<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                   FORM 20-F/A

                       AMENDMENT TO APPLICATION OR REPORT
                Filed Pursuant to Section 12, 13, or 15(d) of the
                             SECURITIES EXCHANGE ACT



                              SAND TECHNOLOGY INC.
              (Formerly Sand Technology Systems International Inc.)
             (Exact name of registrant as specified in its charter)

                                 AMENDMENT NO. 2

     The undersigned registrant hereby amends the following item of its Annual
Report on Form 20-F for the fiscal year ended July 31, 2001 as set forth in the
attached pages hereto:

     Part III.     Item 18  Financial Statements


     Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.


                                       SAND TECHNOLOGY, INC.

                                       /s/Arthur G. Ritchie
                                       -------------------------------------
February 1, 2002                       Arthur G. Ritchie
                                       Chairman of the Board
                                       President and Chief Executive Officer

<PAGE>

Item 18. Financial Statements

     The Consolidated Financial Statements of the Company are included in this
Annual Report on Form 20-F beginning on page 45.


<PAGE>

                       CONSOLIDATED FINANCIAL STATEMENTS OF

                       SAND TECHNOLOGY INC.

                       JULY 31, 2001, 2000 AND 1999


                                       45
<PAGE>

Deloitte & Touche LLP
Assurance and Advisory Services
1 Place Ville-Marie
Suite 3000
Montreal QC H3B 4T9
Canada

Tel.: (514) 393-7115
Fax: (514) 390-4109
www.deloitte.ca                                    [DELOITTE & TOUCHE LOGO]


AUDITORS' REPORT

To the Board of Directors of
Sand Technology Inc.

We have audited the consolidated balance sheets of Sand Technology Inc. as at
July 31, 2001 and 2000 and the consolidated statements of operations,
shareholders' equity and cash flows for each of the three years ended July 31,
2001, 2000 and 1999. 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.

With respect to the consolidated financial statements for the year ended July
31, 2001, we conducted our audit in accordance with Canadian generally accepted
auditing standards and auditing standards generally accepted in the United
States of America. With respect to the consolidated financial statements for
each of the years in the two-year period ended July 31, 2001 we conducted our
audits in accordance with Canadian generally accepted auditing standards. 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, 2001
and 2000 and the results of its operations and its cash flows for each of the
three years ended July 31, 2001, 2000 and 1999 in accordance with Canadian
generally accepted accounting principles.

/s/ DELOITTE & TOUCHE LLP
October 29, 2001

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

In the United States of America, reporting standards for auditors require the
addition of an explanatory paragraph (following the opinion paragraph) outlining
changes in accounting principles that have been implemented in the financial
statements. Although we conducted our audit in accordance with both Canadian
generally accepted auditing standards and United states generally accepted
auditing standards our report to the Directors dated October 29, 2001 is
expressed in accordance with Canadian reporting standards which do not require a
reference to such a change in accounting principles in the auditors report when
the change is properly accounted for and adequately disclosed in the financial
statements. In fiscal 2001, the Corporation implemented the recommendations of
CICA Handbook section 3465, Accounting for Income Taxes. The impact of this
change in accounting policy is as set out in Note 1 to the consolidated
financial statements.

/s/ DELOITTE & TOUCHE LLP
October 29, 2001

----------
DELOITTE
TOUCHE
TOCHMATSU
----------


                                       46
<PAGE>

SAND TECHNOLOGY INC.
CONSOLIDATED BALANCE SHEETS
AS AT JULY 31, 2001 AND 2000
(IN CANADIAN DOLLARS)

<TABLE>
<CAPTION>
============================================================================================
                                                                2001                 2000
--------------------------------------------------------------------------------------------
                                                                  $                    $
<S>                                                          <C>                  <C>
ASSETS
Current assets
    Cash                                                        543,529              664,918
    Investments                                              17,945,178            1,722,194
    Accounts receivable                                       8,415,870            4,351,788
    Inventories                                                  44,783               43,100
    Prepaid expenses                                            391,488              114,543
    Loan bearing interest at 8%                                 100,000              100,000
--------------------------------------------------------------------------------------------
                                                             27,440,848            6,996,543

