kingdom to Camberley, 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 89%, 72% and 52% of our total revenue for
fiscal 2003, 2004 and 2005, respectively.

    We have alliances or commercial relationships with, among others, SAP, IBM,
Microsoft, Oracle, Hyperion Software, ATOS Origin, DunnHumby, FDI and TopEnd
Solutions. The United States General Services Administration (GSA) has
officially approved the addition of the SAND Analytic Server and the SAND
Searchable Archive to a GSA Supply Schedule. 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 ensure 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;


                                       20
<PAGE>

- 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.


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 United States patents and twenty-eight
foreign patents which provide protection for the SAND Analytic Server and the
SAND Searchable Archive which incorporate the Nucleus database engine and
other Nucleus derived products.

    The Company has also filed applications in accordance with the Patent
Cooperation Treaty (the "PCT"). The PCT is a multilateral treaty that was
concluded in Washington in 1970 and entered into force in 1978. It is
administered by the International Bureau of the World Intellectual Property
Organization (the "WIPO"), headquartered in Geneva, Switzerland. The PCT
facilitates the obtaining of protection for inventions where such protection is
sought in any or all of the PCT contracting states. It provides for the filing
of one patent application (the "international application"), with effect in
several contracting states, instead of 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


                                       21
<PAGE>

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 Searchable Archive, SAND DNA, 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.


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, 2005, we leased a total of approximately 17,073 square
feet of office space in four cities across North America, approximately 90
square feet in the United Kingdom and 828 square feet in Germany. The
weighted average annualized cost per square foot of the space occupied is
$22.97 including real estate taxes and operating expenses. No lease extends
beyond March 31, 2011.

                                       22
<Page>

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 activities are
primarily those that relate to revenue recognition. Other significant
accounting policies are described in Note 1 to our consolidated financial
statements. Recent and future accounting pronouncements are described and
discussed in Notes 1 and 13 of our consolidated financial statements.

REVENUE RECOGNITION

SOURCES OF REVENUE

    In the fiscal year ended July 31, 2005, 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, the entire arrangement fee is allocated to each element based on the
relative fair values of license, maintenance and implementation based on
vendor-specific objective evidence, which is determined based on the price
charged when an element is sold separately.

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,


                                       23
<PAGE>

     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.

    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 on inputs. 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.


                                       24
<PAGE>

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.


RESULTS OF OPERATIONS
FISCAL 2005 COMPARED WITH FISCAL 2004

Revenue

    Our sales in fiscal 2005 were $6,096,033, an increase of 14% from sales of
$5,349,214 in fiscal 2004.

    Our sales in fiscal 2005 in North America were $2,899,252, an increase of
93% from sales of $1,503,184 in fiscal 2004. In Europe, sales in fiscal 2005
were $3,196,781, a decrease of 17% from sales of $3,846,030 in fiscal 2004.

    The increase in our revenues for fiscal 2005 is associated primarily with
the implementation of our change in SAND's business model. In North America
the increase in revenue stems mostly from sales of product upgrades to
existing customers and professional services, while we continue to fully
engage other opportunities through our partners. Last year our newly
established United Kingdom Office was in a transitional stage and primarily
focusing on positioning itself following the sale of ClarityBlue and selling
product upgrades to the existing client base. This year, the United Kingdom
office was restarting its business development process to get new customers
and the selling process has been longer than anticipated, thus creating a
shortfall in the overall European revenues. This shortfall has been partially
offset by increased revenues from our German operations.

                                       25
<PAGE>

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 products. Selling, general and
administrative expenses increased by 9% to $8,317,831 for the fiscal year ended
July 31, 2005 from $7,604,541 for the fiscal year ended July 31, 2004. The
increase is primarily due to higher sales related costs such as commissions and
marketing efforts to address different industry segments in North America and at
the international level. During fiscal 2006, we anticipate that selling, general
and administrative expenses will decline in absolute dollars as the impact of
the cost reduction measures we executed in 2005 will show its full effect.

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 relatively stable at $3,272,102 for the fiscal
year ended July 31, 2005 compared to $3,308,789 for the fiscal year ended July
31, 2004. The relatively constant amount devoted to research and development
expenses in absolute dollars reflects an actual reduction in costs of over 6%
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 Archive. We believe that significant investment for research
and development is important to maintain product and technical leadership and
expect that we will continue to commit significant resources to research and
development in the future. However, for fiscal 2006 we expect that research and
development expenditures will decline in absolute dollars as the impact of the
cost reduction measures we executed in 2005 will show its full effect.


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 6% to
$1,754,138 for the fiscal year ended July 31, 2005 from $1,652,369 for the
fiscal year ended July 31, 2004. This increase, which reflects the increase in
revenue, is primarily due to increased costs associated with software licenses
and salaries and other personnel-related expenses incurred in providing support
and maintenance services. Cost of sales may vary due to the mix of services
provided by SAND's personnel relative to those provided by outside consultants
and to varying levels of expenditures necessary to build the service sector.


                                       26
<PAGE>

Operations

    Losses from operations were higher for the fiscal year ended July 31, 2005,
reaching an amount of $7,525,314 as compared to a loss of $7,458,973 for the
fiscal year ended July 31, 2004. These results continue to reflect the
transitional nature of the business and distribution model of SAND. During 2005,
we took measures to reduce our overall cost base to enable us to lower the level
at which we will be profitable. Once profitability is reached, we will start
reinvesting in commercial activities to a level that will favour growth in
revenues and profitability. 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 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. Our ClarityBlue division
generated significant revenue in fiscal 2003 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 SAND Analytic Server and SAND
Searchable Archive. 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


                                       27
<PAGE>

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.

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 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.

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.


                                       28
<PAGE>

B.  LIQUIDITY AND CAPITAL RESOURCES

    Cash and cash equivalents at July 31, 2005 were $5,615,912 compared with
$12,601,393 at July 31, 2004. The decrease is mainly due to operating
activities, which used cash in an amount of $6,699,096. Investing activities
used cash in an amount of $70,578 while financing activities used $215,807. We
believe that we have sufficient internal resources available to fund our
expected working capital requirement through fiscal 2006

    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 2005, we incurred a loss on foreign currency translations from our
foreign subsidiaries in an amount of $175,989.

    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.
During this period, 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. During this
period, a total of 276,038 Class A common shares had been repurchased at an
average price of US$0.88 per share.


                                       29
<PAGE>

    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 relatively stable at
$3,272,102 for the fiscal year ended July 31, 2005 compared to $3,308,789 for
the fiscal year ended July 31, 2004. As a percentage of total revenues,
research and development expenses decreased to 54% for the year ended July
31, 2005 compared to 62% for the year ended July 31, 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. For fiscal
2006, we expect that research and development expenditures will decline in
absolute dollars as the impact of the cost reduction measures we executed in
2005 will show its full effect.


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 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.


                                       30
<PAGE>

    We sold ClarityBlue on July 31, 2003 to a group of investors which included
members of senior management of ClarityBlue. SAND is now able to focus its
resources around the SAND Analytic Server and the SAND Searchable Archive
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 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.

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.


                                       31
<PAGE>

F.  TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS

    The Company is committed under operating leases for a total amount of
approximately $1,394,000. The minimum payments due in each of the following
years are as follows:

<TABLE>
<CAPTION>
                                                       $
                                                    -------
<S>                         <C>                     <C>
                            2006                    370,000
                            2007                    292,000
                            2008                    244,000
                            2009                    244,000
                            2010                    244,000
</TABLE>


ITEM 6.  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A.  DIRECTORS AND SENIOR MANAGEMENT

    The following table sets forth information as of January 20, 2006 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                        2,348,388
                          President and Chief Executive
                          Officer of Sand

Tom Ivaskiv               Director, Business Consultant               2005                           45,300

Marc Malouin              Director, Vice-President,                   2005                                -
                          Finance, Algo Group Inc.

Douglas S. Pryde          Director, Barrister and Solicitor           2001                                -

Jerome Shattner           Director, Executive                         2000                        1,048,000
                          Vice-President of Sand

Martin Shindler           Director, Accountant and                    1987                            5,950
                          Business Consultant

George Wicker             Director, Attorney and Business             1996                          274,950
                          Consultant


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

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

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


                                       32
<PAGE>

    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.

    Tom Ivaskiv has been a Business Consultant since the completion of his
term as Interim President and Chief Executive Officer of ITF Optical
Technologies Inc. on September 30, 2005. Prior to that, he served as Chief
Executive Officer of MEI Information Technologies Inc. from August 2004 to
April 2005. Prior to that, he was President and Chief Executive Officer of AD
OPT Technologies Inc. from 1997 to 2004. Mr. Ivaskiv ended his ten years
(1986-1996) at Glendale International Corporation as Executive Vice
President, responsible for Strategic Planning and Mergers & Acquisitions.

    Marc Malouin is Vice President, Finance of Algo Group Inc. He was with Ernst
& Young for ten years before assuming senior financial positions with Bombardier
Inc., Quebecor inc. and Provigo. Mr. Malouin holds CA and CPA degrees and he is
the Chairman of the Audit Committee of SAND.

    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.

    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.


                                       33
<PAGE>

    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.

    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, 2005, 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 $962,034.

    For the period between August 1 and December 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.

    Since January 1, 2005, each director, other than those directors who are
salaried officers of SAND, are paid a basic annual retainer of $15,000 for
serving as a director. The Chairman of the Audit Committee is paid an additional
amount of $5,000 per year.


                                       34
<PAGE>

    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.


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 $212,910, $218,153 and $218,153 during each of the fiscal years ended
July 31, 2005, 2004 and 2003 and the Board of Directors approved the payment of
a cash bonus of $395,973 to Mr. Ritchie for the fiscal year ended July 31, 2003.
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 equal to the out-of-pocket
costs of participation in plans and programs providing substantially similar
benefits. On January 1, 2006, the employment of Mr. Ritchie was automatically
extended to January 1, 2007 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


                                       35
<PAGE>

earned or exceeded. The informal employee compensation plan is not based upon
a mathematical formula in the case of Management, but is rather subject to
individual negotiation.

1996 STOCK INCENTIVE PLAN

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

    On November 21, 2005, the Board of Directors approved an amendment to the
1996 Stock Incentive Plan to extend the life of the 1996 Stock Incentive Plan
for an additional period of ten (10) years. This amendment was confirmed,
approved and ratified by the shareholders of the Company at the Annual and
Special Meeting of the Shareholders held on December 15, 2005.

    The Incentive Plan is now administered by the Governance, Nomination, Human
resources and Compensation Committee of the Board of Directors each of whose
members 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 former Options Committee has been
dissolved. The Incentive Plan permits the granting of incentive stock options on
terms designed to gain certain advantages under United States Federal income tax
law.

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


                                       36
<PAGE>

    As at January 20, 2006, 572,000 options had been granted and remained
outstanding under the Incentive Plan and 504,000 options remained available for
grant.

    During the fiscal year ended July 31, 2005, the Committee granted options to
purchase an aggregate of 25,000 Common Shares to one (1) individual at an
exercise price of US$1.00 per share which were not less than the respective
closing price of the Common Shares on the Nasdaq Market System on the day prior
to the grant. 447,500 options were cancelled. No options were exercised.

    During the period August 1, 2005 to January 20, 2006, the Committee granted
options to purchase an aggregate of 100,000 Common Shares to one individual at
an exercise price of US$ 1.00 per share which was not less than the closing
price of the Common Shares on the OTC Bulletin Board on the day prior to each
grant. 61,000 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.

    On November 21, 2005, the Board of Directors approved an amendment to the
1996 Stock Option Plan to extend the life of the 1996 Stock Option Plan and of
the options granted and outstanding under the Stock option Plan for an
additional period of ten (10) years. This amendment was confirmed, approved and
ratified by the shareholders of the Company at the Annual and Special Meeting of
the Shareholders held on December 15, 2005.

    The Option Plan is now administered by the Governance, Nomination, Human
Resources and Compensation Committee of the Board of Directors each of whose
members 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.


                                       37
<PAGE>

    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. The exercise price of
each option for Common Shares is not less than the price of the Common Shares as
determined by the 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 20, 2006, 500,000 options had been granted and remained
outstanding under the Option Plan and 224,000 options remained available for
grant.

    During the fiscal year ended July 31, 2005, the Committee granted options to
purchase an aggregate of 137,500 Common Shares to seven (7) employees at an
exercise price of US$1.00 per share which was not less than the respective
closing prices of the Common Shares on the Nasdaq Market System on the day prior
to each grant. 72,000 options were cancelled. No options were exercised.

    During the period August 1, 2005 to January 20, 2006, options were the
Committee granted options to purchase an aggregate of 25,000 Common Shares to
one individual at an exercise price of US$1.00 per share which was not less than
the closing price of the Common Shares on the OTC Bulletin Board on the day
prior to the grant. 113,500 options were cancelled. No options were exercised.


C.  BOARD PRACTICES

    Governance processes of the Company have been subject to ongoing review and
assessment by the Board of Directors and will now be subject to ongoing review
and assessment by the Governance, Nomination, Human Resources and Compensation
Committee so as to maintain high standards of corporate governance in a rapidly
changing environment.

    The Board of Directors and management believe that good corporate governance
practices are an important factor to insure the overall success of the Company.


BOARD OF DIRECTORS

    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


                                       38
<PAGE>

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 CBCA, 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 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.

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

    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.


    COMMITTEES OF THE BOARD OF DIRECTORS

    The Board has established two committees: the Audit Committee and the
Governance, Nomination, Human Resources and Compensation Committee which now
carries out the duties of the former Options Committee which has been dissolved.
Committee members are appointed annually following the annual meeting of the
shareholders of the Company.


AUDIT COMMITTEE

    Messrs. Malouin, Pryde and Shindler, all of whom are non-management and
unrelated directors, currently comprise the Audit Committee. Mr. Malouin is
Chairman of the Audit Committee. Messrs. Malouin, Pryde and Shindler satisfy the
current requirements of


                                       39
<PAGE>

The Nasdaq Stock Market, Inc. relating to the independence and the
qualification of the members of the Audit Committee.

    The Audit Committee reviewed its Charter and adopted on June 14, 2005 an
amended and restated Charter that details its mandate.

    The Audit Committee assists the Board in its oversight functions as they
relate to the accounting, financial reporting, auditing, risk management and
internal controls of the Company. The Audit Committee has the following duties
and responsibilities: (a) reviewing the audited financial statements of the
Company and recommending whether such statements should be approved by the
Board; (b) reviewing and approving the unaudited interim financial statements of
the Company; (c) recommending to the Board the firm of independent auditors to
be nominated for appointment by shareholders at each annual general meeting of
the Company and, where necessary, the removal of the independent auditors of the
Company; (d) reviewing the scope and adequacy of audits to be conducted by the
independent auditors of the Company; (e) adopting and annually reassessing
formal terms of reference for the independent auditors of the Company; (f)
monitoring and evaluating the independence and performance of the independent
auditors of the Company; (g) pre-approving all non-audit services to be provided
to the Company by its independent auditors prior to the commencement of such
services; (h) reviewing all post-audit management letters containing the
recommendations of the independent auditors of the Company and response or
follow-up thereto from management; (i) reviewing and monitoring the integrity,
adequacy and timeliness of the financial reporting and disclosure practices of
the Company; (j) reviewing, and if deemed advisable, approving all related party
transactions as defined in the governing legislation of the Company; (k)
monitoring the compliance of the Company with legal and regulatory requirements
related to financial reporting and disclosure; (l) monitoring and evaluating the
adequacy of the internal accounting and audit procedures of the Company; (m)
reviewing and ensuring the acceptability of the accounting principles of the
Company; (n) identifying the principal financial risks of the Company; (o)
overseeing reporting on internal controls of management and ensuring that
management has designed and implemented an effective system of internal
controls; (p) annually reviewing and reassessing the adequacy of the duties and
responsibilities of the Audit Committee; and (q) any other matters that the
Audit Committee feels are important to its mandate or that the Board chooses to
delegate to it.