Capital assets (Note 3)                                       1,506,303              140,104
Acquired technology (Note 4)                                    985,133            1,934,114
--------------------------------------------------------------------------------------------
                                                             29,932,284            9,070,761
============================================================================================

LIABILITIES
Current liabilities
    Accounts payable and accrued liabilities                  3,401,650            1,622,739
    Deferred revenue                                          1,835,260              382,036
    Current portion of balance of purchase price (Note 5)             -              517,300
--------------------------------------------------------------------------------------------
                                                              5,236,910            2,522,075
--------------------------------------------------------------------------------------------

Commitments (Note 8)

SHAREHOLDERS' EQUITY
    Common stock (Note 6)
        Authorized
           An unlimited number of Class "A" common shares,
               without par value
        Issued and outstanding
           13,153,427 common shares (9,627,145 in 2000)      39,125,112           12,455,748
    Deficit                                                 (14,429,738)          (5,907,062)
--------------------------------------------------------------------------------------------
                                                             24,695,374            6,548,686
--------------------------------------------------------------------------------------------
                                                             29,932,284            9,070,761
============================================================================================
</TABLE>
              See notes to the consolidated financial statements.


                                       47
<PAGE>

SAND TECHNOLOGY INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JULY 31, 2001, 2000 AND 1999
(IN CANADIAN DOLLARS)

<TABLE>
<CAPTION>
========================================================================================================
                                                       2001                2000                  1999
--------------------------------------------------------------------------------------------------------
                                                         $                   $                     $

<S>                                                 <C>                   <C>                  <C>
NET SALES                                           11,258,528            6,895,016            2,091,067
Cost of sales and product support                   (3,498,847)          (2,343,191)            (345,265)
Research and development costs                      (3,347,988)          (3,790,025)          (3,871,534)
Selling, general and
    administrative expenses                        (13,307,854)          (7,836,833)          (4,458,200)
Net interest and profits on sale of
    investments                                        617,903               84,568              436,113
--------------------------------------------------------------------------------------------------------
Loss from operations                                (8,278,258)          (6,990,465)          (6,147,819)

Profit on sale of affiliated company (Note 2)                -            3,792,296                    -
Equity earnings of affiliated company (Note 2)               -              283,510            1,170,499
Foreign exchange gain (loss)                          (244,418)              47,752               16,356
--------------------------------------------------------------------------------------------------------

Loss before income taxes                            (8,522,676)          (2,866,907)          (4,960,964)

Income taxes (Note 7)                                        -                    -                    -
--------------------------------------------------------------------------------------------------------
NET LOSS                                            (8,522,676)          (2,866,907)          (4,960,964)
========================================================================================================

Loss per share                                          (0.706)              (0.321)              (0.582)
========================================================================================================

Weighted average number of
    shares outstanding                              12,079,359            8,919,211            8,522,873
========================================================================================================
</TABLE>
              See notes to the consolidated financial statements.


                                       48
<PAGE>

SAND TECHNOLOGY INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED JULY 31, 2001, 2000 AND 1999
(IN CANADIAN DOLLARS)

<TABLE>
<CAPTION>

==================================================================================================================
                                                                                                        Retained
                                       Exchange                      Common stock                       earnings
                                         rate                   Shares              Amount              (deficit)
                                     -----------------------------------------------------------------------------
                                          US$                                          $                     $

<S>                                      <C>                  <C>                  <C>                   <C>
BALANCE, JULY 31, 1998                   0.66                 8,520,206            8,725,920             1,920,809

Net loss                                                              -                    -            (4,960,964)

Exercise of stock options                0.69                     8,000               55,415                     -
-------------------------------------------------------------------------------------------------------------------
BALANCE, JULY 31, 1999                   0.66                 8,528,206            8,781,335            (3,040,155)

Net loss                                                              -                    -            (2,866,907)

Exercise of stock options                0.68                   520,000              335,130                     -

Private placement                        0.68                   315,789            1,885,723                     -


Balance of purchase price
    exchanged for shares                                        263,150            1,453,560                     -
-------------------------------------------------------------------------------------------------------------------
BALANCE, JULY 31, 2000                   0.68                 9,627,145           12,455,748            (5,907,062)

Net loss                                                              -                    -            (8,522,676)

Exercise of stock options                0.66                    40,000               77,608                     -

Common share equity line                 0.66                   586,282            2,264,483                     -

Private placement                        0.66                 2,900,000           24,327,273                     -

-------------------------------------------------------------------------------------------------------------------
BALANCE, JULY 31, 2001                   0.65                13,153,427           39,125,112           (14,429,738)
===================================================================================================================
</TABLE>
              See notes to the consolidated financial statements.

                                       49
<PAGE>

SAND TECHNOLOGY INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JULY 31, 2001, 2000 AND 1999
(IN CANADIAN DOLLARS)

<TABLE>
<CAPTION>

==================================================================================================================
                                                                2001                2000                 1999
------------------------------------------------------------------------------------------------------------------
                                                                  $                   $                    $

<S>                                                          <C>                  <C>                  <C>
OPERATING ACTIVITIES
    Net loss                                                 (8,522,676)          (2,866,907)          (4,960,964)
    Items not affecting cash
        Depreciation of equipment                               211,418               94,704              109,814
        Amortization of acquired technology                     948,981              948,981              174,198
        Equity earnings of affiliated company (Note 2)                -             (283,510)          (1,170,499)
        Profit on sale of affiliated company                          -           (3,792,296)                   -
    Changes in non-cash operating
        working capital items (Note 12)                      (2,563,799)          (2,269,251)             516,351
------------------------------------------------------------------------------------------------------------------
                                                             (9,926,076)          (8,168,279)          (5,331,100)
------------------------------------------------------------------------------------------------------------------

INVESTING ACTIVITIES
    Net (increase) decrease in short-term investments       (16,222,984)            (836,754)           3,634,391
    Proceeds on sale of affiliated company                            -            7,295,476                    -
    Dividend from affiliated company (Note 2)                         -                    -            1,600,000
    Purchase of equipment                                    (1,577,617)             (53,352)             (81,283)
------------------------------------------------------------------------------------------------------------------
                                                            (17,800,601)           6,405,370            5,153,108
------------------------------------------------------------------------------------------------------------------

FINANCING ACTIVITIES
    Issue of common shares                                   26,669,364            2,220,853               55,415
    Deferred revenue                                          1,453,224              382,036                    -
    Repayment of balance of purchase price                     (517,300)            (299,140)                   -
------------------------------------------------------------------------------------------------------------------
                                                             27,605,288            2,303,749               55,415
------------------------------------------------------------------------------------------------------------------

Net cash inflow (outflow)                                      (121,389)             540,840             (122,577)
Cash, beginning of year                                         664,918              124,078              246,655
------------------------------------------------------------------------------------------------------------------
CASH, END OF YEAR                                               543,529              664,918              124,078
=================================================================================================================
</TABLE>

There were no interest or income taxes paid during the three-year period ended
July 31 2001.

              See notes to the consolidated financial statements.


                                       50
<PAGE>

SAND TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2001, 2000 AND 1999
(IN CANADIAN DOLLARS)
-------------------------------------------------------------------------------

On December 17, 1999, the shareholders of Sand Technology Systems International
Inc. approved a special resolution to change the name of the Corporation to Sand
Technology Inc. The Corporation is involved in research and development to bring
to market its Nucleus Exploration series of products, including the Nucleus
Exploration Mart/Warehouse and the Nucleus Prototype Mart/Warehouse. The
Corporation is considered to have only one business segment.

1.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

        SIGNIFICANT ACCOUNTING POLICIES

        The Corporation follows Canadian generally accepted accounting
        principles in the preparation of its financial statements. This requires
        management to make estimates and assumptions that affect the reported
        amounts of assets and liabilities and the disclosure of contingent
        assets and 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, Sand Technology Corp.,
        Sand Technology (U.K.) Ltd., STSI Licensing, LLC, Laepherous Limited and
        Sand Technology Deutschland GmbH. All significant intercompany
        transactions and balances have been eliminated.

        REVENUE RECOGNITION

        The Corporation's revenue is earned from licences of off-the-shelf
        software which does not require customization. This revenue is
        recognized once remaining obligations under the sales agreements are
        considered insignificant.

        Revenue from product support contracts is recognized over the life of
        the contract. Incremental costs directly attributable to the acquisition
        of product support contracts are deferred and expensed in the period the
        related revenue is recognized.