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

    It is the responsibility of the Audit Committee to maintain an open avenue
of communication between itself, the Auditor and Management of the Company. In
performing its role, the Audit Committee is empowered to investigate any matter
brought to its attention,


                                       40
<PAGE>

with full access to all books, records, accounts, facilities and personnel of
the Company. The Audit Committee is also empowered to instruct and retain
outside counsel or other experts as necessary.


GOVERNANCE, NOMINATION, HUMAN RESOURCES AND COMPENSATION COMMITTEE

    The Governance, Nomination, Human Resources and Compensation Committee has
adopted a formal Charter that details its mandate. Messrs. Ivaskiv, Pryde and
Shindler, all of whom are non-management and unrelated directors, comprise
the Governance, Nomination, Human Resources and Compensation Committee.

    The Governance, Nomination, Human Resources and Compensation Committee
assists the Board in its oversight functions as they relate to the governance
policies and procedures, Board and committee structure and membership, human
resources policies and practices including compensation matters.

    The Governance, Nomination, Human Resources and Compensation Committee has
the following duties and responsibilities: (a) developing, monitoring and
ensuring the effectiveness of the corporate governance policies and practices of
the Company; (b) identifying and selecting nominees for election of the Board of
Directors of the Company and identifying and proposing to the Board of Directors
candidates to fill in the vacancies on the Board of Directors; (c) ensuring the
independence of the Board of Directors; (d) evaluating the effectiveness and
performance of individual directors, the Board of Directors and its committees;
(e) assisting the Board in setting the objectives for the Chief Executive
Officer of the Company and evaluating his performance; (f) establishing human
resources policies and practices, including compensation and recruitment
policies and practices for senior management, as well as establishing levels of
salary, bonus, benefits and incentives provided to executive officers of the
Company and its affiliates; and (g) various other matters related to the
foregoing as set out in the Charter of the Committee.


D.  EMPLOYEES

    On July 31, 2005, the Company had 55 employees, including 36 full-time
employees with SAND, and 9 full-time employees with Sand Technology Corporation
("Sand USA"), 4 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 3 part-time employees, 1 with Sand USA, 1 with Sand
UK, and 1 with Sand Germany.

    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.


                                       41
<PAGE>

    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.

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


E.  SHARE OWNERSHIP

    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".


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 20, 2006:

<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                    2,348,388                            18.3%
Jerome Shattner                      1,048,000                             8.2%
</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
3,742,588, or approximately 29.2%, at January 20, 2006.

    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.


                                       42
<PAGE>

    To our knowledge, as of January 20, 2006, 9,509,042 Class A Common Shares
were held of record by 466 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.

    SAND maintains directors' and officers' liability insurance which, subject
to the provisions and exclusions contained in the policy, protects the directors
and officers, as such, against any claims made during the term of their office
against any of them for a wrongful act, provided they acted honestly and in good
faith with a view to the best interests of SAND. The policy provides coverage
with a limit of US$5,000,000 per loss per policy period, subject to a deductible
of US$250,000 per securities claim and US$250,000 per other claim. The current
annual premium is paid entirely by SAND and amounts to approximately US$140,000.
To the extent permitted by law, SAND has entered into an indemnification
agreement with each of its directors and senior officers.


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 63.

B.  SIGNIFICANT CHANGES

No significant change has occurred since the date of the annual financial
statements.


                                       43
<PAGE>

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 the Nasdaq
Stock Market, Inc. until August 9, 2005 and thereafter by OTC Bulletin Board for
the following periods:

<TABLE>
<CAPTION>
MONTH ENDED                                                                     U.S. $
-----------                                                                     ------
                                                               HIGH                                 LOW
                                                               ----                                 ---
<S>                                                           <C>                                  <C>
To January 20, 2006                                           $0.81                                $0.74
December 2005                                                 $0.90                                $0.72
November 2005                                                 $0.87                                $0.70
October 2005                                                  $0.91                                $0.75
September 2005                                                $1.08                                $0.70
August 2005                                                   $0.83                                $0.70
July 2005                                                     $0.95                                $0.75
</TABLE>

<TABLE>
<CAPTION>
QUARTER ENDED                                                                   U.S. $
-------------                                                                   ------
                                                               HIGH                                 LOW
                                                               ----                                 ---
<S>                                                           <C>                                  <C>
October 2005                                                  $0.55                                $0.22
July 2005                                                     $0.80                                $0.43
April 2005                                                    $0.98                                $0.68
January 2005                                                  $0.90                                $0.70
October 2004                                                  $1.08                                $0.70
July 2004                                                     $1.26                                $0.75
April 2004                                                    $1.35                                $1.04
January 2004                                                  $1.61                                $0.83
October 2003                                                  $1.27                                $1.07
</TABLE>


                                       44
<PAGE>

<TABLE>
<CAPTION>
FISCAL YEAR ENDED JULY 31                                                       U.S. $
-------------------------                                                       ------
                                                               HIGH                                 LOW
                                                               ----                                 ---
<S>                                                           <C>                                  <C>
2005                                                          $1.08                                $0.43
2004                                                          $1.61                                $0.75
2003                                                          $1.35                                $0.52
2002                                                          $4.27                                $0.89
2001                                                          $7.75                                $2.97
</TABLE>


C.  MARKETS

    Our Class A Common Shares are listed on the OTC Bulletin Board ("OTCBB") and
trade under the symbol SNDTF. There is no non-United States trading market for
our Class A Common Shares.


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


DIRECTORS' POWERS

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

    There is no provision in the By-laws that imposes a requirement in respect
of a director's power to vote on a proposal, arrangement or contract in which
the director is materially interested. The CBCA provides that a director must
disclose to the Company, in


                                       45
<PAGE>

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 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.


                                       46
<PAGE>

    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.


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. The
Board of Directors renewed and continued the Rights Plan on November 21, 2005
and the renewal and


                                       47
<PAGE>

continuation of the Rights Plan was ratified, confirmed and approved by the
shareholders of SAND at the Annual and Special Meeting of Shareholders of
SAND held on December 15, 2005.

OWNERSHIP THRESHOLD

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


                                       48
<PAGE>

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 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.


                                       49
<PAGE>

Class B Shares

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

    Directors' Authority to Issue in One or More Series. The Board of
    Directors of the Company may issue the Class B Shares at any time and
    from time to time in one or more series. Before the first shares of a
    particular series are issued, the Board of Directors of the Company must
    fix the limited or unlimited number of shares in such series and must
    determine, subject to the limitations set out in the articles, the
    designation, rights, privileges, restrictions and conditions to be
    attached to the shares of such series including, without limitation, the
    rate or rates, amount or method or methods of calculation of dividends
    thereon, the time and place of payment of dividends, whether cumulative
    or non-cumulative or partially cumulative and whether such rate, amount
    or method of calculation shall be subject to change or adjustment in the
    future, the currency or currencies of payment of dividends, the
    consideration and the terms and conditions of any purchase for
    cancellation, retraction or redemption rights (if any) (but in no event
    shall the voting rights attributable to a Class B Share exceed those
    attributable to a Class A Common Share), the conversion or exchange
    rights attached thereto (if any), the voting rights attached thereto (if
    any), and the terms and conditions of any share purchase plan or sinking
    fund with respect thereto. Before the issue of the first shares of a
    series, the Board of Directors of the Company shall send to the Director
    (as defined in the CBCA) articles of amendment containing a description
    of such series including the designation, rights, privileges,
    restrictions and conditions determined by the Board of Directors of the
    Company.

    Ranking of Class B Shares. No rights, privileges, restrictions or
    conditions attached to a series of Class B Shares may confer upon a
    series a priority in respect of dividends or return of capital over any
    other series of Class B Shares then outstanding. The Class B Shares are
    entitled to priority over the common shares of the Company and over any
    other shares of the Company ranking junior to the Class B Shares with
    respect to priority in the payment of dividends and the distribution of
    assets in the event of the liquidation, dissolution or winding-up of the
    Company, whether voluntary or involuntary, or any other distribution of
    the assets of the Company among its shareholders for the purpose of
    winding-up its affairs. If any cumulative dividends or amounts payable on
    a return of capital in respect of a series of Class B Shares are not paid
    in full, the Class B Shares of all series must participate rateably in
    respect of such dividends, including accumulations, if any, in accordance
    with the sums that would be payable on such shares if all such dividends
    were declared and paid in full, and in respect of any repayment of
    capital in accordance with the sums that would be payable on such
    repayment of capital if all sums so payable were paid in full; provided
    however, that in the event of


                                       50
<PAGE>

    there being insufficient assets to satisfy in full all such claims to
    dividends and return of capital, the claims of the holders of the Class B
    Shares with respect to repayment of capital must first be paid and
    satisfied and any assets remaining thereafter must be applied towards the
    payment and satisfaction of claims in respect of dividends. The Class B
    Shares of any series may also be given such other preferences over the
    common shares and over any other shares ranking junior to the Class B
    Shares as may be determined in the case of such series of Class B Shares.