        Revenue from education, consulting, and other services is recognized at
        the time such services are rendered.

        SHORT-TERM INVESTMENTS

        Short-term investments are recorded at the lower of cost and market
        value. Market value at July 31, 2001 is $17,946,473 (2000 - $1,739,015).

        INVENTORIES

        Inventories include finished products which are valued at the lower of
        average cost and net realizable value.


                                       51
<PAGE>

SAND TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2001, 2000 AND 1999
(IN CANADIAN DOLLARS)
-------------------------------------------------------------------------------

1.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

        INVESTMENT

        The investment in the affiliated company was accounted for by the equity
        method whereby the share of earnings or losses attributable to the
        period following the date of acquisition was included in operations. All
        significant unrealized intercompany profits have been eliminated.

        CAPITAL ASSETS

        Capital assets are recorded at cost and are amortized over their
        estimated useful lives at the following rates:

<TABLE>
<CAPTION>

                <S>                            <C>
                Furniture and equipment                 5 year straight-line
                Computer equipment                      3 year straight-line
                Leasehold improvements          lesser of straight-line over
                                               term of lease and useful life
</TABLE>

        ACQUIRED TECHNOLOGY

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

        DEFERRED REVENUE

        Deferred revenue represent unearned income associated with support
        agreements, software license revenue where significant vendor
        obligations remain.

        INCOME TAXES

        In fiscal 2001, the Corporation implemented the recommendations of CICA
        Handbook section 3465, Accounting for Income Taxes. Under the new
        recommendations, the liability method of tax allocation is used in
        accounting for income taxes. Under this method, future tax benefits and
        obligations are determined based on differences between the financial
        reporting and tax bases of assets and liabilities, and measured using
        the substantially enacted tax rates and laws that will be in effect when
        differences are expected to reverse. Future tax assets, if any, are
        recognized only to the extent that, in the opinion of management, it is
        more likely than not that the future income tax assets will be realized.

        Prior to the adoption of the new recommendations, income tax expense
        would have been determined using the deferral method of tax allocation.
        There is no material impact on the financial statements resulting from
        this change either in the current year or in the prior years presented.


                                       52
<PAGE>

SAND TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2001, 2000 AND 1999
(IN CANADIAN DOLLARS)
-------------------------------------------------------------------------------

1.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

        FOREIGN EXCHANGE TRANSLATION

        Revenues and expenses denominated in foreign currencies are translated
        into Canadian dollars at rates prevailing on the transaction dates.
        Monetary assets and liabilities are translated at year-end rates.
        Non-monetary assets and liabilities are translated at historical
        exchange rates.

        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. Revenues and expenses are
        translated at average exchange rates for the year, with the exception of
        depreciation of assets which is translated at the same historical
        exchange rates as the related assets. Translation losses and gains are
        included in operations.

        EARNINGS PER SHARE

        Per share computations are based on the weighted average number of
        shares outstanding during the year.

        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 in the
        period the funds are received.

2.      INVESTMENT IN AFFILIATED COMPANY

        HITACHI DATA SYSTEMS INC.

        On August 20, 1999, the Corporation sold its 40% investment in Hitachi
        Data Systems Inc. to Hitachi Data Systems Corporation of Santa Clara for
        $7,295,476 in cash.

        The Corporation's equity in Hitachi Data Systems Inc. for fiscal 1999 is
        based on the March 31, 1999 audited financial statements, adjusted for
        the results of operations for the four-month period ended July 31, 1999.

        The audited financial statements of Hitachi Data Systems Inc., the
        results of operations for the 20-day period ended August 20 1999 and the
        four-month period ended July 31, 1999, and the carrying value of the
        related investment, accounted for under the equity method, are
        summarized below:


                                       53
<PAGE>

SAND TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2001, 2000 AND 1999
(IN CANADIAN DOLLARS)
-------------------------------------------------------------------------------

2. INVESTMENT IN AFFILIATED COMPANY (CONTINUED)

<TABLE>
<CAPTION>
                                                                                     March 31,
                                                                                       1999
                                                                                   ------------
                                                                                         $
        <S>                                                                         <C>
        Financial position
          Current assets                                                            17,309,867
          Current liabilities                                                       12,120,456
-----------------------------------------------------------------------------------------------

       Working capital                                                               5,189,411
        Other assets                                                                 6,476,403
-----------------------------------------------------------------------------------------------
                                                                                    11,665,814
        Other liabilities                                                            4,291,312
-----------------------------------------------------------------------------------------------
        Equity                                                                       7,374,502
===============================================================================================

        Results of operations
          Revenue                                                                   51,130,495
          Operating expenses and income taxes                                       48,506,953
-----------------------------------------------------------------------------------------------
        Net earnings                                                                 2,623,542
===============================================================================================

        Dividends paid                                                               4,000,000
</TABLE>


<TABLE>
<CAPTION>
                                               20-day period               4-month period
                                                   ended                        ended
                                                August 20,                    July 31,
                                                   1999                         1999
                                               -----------------------------------------
                                                     $                            $
        <S>                                      <C>                         <C>
        Results of operations
          Revenue                                4,372,657                   14,619,371
          Operating expenses and
              income taxes                       3,663,882                   13,944,698
----------------------------------------------------------------------------------------
        Net earnings                               708,775                      674,673
========================================================================================
</TABLE>


<TABLE>
<CAPTION>
                                                   July 31,             July 31,
                                                     2000                 1999
                                                  ------------------------------
                                                       $                    $

        <S>                                         <C>                <C>
        Equity earnings for the year                283,510            1,170,499
================================================================================

        Carrying value of
          investment as at July 31                        -            3,219,670
================================================================================
</TABLE>

                                       54
<PAGE>

SAND TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2001, 2000 AND 1999
(IN CANADIAN DOLLARS)
-------------------------------------------------------------------------------

3.      CAPITAL ASSETS

<TABLE>
<CAPTION>
                                                                 2001                                      2000
                                         ----------------------------------------------------          -----------
                                                              Accumulated            Net Book            Net Book
                                            Cost             Depreciation              Value               Value
                                         ---------           ------------           ----------         -----------
                                              $                    $                    $                    $
        <S>                               <C>                  <C>                  <C>                  <C>
        Furniture and equipment            977,833              418,024              559,809              121,876
        Computer equipment                 587,454              216,843              370,611               18,228
        Leasehold improvements             612,399               36,516              575,883                    -
------------------------------------------------------------------------------------------------------------------
                                         2,177,686              671,383            1,506,303              140,104
==================================================================================================================
</TABLE>

4.      ACQUIRED TECHNOLOGY

<TABLE>
<CAPTION>
                                                                 2001                                      2000
                                         ----------------------------------------------------          -----------
                                                              Accumulated            Net Book            Net Book
                                            Cost             Depreciation              Value               Value
                                         ---------           ------------           ----------         -----------
                                              $                    $                    $                    $
        <S>                               <C>                  <C>                  <C>                  <C>
        Product source codes             2,993,042            2,007,909              985,133            1,934,114
==================================================================================================================
</TABLE>

5.      BALANCE OF PURCHASE PRICE

        The balance of purchase price resulted from the acquisition of the
        Nucleus rights. This balance of purchase price was non-interest bearing,
        repayable with annual principal repayments from 2000 to 2004 and
        reimbursable under certain conditions.

        On July 31, 2000 the agreement was modified and the Corporation
        committed to settle the balance of purchase price as follows:

        - cash in the amount of US$ 350,038 (Can$ 517,300) payable by
          November 15, 2000; and

        - 263,150 shares of common stock issued as of July 31, 2000.


                                       55
<PAGE>

SAND TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2001, 2000 AND 1999
(IN CANADIAN DOLLARS)
-------------------------------------------------------------------------------

6.      COMMON STOCK

        During the year ended July 31, 1999, 8,000 common shares were issued
        under the Stock Option Plan for proceeds of $55,415.

        During the year ended July 31, 2000, 440,000 common shares were issued
        under the Share Option Plan for proceeds of $159,698, 16,000 common
        shares were issued under the 1996 Stock Incentive Plan for proceeds of
        $112,693 and 64,000 common shares were issued under the 1996 Stock
        Option Plan for proceeds of $62,740.