    Voting Rights. Except as otherwise required by law or in accordance with
    any voting rights which may from time to time be attached to any series of
    Class B Shares, the holders of the Class B Shares as a class are not
    entitled as such to receive notice of, to attend or to vote at any meeting
    of the shareholders of the Company.

    Approval of Holders of Class B Shares. The rights, privileges, restrictions
    and conditions attaching to the Class B Shares as a class may be added to,
    changed or removed but only with the approval of the holders of the Class B
    Shares given as hereinafter specified.

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


                                       51
<PAGE>

$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. The continued
existence of the Rights Plan was confirmed by the shareholders of SAND on
December 15, 2005. 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 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.


                                       52
<PAGE>

    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 Revenue Agency. This summary does
not take into account Canadian provincial income tax considerations.

    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.


                                       53
<PAGE>

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), 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 gross dividend.


F.  DIVIDENDS AND PAYING AGENTS

         Not applicable.


G.  STATEMENTS BY EXPERTS

         Not applicable.


H.  DOCUMENTS ON DISPLAY

    The Company is subject to certain of the information requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance


                                       54
<PAGE>

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


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 currencies in countries where we may operate in the future
may fluctuate in relation to the Canadian dollar and such fluctuations may
have an adverse effect on our earnings or assets when United States dollars,
British pounds, Euros or local currencies are exchanged for Canadian dollars.
We have not entered into forward foreign exchange contracts. Losses and gains
resulting from the translation of revenue and expenses denominated in United
States dollars, British pounds or Euros into Canadian dollars have been
included in our results of operations.

                                       55
<PAGE>

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. The
Board of Directors renewed and continued the Rights Plan on November 21, 2005
and the renewal and continuation of the Rights Plan was ratified, confirmed and
approved by the shareholders of SAND at the Annual and Special Meeting of
Shareholders of SAND held on December 15, 2005.


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 Company. 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 Company having an aggregate market value equal to twice
CDN$100 per share for CDN$100 per share. This purchase will cause substantial
dilution to the person or group of persons attempting to acquire control of the
Company, other than by way of a Permitted Bid. The Rights expire on the
termination of the Rights Plan, unless redeemed before such time.


                                       56
<PAGE>

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 Company. 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 Company, (ii) pro rata
        distributions of Common Shares by the Company, (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;

    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


                                       57
<PAGE>

        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.

    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


                                       58
<PAGE>

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 Company in 2007 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 Company.


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 procedures are effective. There have been no significant
changes in our disclosure controls and procedures which could significantly
affect these controls and procedures subsequent to the end of our most recent
fiscal year.


                                       59
<PAGE>

ITEM 16 A.  AUDIT COMMITTEE FINANCIAL EXPERT

    Messrs. Malouin, Pryde and Shindler, all of whom are non-management and
unrelated directors, currently comprise the Audit Committee. Mr. Malouin is
Chairman of the Audit Committee. Messrs. Malouin, 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.

    Marc Malouin is Vice President, Finance of Algo Group Inc. He was with Ernst
& Young for ten years before assuming senior financial positions with Bombardier
Inc., Quebecor inc. and Provigo. Mr. Malouin holds CA and CPA degrees.

    Our Board of Directors has determined that Mr. Malouin 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.

ITEM 16 C.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

    Deloitte & Touche LLP served as our auditors for the fiscal years ended July
31, 2004 and July 31, 2005.


Audit Fees and Audit-Related Fees

    Deloitte & Touche LLP billed the Company $128,651 in fiscal 2005 ($128,192
in fiscal 2004) for professional services rendered for the audit of the Annual
Consolidated Financial Statements and the review of financial statements
included in statutory and regulatory filings. Of that amount, $6,365 was
related to the current fiscal year while $122,286 was related to previous fiscal
years (compared to $7,000 and $121,192 respectively in fiscal 2004).


                                       60
<PAGE>

Tax Fees

    Deloitte & Touche LLP billed the Company $38,017 in fiscal 2005 ($102,450 in
fiscal 2004) 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 $1,200 to the Company in fiscal
2005 ($25,950 in fiscal 2004). 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.

    The Audit Committee has considered whether the provision of these
services is compatible with maintaining the independence of Deloitte & Touche
LLP. The Audit Committee is of the opinion that the provision of these
services does not compromise the independence of the Auditor. All audit and
non-audit services provided by Deloitte & Touche LLP must be approved by the
Audit Committee.

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.
During that period a total of 115,200 Class A common shares had been
repurchased at an average price of US$1.03 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>
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>


                                       61
<PAGE>

    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. During that period 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                  n/a
----------------------------------------------------------------------------------------------------------------------
April 2004                       8,776                 1.0909                   8,776                  n/a
----------------------------------------------------------------------------------------------------------------------
June 2004                       45,000                 0.9965                  45,000                  n/a
----------------------------------------------------------------------------------------------------------------------
July 2004                       13,800                 0.8104                  13,800                  n/a
----------------------------------------------------------------------------------------------------------------------
August 2004                     21,100                 0.7510                  21,100                  n/a
----------------------------------------------------------------------------------------------------------------------
September 2004                  38,400                 0.9163                  38,400                  n/a
----------------------------------------------------------------------------------------------------------------------
October 2004                    28,300                 0.8333                  28,300                  n/a
----------------------------------------------------------------------------------------------------------------------
November 2004                   47,100                 0.7788                  47,100                  n/a
----------------------------------------------------------------------------------------------------------------------
December 2004                   44,462                 0.8338                  44,462                  n/a
----------------------------------------------------------------------------------------------------------------------
</TABLE>


                                    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 63.


                                       62
<PAGE>




CONSOLIDATED FINANCIAL STATEMENTS OF

SAND TECHNOLOGY INC.

JULY 31, 2005, 2004 AND 2003








                                      63
<PAGE>

[DELOITTE LOGO]

Deloitte & Touche LLP
1 Place Ville Marie
Suite 3000
Montreal QC H3B 4T9
Canada

Tel: (514) 393-5194
Fax: (514) 390-4104
www.deloitte.ca


REPORT OF INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS

To the Shareholders and Board of Directors of
Sand Technology Inc.

We have audited the consolidated balance sheets of Sand Technology Inc. as at
July 31, 2005 and 2004 and the consolidated statements of operations,
shareholders' equity and cash flows for each of the years in the three-year
period ended July 31, 2005. 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, 2005
and 2004 and the results of its operations and its cash flows for each of the
years in the three-year period ended July 31, 2005 in accordance with Canadian
generally accepted accounting principles.

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

/s/ Deloitte & Touche LLP
Independent Registered Chartered Accountants

September 16, 2005
<Page>

COMMENTS BY INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS FOR U.S. READERS ON
CANADA-U.S. REPORTING DIFFERENCES

The standards of the Public Company Accounting Oversight Board (United States)
require the addition of an explanatory paragraph (following the opinion
paragraph) when there are changes in accounting principles that have been
implemented such as those described in Note l to the consolidated financial
statements of the Corporation. Our report to the Shareholders and Board of
Directors, dated September 16, 2005, is expressed in accordance with Canadian
reporting standards, which do not require a reference to such changes in
accounting principles in the report of independent registered Chartered
Accountants when the change is properly accounted for and adequately disclosed
in the financial statements.