        On June 1, 2000, the Corporation completed a private placement involving
        the issuance of 315,789 common shares for net cash proceeds of
        $1,885,723. Under the terms of the agreement, the shares were sold for a
        purchase price of US$4.75 per share. The Corporation also issued
        65,217 warrants which may be exercised from time to time during the
        period beginning June 1, 2000 and ending on May 31, 2003 at an exercise
        price of US$10.00 per share.

        On July 31, 2000, the Corporation agreed to satisfy $1,453,560 of its
        obligation resulting from the acquisition of the Nucleus rights by
        issuing 263,150 shares of common stock (Note 5).

        On June 1, 2000, the Corporation entered into a Common Share Purchase
        Agreement ("CSPA") allowing the Corporation to access up to
        US$30,000,000 through a common share equity line. Pursuant to the CSPA,
        the Corporation may, at its option, issue and sell to the purchaser up
        to US$30,000,000 of the Corporation's common shares over a period of
        12 months at a discount of 10% from the average daily price of the
        common stock. The Corporation also issued 364,556 warrants which may be
        exercised from time to time over the period of 12 months at an exercise
        price of US$5.6781 per share.

        During the year, the Corporation issued 586,282 common shares through
        its common share equity line for net cash proceeds of $2,264,483.

        In November 2000, the Corporation completed a private placement
        involving the issuance of 2,900,000 common shares for net cash proceeds
        of $24,327,273. Under the terms of the agreement, the shares were sold
        for a purchase price of US$6.00 per share. The Corporation also issued
        312,000 warrants which may be exercised from time to time during the
        period beginning November 22, 2000 and ending on November 22, 2001 at an
        exercise price of US$6.00 per share.

        During the year, ended July 31, 2001, 40,000 common shares were issued
        under the 1996 Stock Incentive Plan for proceeds of $77,608.


                                       56
<PAGE>

SAND TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2001, 2000 AND 1999
(IN CANADIAN DOLLARS)
-------------------------------------------------------------------------------

6.      COMMON STOCK (CONT'D)

        Under the Corporation's Share Option Plan, 1996 Stock Incentive Plan and
        1996 Stock Option Plan, exercise of the options granted is generally
        restricted to a maximum of 20% of the options granted per annum
        beginning one year after each grant date and expiring 10 years after. A
        maximum of 1,896,000 common shares is reserved for issuance under each
        of these plans. The Corporation has the following outstanding options as
        at July 31, 2001 and 2000:

<TABLE>
<CAPTION>

           -------  ----------------------------        ---------- ----------- ---------- ----------
                                                                      Price
                                                                      range         Outstanding
                                                         Options    per share     2001       2000
           Granted        Plan                           Granted       US$
           -------  ----------------------------        ---------- ----------- ---------- ----------
           <S>                                           <C>         <C>        <C>        <C>
           1996     1996 Stock Option Plan               440,000     0.69 to    252,000    296,000
                                                                        3.38
           1996     1996 Stock Incentive Plan            400,000        5.00     36,000     36,000
           1997     1996 Stock Option Plan                80,000        5.56     80,000     80,000
           1998     1996 Stock Option Plan                62,500     4.00 to     52,500     52,500
                                                                        5.50
           1998     1996 Stock Incentive Plan            187,500     3.75 to     65,500     66,500
                                                                        8.38
           1999     1996 Stock Option Plan               142,000     5.75 to     79,500     79,500
                                                                        7.00
           1999     1996 Stock Incentive Plan            107,000     5.00 to     85,250     92,250
                                                                        7.56
           2000     1996 Stock Option Plan               172,000     5.00 to    159,000    166,500
                                                                       6.313
           2000     1996 Stock Incentive Plan             99,250     3.63 to     71,750     92,750
                                                                        8.63
           2001     1996 Stock Option Plan               153,250     5.00 to    153,250          -
                                                                        6.81
           2001     1996 Stock Incentive Plan            362,500        5.00    356,500          -
           -------  ----------------------------        ---------- ----------- ---------- ----------
</TABLE>

        At July 31, 2001, there were 534,850 exercisable options outstanding to
        purchase common shares at prices ranging from US$0.69 to $8.38 per
        share.