/s/ Deloitte & Touche LLP
Independent Registered Chartered Accountants

September 16, 2005

                                  [GRAPHIC: Member of Deloitte Touche Tohmatsu]


                                      64
<PAGE>

SAND TECHNOLOGY INC.
CONSOLIDATED BALANCE SHEETS
AS AT JULY 31, 2005 AND 2004
(IN CANADIAN DOLLARS)

<TABLE>
<CAPTION>
                                                                                2005                    2004
                                                                             -----------            -----------
                                                                                  $                       $

<S>                                                                          <C>                    <C>
ASSETS
Current assets
  Cash and cash equivalents                                                    5,615,912             12,601,393
  Accounts receivable, net (Note 5)                                            1,561,613              2,364,655
  Prepaid expenses                                                               127,731                188,680
                                                                             -----------            -----------
                                                                               7,305,256             15,154,728

Capital assets, net (Note 2)                                                     296,735                392,585
Other assets, net (Note 3)                                                       332,540                443,388
                                                                             -----------            -----------
                                                                               7,934,531             15,990,701
                                                                             -----------            -----------
                                                                             -----------            -----------

LIABILITIES
Current liabilities
  Accounts payable and accrued liabilities                                     1,485,597              1,881,113
  Deferred revenue                                                             1,447,992              1,554,785
  Deferred credits                                                               166,243                195,581
                                                                             -----------            -----------
                                                                               3,099,832              3,631,479
                                                                             -----------            -----------

Commitments (Note 8)

SHAREHOLDERS' EQUITY
  Common stock (Note 4)
    Authorized
      An unlimited number of Class "A" common shares,
        without par value
    Issued and outstanding 12,818,189 Class "A" common shares
      (12,997,551 in 2004)                                                    38,024,756             38,556,828
    Contributed surplus (Note 4(b))                                               74,000                 49,000
  Deficit                                                                    (33,264,057)           (26,246,606)
                                                                             -----------            -----------
                                                                               4,834,699             12,359,222
                                                                             -----------            -----------
                                                                               7,934,531             15,990,701
                                                                             -----------            -----------
                                                                             -----------            -----------
</TABLE>

              See notes to the consolidated financial statements.


                                      65
<PAGE>

SAND TECHNOLOGY INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JULY 31, 2005, 2004 AND 2003
(IN CANADIAN DOLLARS)

<TABLE>
<CAPTION>
                                                                           2005                  2004                   2003
                                                                        ----------            ----------             ----------
                                                                             $                     $                      $
<S>                                                                     <C>                   <C>                    <C>
REVENUE                                                                  6,096,033             5,349,214             31,682,536
Operating expenses
  Cost of sales and product support                                      1,754,138             1,652,369             12,510,215
  Research and development, net (Note 5)                                 3,272,102             3,308,789              3,310,709
  Amortization of capital and other assets                                 277,276               242,488              1,076,825
  Selling, general and administrative expenses                           8,317,831             7,604,541             16,581,789
                                                                        ----------            ----------             ----------
Total operating expenses                                                13,621,347            12,808,187             33,479,538
                                                                        ----------            ----------             ----------

Loss from operations                                                    (7,525,314)           (7,458,973)            (1,797,002)
                                                                        ----------            ----------             ----------

Other income
  Interest income                                                          162,260               329,043                 14,939
  Gain on sale of subsidiary (Note 7)                                            -                     -             11,757,280
                                                                        ----------            ----------             ----------
                                                                           162,260               329,043             11,772,219
                                                                        ----------            ----------             ----------

(Loss) income before income taxes                                       (7,363,054)           (7,129,930)             9,975,217
                                                                        ----------            ----------             ----------

Income taxes (Note 6)
  Current                                                                        -                     -                 13,136
  Future                                                                         -                     -                169,000
                                                                        ----------            ----------             ----------
                                                                                 -                     -                182,136
                                                                        ----------            ----------             ----------
NET (LOSS) INCOME                                                       (7,363,054)           (7,129,930)             9,793,081
                                                                        ----------            ----------             ----------
                                                                        ----------            ----------             ----------

Basic and diluted (loss) earnings per share (Note 4)                         (0.57)                (0.55)                  0.74
                                                                        ----------            ----------             ----------
                                                                        ----------            ----------             ----------

Basic and diluted weighted average number of common
  shares outstanding                                                    12,860,438            13,079,649             13,189,124
                                                                        ----------            ----------             ----------
                                                                        ----------            ----------             ----------
</TABLE>

              See notes to the consolidated financial statements.


                                      66
<PAGE>

SAND TECHNOLOGY INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED JULY 31, 2005, 2004 AND 2003
(IN CANADIAN DOLLARS)

<TABLE>
<CAPTION>
                                                      Common stock
                                             ------------------------------
                                              Number of                                Contributed
                                               shares              Amount                surplus                Deficit
                                             ----------          ----------            -----------            -----------
                                                                      $                    $                         $
<S>                                          <C>                 <C>                   <C>                    <C>
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 4(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)
Net loss                                                                                                       (7,363,054)
Stock-based compensation
  (Note 4(b))                                                                               25,000
Share repurchase                               (179,362)           (532,072)                                      345,603
                                             ----------          ----------                 ------            -----------
BALANCE, JULY 31, 2005                       12,818,189          38,024,756                 74,000            (33,264,057)
                                             ----------          ----------                 ------            -----------
                                             ----------          ----------                 ------            -----------
</TABLE>

               See notes to the consolidated financial statements.


                                      67
<PAGE>

SAND TECHNOLOGY INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JULY 31, 2005, 2004 AND 2003
(IN CANADIAN DOLLARS)

<TABLE>
<CAPTION>
                                                                        2005                 2004                  2003
                                                                     ----------           ----------            -----------
                                                                          $                    $                     $
<S>                                                                  <C>                  <C>                   <C>
OPERATING ACTIVITIES
  Net (loss) income                                                  (7,363,054)          (7,129,930)             9,793,081
  Items not affecting cash
    Amortization of capital and other assets                            277,276              242,488              1,076,825
    Stock-based compensation                                             25,000               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                                                 803,042              (23,787)            (4,509,208)
    Inventories                                                               -                    -               (228,341)
    Prepaid expenses                                                     60,949               14,651               (926,014)
    Accounts payable and accrued liabilities                           (395,516)          (1,098,530)             4,977,197
    Deferred revenue                                                   (106,793)             415,176                695,600
                                                                     ----------           ----------             ----------
                                                                     (6,699,096)          (7,530,932)              (609,140)
                                                                     ----------           ----------             ----------
INVESTING ACTIVITIES
  Increase in other assets                                                    -             (471,100)                     -
  Purchase of capital assets                                            (70,578)             (58,642)            (1,995,167)
  Proceeds from sale of subsidiary, net of cash and                           -                    -             17,663,577
    cash equivalents disposed (Note 7)
                                                                     ----------           ----------             ----------
                                                                        (70,578)            (529,742)            15,668,410
                                                                     ----------           ----------             ----------

FINANCING ACTIVITIES
  Repurchase of common shares                                          (186,469)            (241,506)               (55,035)
  Balance of sale receivable                                                  -              588,483               (588,483)
  Deferred credits                                                      (29,338)             (29,336)               (29,337)
                                                                     ----------           ----------             ----------
                                                                       (215,807)             317,641               (672,855)
                                                                     ----------           ----------             ----------

(Decrease) increase in cash and cash equivalents                     (6,985,481)          (7,743,033)            14,386,415
Cash and cash equivalents, beginning of year                         12,601,393           20,344,426              5,958,011
                                                                     ----------           ----------             ----------
CASH AND CASH EQUIVALENTS, END OF YEAR                                5,615,912           12,601,393             20,344,426
                                                                     ----------           ----------             ----------
                                                                     ----------           ----------             ----------

There was a nominal amount of interest paid and no income taxes paid during the three-year period ended July 31, 2005.

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, 2005, 2004 AND 2003
(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 and the SAND Searchable Archive, 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 total estimated implementation hours. Past
    experience has shown expended hours to be the best measure of progress.


                                      69
<PAGE>

SAND TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2005, 2004 AND 2003
(IN CANADIAN DOLLARS)
--------------------------------------------------------------------------------

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

    REVENUE RECOGNITION (CONTINUED)

    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.


    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 is amortized ratably
         over the term of the contract ending in 2008.


    (ii) Acquired technology

         The Corporation records its acquired technology at cost and amortized
         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, 2005, 2004 AND 2003
(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 these
    consolidated financial statements.


                                      71
<PAGE>

SAND TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2005, 2004 AND 2003
(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 (LOSS) 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.


    STOCK-BASED COMPENSATION AND OTHER STOCK-BASED PAYMENTS

    The Corporation early adopted the amendments of Section 3870 of the CICA
    Handbook, "Stock-Based Compensation and Other Stock-Based Payments" 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
    with a corresponding credit to contributed surplus (see Note 4(b)).

    Prior to August 1, 2003, the Corporation recorded no compensation cost on
    the grant of stock options to employees (see Note 4(b)).


                                      72
<PAGE>

SAND TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2005, 2004 AND 2003
(IN CANADIAN DOLLARS)
--------------------------------------------------------------------------------

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

    GUARANTEES

    As of August 1, 2003, the Corporation adopted the recommendations of CICA
    Accounting Guideline No. 14, "Disclosure of 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 No. 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 7 for claims against it for conditions
    existing prior to the sale.


    IMPAIRMENT OF LONG-LIVED ASSETS

    As of August 1, 2003, the Corporation adopted the 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. 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, 2005, 2004 AND 2003
(IN CANADIAN DOLLARS)
--------------------------------------------------------------------------------

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

    HEDGES

    As of August 1, 2003, the Corporation adopted the recommendations of CICA
    Accounting Guideline No. 13, "Hedging relationships". The adoption of this
    recommendation did not have an impact on the Corporation's consolidated
    financial statements.


    ADOPTION OF NEW ACCOUNTING POLICY

    As of August 1, 2004, the Corporation adopted Handbook Section 3110, "Asset
    retirement obligations", which 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 adoption of
    this recommendation did not have an impact on the Corporation's consolidated
    financial statements.


    FUTURE ACCOUNTING CHANGES

    Consolidation of variable interest entities

    Accounting Guideline 15, "Consolidation of Variable Interest Entities"
    ("AcG15"). This guideline presents the views of the Accounting Standards
    Board on the application of consolidation principles to certain entities
    that are subject to control on a basis other than ownership of voting
    interests. This guideline is to be applied for years beginning on or after
    November 1, 2004. The adoption of AcG-15 is not expected to have an impact
    on the Corporation's results from operations or financial position.


    Financial instruments - disclosure and presentation

    The CICA issued revisions to section 3860 of the CICA Handbook, "Financial
    Instruments - Disclosure and Presentation". The revisions change the
    accounting for certain financial instruments that have liability and equity
    characteristics. These revisions come into effect for years begining on or
    after January 1, 2005. The Corporation does not have any instruments with
    these characteristics at this time.


                                      74
<PAGE>

SAND TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2005, 2004 AND 2003
(IN CANADIAN DOLLARS)
--------------------------------------------------------------------------------

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

    Financial instruments - recognition and measurement

    The CICA issued section 3855 of the CICA Handbook, "Financial Instruments -
    Recognition and Measurement". The section is effective for years beginning
    on or after October 1, 2006. It describes the standards for recognizing and
    measuring financial assets, financial liabilities and nonfinancial
    derivatives. This section requires that 1) all financial assets be measured
    at fair value, with some exceptions such as loans and investments that are
    classified as held-to-maturity, 2) all financial liabilities be measured at
    fair value when they are derivatives or classified as held for trading
    purposes (other financial liabilities are measured at their carrying value),
    and 3) all derivative financial instruments be measured at fair value, even
    when they are part of a hedging relationship. The Corporation is currently
    evaluating the impact of this section on the consolidated financial
    statements.


    Hedges

    The CICA recently issued section 3865 of the CICA Handbook, "Hedges". The
    section is effective for years beginning on or after October 1, 2006. It
    describes when and how hedge accounting may be applied. Hedging is an
    activity used by a company to change an exposure to one or more risks by
    creating an offset between changes in the fair value of a hedged item and a
    hedging item, changes in the cash flows attributable to a hedged item and a
    hedging item, or changes resulting from a risk exposure relating to a hedged
    item and a hedging item. Hedge accounting changes the normal basis for
    recording the gains, losses, revenues and expenses associated with a hedged
    item or a hedging item in a company's statement of operations. It ensures
    that all offsetting gains, losses, revenues and expenses are recorded in the
    same period. The Corporation is currently evaluating the impact of this
    section on consolidated financial statements.


    Comprehensive income

    The CICA recently issued section 1530 of the CICA Handbook, "Comprehensive
    income". The section is effective for years beginning on or after October 1,
    2006. It describes how to report and disclose comprehensive income and its
    components.

    Comprehensive income is the change in a company's net assets that results
    from transactions, events and circumstances from sources other than the
    company's shareholders. It includes items that would be excluded from net
    earnings, such as changes in the currency translation adjustment relating to
    self-sustaining foreign operations, the unrealized gains or losses on
    available-for-sale investments and the additional minimum liability for
    pension obligations.

    The CICA also made changes to section 3250 of the CICA Handbook, "Surplus",
    and reissued it as section 3251, "Equity". The section is also effective for
    years beginning on or after October 1, 2006. The changes in how to report
    and disclose equity and changes in equity are consistent with the new
    requirements of section 1530, "Comprehensive income".

    Adopting these sections on August 1, 2007 will require the Corporation to
    begin reporting, to the extent that they are relevant, the following items
    in the consolidated financial statements:

    o   comprehensive income and its components

    o   accumulated other comprehensive income and its components


                                     75
<PAGE>

SAND TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2005, 2004 AND 2003
(IN CANADIAN DOLLARS)
--------------------------------------------------------------------------------

2.  CAPITAL ASSETS

<TABLE>
<CAPTION>
                                                                       2005
                                             ------------------------------------------------------
                                                                   Accumulated             Net book
                                                Cost              amortization              value
                                             ----------           ------------             --------
                                                  $                     $                      $
<S>                                          <C>                  <C>                      <C>
Furniture and equipment                         320,113              317,189                  2,924
Computer equipment                              515,331              380,173                135,158
Leasehold improvements                          287,610              128,957                158,653
                                              ---------              -------                -------
                                              1,123,054              826,319                296,735
                                              ---------              -------                -------
                                              ---------              -------                -------
</TABLE>


<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>

Amortization expense of capital assets amounted to $166,428 in 2005 ($214,776
in 2004 and $1,031,395 in 2003).


3.  OTHER ASSETS

<TABLE>
<CAPTION>
                                                        2005                                      2004
                                 --------------------------------------------------             --------
                                                    Accumulated            Net book             Net book
                                   Cost            amortization             value                value
                                 -------           ------------            --------             --------
                                    $                   $                      $                    $
<S>                              <C>               <C>                     <C>                  <C>
Contract costs                   471,100              138,560               332,540              443,388
                                 -------              -------               -------              -------
                                 -------              -------               -------              -------
</TABLE>

Amortization expense of contract costs and acquired technology amounted to
$110,848 in 2005 ($27,712 in 2004 and $45,430 in 2003). The acquired
technology was fully amortized as of July 31, 2003.


                                      76
<PAGE>

SAND TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2005, 2004 AND 2003
(IN CANADIAN DOLLARS)
--------------------------------------------------------------------------------

4.  COMMON STOCK

    (a) AUTHORIZED

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


    2005 TRANSACTIONS

    The Corporation repurchased 276,038 Class "A" common shares for $316,307
    under the program adopted on December 17, 2003, including 179,362 Class "A"
    common shares for $186,469 from August 1, 2004 to December 22, 2004.


    2004 TRANSACTIONS

    During the year, the Corporation repurchased 70,100 Class "A" common shares
    for $111,668 under the program adopted on October 15, 2002. 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 from December 22, 2003 to July 31,
    2004.