                                       57
<PAGE>

SAND TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2001, 2000 AND 1999
(IN CANADIAN DOLLARS)
-------------------------------------------------------------------------------

7.      INCOME TAXES

        The Corporation and its subsidiaries have non-capital losses carried
        forward for income tax purposes amounting to approximately $15,359,000
        which may be utilized to reduce taxable income of future years and which
        expire as follows:

<TABLE>
<CAPTION>
         <S>                           <C>
                                         $

         2005                          12,000
         2006                         210,000
         2008                       3,265,000
         2011                          87,000
         2012                         496,000
         2013                       1,856,000
         2014                       3,377,000
         2015                       3,451,000
         2016                       3,800,000
</TABLE>

        The Corporation has research and experimental development expenses
        estimated at $5,933,000 for federal tax purposes and $7,516,000 for
        provincial tax purposes which can be carried forward indefinitely
        against its taxable income.

        The Corporation also has non-refundable investment tax credits amounting
        to $1,734,000, which it can apply against its future federal income tax
        payable. This can be carried forward over the next ten years.

        No recognition has been given in the financial statements with regard to
        the potential future tax benefits resulting from the availability of any
        of these items.

8.      COMMITMENTS

        LEASE COMMITMENTS

        Minimum lease payments for office premises under non-cancellable
        operating leases for the next five years are as follows: $

<TABLE>
<CAPTION>

         <S>                           <C>
         2002                           590,899
         2003                           548,342
         2004                           421,855
         2005                           385,937
         2006                           385,937
         --------------------------------------
                                      2,332,970
         ======================================
</TABLE>

                                       58
<PAGE>

SAND TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2001, 2000 AND 1999
(IN CANADIAN DOLLARS)
-------------------------------------------------------------------------------

9.      RELATED PARTY TRANSACTION

        One of the Corporation's directors was also the president of Nucleus
        International Corporation, the Company from which the Corporation
        acquired the Nucleus rights.

        The Corporation believes that the related party transaction described
        above was on terms as fair to the Corporation as could have been
        obtained from unaffiliated third parties

10.     SEGMENTED INFORMATION

        The Corporation is considered to have only one business segment.

        The Corporation has two geographic reportable segments commencing with
        the 1999 fiscal year. Both the North American and European segments
        distribute a full range of Nucleus Exploration series of products,
        including the Nucleus Exploration Mart/Warehouse and the Nucleus
        Prototype Mart/Warehouse. The accounting policies of the segments are
        the same as described in the summary of significant accounting policies.
        The Company 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
      ---------------------------------------------------------------------------
      <S>                                         <C>                   <C>
      2001
      Net sales                                    3,313,856            7,944,672
      Income (loss) before taxes                  (8,930,339)             407,663
      Identifiable assets                         21,869,267            8,063,017

      ---------------------------------------------------------------------------
      2000
      Net sales                                    2,265,340            4,629,676
      Income (loss) before taxes                  (3,352,230)             485,323
      Identifiable assets                          5,639,068            3,431,693
      ---------------------------------------------------------------------------
</TABLE>


                                       59
<PAGE>

SAND TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2001, 2000 AND 1999
(IN CANADIAN DOLLARS)
-------------------------------------------------------------------------------

11.     FINANCIAL INSTRUMENTS

        FAIR VALUE

        At July 31, 2001, the estimated fair market value of cash, accounts
        receivable, loan and accounts payable and accrued liabilities is equal
        to the book value, given the short-term nature of these items.

        Short-term investments are recorded at the lower of cost and market
        value.

        The fair value of long-term liabilities is not significantly different
        than the book value.

        The Corporation does not hold or issue financial instruments for trading
        purposes.

        CREDIT RISK

        Credit risk concentration with respect to trade receivables is limited
        due to the Corporation's large client base.