    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, 2005, 2004 AND 2003
(IN CANADIAN DOLLARS)
--------------------------------------------------------------------------------

4.  COMMON STOCK (CONTINUED)

    (b) STOCK OPTION PLANS (CONTINUED)

    Activity in the stock option plans for 2005, 2004 and 2003 was as follows:

<TABLE>
<CAPTION>
                                         2005                        2004                        2003
                                ----------------------       ---------------------      -----------------------
                                              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           1,478           2.15         1,247          2.41           849           3.52
      Granted                       163           1.00           261          1.16           571           1.28
      Exercised                       -              -             -             -             -              -
      Forfeited                     520           1.89            30          4.58           173           4.08
                                  -----           ----         -----          ----         -----           ----
    Outstanding,
      end of year                 1,121           2.10         1,478          2.15         1,247           2.41
                                  -----           ----         -----          ----         -----           ----
                                  -----           ----         -----          ----         -----           ----
    Options exercisable,
      end of year                   622           2.61           592          2.83           411           3.09
                                  -----           ----         -----          ----         -----           ----
                                  -----           ----         -----          ----         -----           ----
</TABLE>

     The following table summarizes significant ranges of outstanding options
     held by directors, officers, and employees as of July 31, 2005:

<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>
    (less than)1.00                    160           0.97            0.69            160            0.69
    1.00 to 1.99                       647           7.89            1.03            203            1.05
    3.00 to 3.99                        20           0.97            3.37             20            3.37
    4.00 to 4.99                        45           2.45            4.42             45            4.42
    5.00 to 5.99                       217           5.72            5.11            163            5.14
    6.00 to 6.99                        28           4.05            6.36             27            6.36
    7.00 to 7.99                         4           3.34            7.00              4            7.00
                                     -----           ----            ----            ---            ----
                                     1,121           6.03            2.10            622            2.61
                                     -----           ----            ----            ---            ----
                                     -----           ----            ----            ---            ----
</TABLE>


                                      78
<PAGE>

SAND TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2005, 2004 AND 2003
(IN CANADIAN DOLLARS)
--------------------------------------------------------------------------------

4.  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 years ended July 31, 2005 and 2004,
    using the Black-Scholes option-pricing model.

<TABLE>
<CAPTION>
                                                      2005                    2004
                                                    -------                 -------
    <S>                                             <C>                     <C>
    Compensation cost                               $25,000                 $49,000
    Dividend yield                                       -%                      -%
    Expected volatility                                 90%                     52%
    Risk-free interest rate                            3.3%                    4.4%
    Expected life                                   7 years                 7 years
    Number of options granted                       162,500                 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>
                                                       2005                2004               2003
                                                    -----------         -----------         ---------
                                                         $                   $                  $
    <S>                                             <C>                 <C>                 <C>
    Net (loss) income, as reported                  (7,363,054)         (7,129,930)         9,793,081
    Fair value of stock-based compensation            (103,603)            (93,686)          (104,763)
                                                    ----------          ----------          ---------
    Pro forma net (loss) income                     (7,466,657)         (7,223,616)         9,688,318
                                                    ----------          ----------          ---------
                                                    ----------          ----------          ---------

    Pro forma basic and diluted (loss)
      earnings per share                                 (0.58)              (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
    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, 2005, 2004 AND 2003
(IN CANADIAN DOLLARS)
--------------------------------------------------------------------------------

5.  RESEARCH AND DEVELOPMENT

    Investment tax credits netted against research and development expenses and
    included in accounts receivable as at July 31, 2005 amounted to $200,000
    ($370,496 and $747,426 in 2004 and 2003, respectively with no amounts
    receivable in both years).


6.  INCOME TAXES

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

<TABLE>
<CAPTION>
                                                       2005                2004                2003
                                                    -----------        ------------         ----------
                                                         $                   $                  $
    <S>                                             <C>                <C>                  <C>
    Income taxes (recovery) at Canadian
      statutory rates                               (2,368,000)         (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                                 (2,368,000)         (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>
                                                       2005                  2004
                                                    -----------           -----------
                                                         $                     $
    <S>                                             <C>                   <C>
    Future tax assets
      Losses carried forward                         14,908,000            10,000,000
      Capital assets                                    142,000               164,000
      Research and development                        3,400,000             2,900,000
                                                    -----------           -----------
                                                     18,450,000            13,064,000
    Future tax liabilities
      Investment tax credits                             64,000                64,000
                                                    -----------           -----------
    Net future income taxes                          18,386,000            13,000,000
    Less: valuation allowance                       (18,386,000)          (13,000,000)
                                                    -----------           -----------
    Net future income taxes                                   -                     -
                                                    -----------           -----------
                                                    -----------           -----------
</TABLE>

    The Corporation has non-capital losses carried forward to reduce future
    taxable income for Canadian federal and provincial, US, United Kingdom and
    German tax purposes of approximately $11,000,000 and $10,000,000,
    $19,000,000, (pound)592,000 and (euro)3,800,000, respectively, expiring at
    various dates to 2020. In addition, the Corporation has research and
    development expenditures carried forward of approximately $10,000,000, which
    can be used to reduce taxable income at any time in the future, and
    investment tax credits of approximately $2,500,000, which can be applied
    against future federal income taxes payable, expiring at various dates to
    2015. 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, 2005, 2004 AND 2003
(IN CANADIAN DOLLARS)
--------------------------------------------------------------------------------

7.  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 expired 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.


                                      81
<PAGE>

SAND TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2005, 2004 AND 2003
(IN CANADIAN DOLLARS)
--------------------------------------------------------------------------------

8.  COMMITMENTS

    The Corporation is committed under operating leases for a total amount of
    approximately $1,394,000. The minimum payments due in each of the
    forthcoming years are as follows:

<TABLE>
<CAPTION>
                                              $
                                           -------
                       <C>                 <C>
                       2006                370,000
                       2007                292,000
                       2008                244,000
                       2009                244,000
                       2010                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 market the SAND Analytical Server and the
    SAND Searchable Archive. 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>
    2005
    Revenue                        2,899,252         3,196,781         6,096,033
    Loss before taxes             (5,965,661)       (1,397,393)       (7,363,054)
    Identifiable assets            6,538,484         1,396,047         7,934,531

    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
</TABLE>


                                      82
<PAGE>

SAND TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2005, 2004 AND 2003
(IN CANADIAN DOLLARS)
--------------------------------------------------------------------------------

10. FINANCIAL INSTRUMENTS

    FAIR VALUE OF FINANCIAL INSTRUMENTS

    The carrying amount of the Corporation's financial assets and liabilities
    approximate their fair values at July 31, 2005 due to their short-term
    nature.


    CREDIT RISK

    The Corporation's exposure to credit risk as of July 31, 2005, 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. As at July 31,
    2005, three customers represented 55% (three customers represented 87% in
    2004) of accounts receivable.


    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.

    As at July 31, 2005 and 2004, the Corporation has net current assets
    (liabilities) denominated in foreign currencies as follows:

<TABLE>
<CAPTION>
                                                    2005                  2004
                                                   ------              ---------
                                                       (in Canadian dollars)
    <S>                                            <C>                 <C>
    U.S. dollar                                    126,201               818,756
    Pounds sterling                                 36,198             1,055,219
    Euros                                          (74,124)              100,760
</TABLE>

11. SIGNIFICANT CUSTOMERS

    For the year ended July 31, 2005, the Corporation generated approximately
    20% of its revenues from one customer (36% from two customers in 2004).


12. COMPARATIVE FIGURES

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


                                       83
<PAGE>

SAND TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2005, 2004 AND 2003
(IN CANADIAN DOLLARS)
--------------------------------------------------------------------------------

13. RECONCILIATION OF RESULTS REPORTED IN ACCORDANCE WITH CANADIAN GENERALLY
    ACCEPTED ACCOUNTING PRINCIPLES ("GAAP") TO UNITED STATES GAAP AND OTHER
    SUPPLEMENTARY UNITED STATES GAAP DISCLOSURES

    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.

    Accounts receivable are net of allowance for doubtful accounts of $18,909
    (nil in 2004).

    Accounts payable and accrued liabilities are comprised of the following:

<TABLE>
<CAPTION>
                                                              2005              2004
                                                            ---------         ---------
                                                                $                 $
    <S>                                                     <C>               <C>
    Trade accounts                                            594,026           605,821
    Accrued payroll payable and related expenses              844,095         1,125,881
    Other                                                      47,476           149,411
                                                            ---------         ---------
                                                            1,485,597         1,881,113
                                                            ---------         ---------
                                                            ---------         ---------
</TABLE>


    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 options
    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.


                                       84
<PAGE>

SAND TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2005, 2004 AND 2003
(IN CANADIAN DOLLARS)
--------------------------------------------------------------------------------

13. RECONCILIATION OF RESULTS REPORTED IN ACCORDANCE WITH CANADIAN GENERALLY
    ACCEPTED ACCOUNTING PRINCIPLES ("GAAP") TO UNITED STATES GAAP AND OTHER
    SUPPLEMENTARY UNITED STATES GAAP DISCLOSURES (CONTINUED)

    STOCK-BASED COMPENSATION (CONTINUED)

    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
    after July 1, 1995 and prior to August 1, 2003, in accordance with SFAS 123.

<TABLE>
<CAPTION>
                                                       JULY 31, 2005        July 31, 2004         July 31, 2003
                                                       -------------        -------------         -------------
                                                             $                    $                     $
    <S>                                                <C>                  <C>                   <C>
    Net (loss) income, as reported                       (7,363,054)          (7,129,930)             9,793,081
    Pro forma expense                                      (460,948)            (615,749)             (482,038)
                                                         ----------           ----------              ---------
    Pro forma net (loss) income                          (7,824,002)          (7,745,679)             9,311,043
                                                         ----------           ----------              ---------
                                                         ----------           ----------              ---------

    Pro forma basic and diluted loss per share                (0.61)               (0.59)                  0.71
</TABLE>

    SFAS 123 requires that the pro forma compensation expense be recognized over
    the service 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 year 2003.

<TABLE>
<CAPTION>
                                                                  July 31, 2003
                                                                  -------------
    <S>                                                           <C>
    Risk-free interest rate                                             4.80%
    Dividend yield                                                         -%
    Volatility factor of the expected market
      price of the Corporation's common stock                             87%
    Expected life                                                     7 years
</TABLE>


                                       85
<PAGE>

SAND TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2005, 2004 AND 2003
(IN CANADIAN DOLLARS)
--------------------------------------------------------------------------------

13. RECONCILIATION OF RESULTS REPORTED IN ACCORDANCE WITH CANADIAN GENERALLY
    ACCEPTED ACCOUNTING PRINCIPLES ("GAAP") TO UNITED STATES GAAP AND OTHER
    SUPPLEMENTARY UNITED STATES GAAP DISCLOSURES (CONTINUED)

    ADOPTION OF NEW ACCOUNTING POLICIES

    Consolidation of Variable Interest Entities

    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. The
    adoption of FIN 46 did not have an impact on the Corporation's consolidated
    financial statements.


    Amendment of SFAS No. 133 on Derivative Instruments and Hedging Activities

    In April 2003, the FASB issued SFAS No. 149, "Amendment of SFAS No. 133 on
    Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
    clarifies accounting for derivative instruments, including certain
    derivative instruments embedded in other contracts, and for hedging
    activities under SFAS No. 133. The adoption of this standard did not have an
    impact on the Corporation's consolidated financial statements.


    Accounting for Certain Financial Instruments with Characteristics of both
    Liabilities and Equity

    In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
    Instruments with Characteristics of both Liabilities and Equity." SFAS No.
    150 establishes standards for how a company classifies and measures certain
    financial instruments with characteristics of both liabilities and equity.
    The adoption of SFAS No. 150 did not have an impact on the Corporation's
    consolidated financial statements.


                                       86
<PAGE>

SAND TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2005, 2004 AND 2003
(IN CANADIAN DOLLARS)
--------------------------------------------------------------------------------

13. RECONCILIATION OF RESULTS REPORTED IN ACCORDANCE WITH CANADIAN GENERALLY
    ACCEPTED ACCOUNTING PRINCIPLES ("GAAP") TO UNITED STATES GAAP AND OTHER
    SUPPLEMENTARY UNITED STATES GAAP DISCLOSURES (CONTINUED)

    RECENT PRONOUNCEMENTS

    In November 2004, the FASB issued SFAS No. 151, "Inventory Costs, an
    amendment of Accounting Research Bulletin ("ARB") No. 43, Chapter 4". The
    provisions of SFAS No. 151 will be effective beginning in the first
    quarter of fiscal 2006. The adoption of SFAS No. 151 is not expected to
    have any impact on the Corporation's consolidated financial statements.

    In December 2004, the Financial Accounting Standards Board ("FASB") issued
    SFAS No. 153, "Exchanges of Non monetary Assets - An Amendment of APB
    Opinion No. 29." This standard eliminates the exception from fair value
    measurement for non-monetary exchanges of similar productive assets. The
    standard is effective January 1, 2006. The adoption of SFAS No. 153 is not
    expected to have a material impact on the Corporation's consolidated
    financial statements.

    In December 2004, the FASB issued SFAS No. 123(R), "Share-Based Payment",
    which is a revision of SFAS No. 123 and supersedes APB Opinion No. 25. SFAS
    No. 123(R) requires all share-based payments to employees, including grants
    of employee stock options, to be valued at fair value on the date of grant,
    and to be expensed over the applicable vesting period. Pro forma disclosures
    of the income statement effects of share-based payments is no longer an
    alternative. SFAS No. 123(R) is effective for all stock-based awards granted
    on or after July 1, 2005. In addition, companies must also recognize
    compensation expense related to any awards that are not fully vested as of
    July 1, 2005. Compensation expense for the unvested awards will be measured
    based on the fair value of the awards previously calculated in developing
    the pro forma disclosures in accordance with the provisions of SFAS No. 123.
    The Corporation has not yet assessed the impact of adopting SFAS No. 123(R)
    on its consolidated financial statements.


                                       87
<PAGE>

SAND TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2005, 2004 AND 2003
(IN CANADIAN DOLLARS)
--------------------------------------------------------------------------------

13. RECONCILIATION OF RESULTS REPORTED IN ACCORDANCE WITH CANADIAN GENERALLY
    ACCEPTED ACCOUNTING PRINCIPLES ("GAAP") TO UNITED STATES GAAP AND OTHER
    SUPPLEMENTARY UNITED STATES GAAP DISCLOSURES (CONTINUED)

    RECENT PRONOUNCEMENTS (CONTINUED)

    In March 2005, the FASB issued FIN 47, "Accounting for Conditional Asset
    Retirement Obligations, an interpretation of FASB Statement No. 143" ("FIN
    47"), which requires and entity to recognize a liability for the fair value
    of a conditional asset retirement obligation when incurred if the
    liability's fair value can be reasonably estimated. FIN 47 is effective for
    fiscal years ending after December 15, 2005 and is required to be adopted by
    the Corporation in the first quarter of fiscal 2006. The Corporation is
    currently evaluating the effect that the adoption of FIN 47 will have on its
    consolidated results of operations and financial condition but does not
    expect it to have a material impact.

    In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
    Corrections" ("SFAS 154") which replaces Accounting Principles Board Opinion
    No. 20 "Accounting Changes" and SFAS No. 3, "Reporting Accounting Changes in
    Interim Financial Statements - An Amendment of APB Opinion No. 28". SFAS 154
    provides guidance on the accounting for and reporting of accounting changes
    and error corrections. It establishes retrospective application, or the
    latest praticable date, as the required method for reporting a change in
    accounting principle and the reporting of a correction of an error. SFAS 154
    is effective for accounting changes and corrections of errors made in fiscal
    years beginning after December 15, 2005 and is required to be adopted by the
    Corporation in the first quarter of fiscal 2007. The Corporation is
    currently evaluating the effect that the adoption of SFAS 154 will have on
    its consolidated results of operations and financial condition but does not
    expect it to have a material impact.


                                       88
<PAGE>


ITEM 19. EXHIBITS

EXHIBITS

<TABLE>
<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 Inc. 1996 Stock Incentive Plan as amended

    4.2            Sand Technology Inc. 1996 Stock Option Plan as amended

    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>


                                       89
<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

    5.1            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

    14.1           Consent of Independent Registered Chartered Accountants

    15.1           Amended and Restated Audit Committee Charter

    15.2           Governance, Nomination, Human Resources and Compensation Committee

    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 20-F Annual
         Report for the fiscal year ending July 31, 2003.

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<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.


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<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, 2006                             Arthur G. Ritchie
                                             Chairman of the Board,
                                             President and Chief Executive
                                             Officer





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