12.     CHANGES IN NON-CASH OPERATING
        WORKING CAPITAL ITEMS

<TABLE>
<CAPTION>
                                                 2001                 2000                 1999
                                            -------------------------------------------------------
                                                   $                    $                    $

        <S>                                   <C>                  <C>                      <C>
        Accounts receivable                   (4,064,082)          (3,536,093)              31,532
        Due from affiliated company                    -                4,537              182,574
        Inventories                               (1,683)               4,042              181,046
        Prepaid expenses                        (276,945)            (102,396)             120,823
        Accounts payable and
           accrued liabilities                 1,778,911            1,360,659                  376
---------------------------------------------------------------------------------------------------
        Changes in non-cash operating
           working capital items              (2,563,799)          (2,269,251)             516,351
===================================================================================================
</TABLE>

                                       60
<PAGE>

SAND TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2001, 2000 AND 1999
(IN CANADIAN DOLLARS)
-------------------------------------------------------------------------------

13.     SUBSEQUENT EVENT

        On October 10, 2001, the Corporation announced an open market share
        repurchase program under which it may repurchase, up to a maximum of
        659,160 of its outstanding Class A Common Shares from October 15, 2001
        to October 15, 2002.

14.     COMPARATIVE FIGURES

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

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

        The Corporation does not have material differences between Canadian and
        U.S. generally accepted accounting principles.

        COMPREHENSIVE INCOME

        The Corporation has adopted SFAS 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 compensation 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 make pro forma disclosures of net
        income and earnings per share, as if the fair value based methodology
        prescribed by FAS No. 123, Accounting for Stock Based Compensation, had
        been applied.

        The Corporation's Share Option Plan, 1996 Stock Option Plan and 1996
        Stock Incentive Plan govern the granting of options to purchase common
        shares of the corporation to eligible full-time employees, directors and
        officers of the corporation. The purpose of the plans is to advance the
        interests of the corporation and its shareholders by providing to the
        grantees a performance incentive for the continued and improved service
        with the corporation. Options are granted at a price not less than the
        closing price of the corporation's shares on the last trading day
        immediately before the grant. Options granted generally expire in ten
        years from the date of grant and vest at a rate of 20% per annum on the
        anniversary date of the grant.


                                       61
<PAGE>

SAND TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2001, 2000 AND 1999
(IN CANADIAN DOLLARS)
-------------------------------------------------------------------------------

15.     RECONCILIATION OF CANADIAN AND UNITED STATES
        GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (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, in accordance with FAS 123.

<TABLE>
<CAPTION>
        -----------------------------------------     ---------------      ---------------      ---------------
                                                        July 31, 2001        July 31, 2000        July 31, 1999
                                                               $                    $                    $
        -----------------------------------------     ---------------      ---------------      ---------------
         <S>                                              <C>                  <C>                  <C>
         Net (loss) reported                              (8,522,676)          (2,866,907)          (4,960,964)
        -----------------------------------------     ---------------      ---------------      ---------------
         Pro forma compensation benefit
         (expense)                                          (875,375)             165,293             (315,265)
        -----------------------------------------     ---------------      ---------------      ---------------
         Pro forma net (loss)                             (9,398,051)          (2,701,614)          (5,276,229)
        -----------------------------------------     ---------------      ---------------      ---------------
         Pro forma basic (loss) per share                     (0.778)              (0.303)              (0.619)
        -----------------------------------------     ---------------      ---------------      ---------------
</TABLE>

        The Corporation recognized compensation benefit of $165,293 in 2000. The
        benefit resulted from the reversal of previously recorded stock
        compensation expense on the forfeiture of unexercised options. The 2000
        benefit is reconciled as follows: (1) stock compensation expense
        $451,711 for employee based stock option plans in accordance with FAS
        123 and (2) reversal of previously recorded stock compensation expense
        on the forfeiture of unexercised option of $617,004.

        FAS 123 requires that pro forma compensation expense be recognized over
        the vesting period based on the fair value of options granted to
        employees. The pro forma compensation expense presented above has been
        estimated using the Black Scholes option pricing model. In order to
        perform the calculation the following weighted average assumptions were
        made for fiscal years 2001, 2000 and 1999:

<TABLE>
<CAPTION>
        -----------------------------------------     ---------------      ---------------      ---------------
                                                        July 31, 2001        July 31, 2000        July 31, 1999
                                                               $                    $                    $
        -----------------------------------------     ---------------      ---------------      ---------------
         <S>                                              <C>                  <C>                  <C>
        Risk-free interest rate                              4.93%                5.90%                5.68%
        -----------------------------------------     ---------------      ---------------      ---------------
        Dividend yield                                          0%                   0%                   0%
        -----------------------------------------     ---------------      ---------------      ---------------
        Volatility factor of the expected
        market price of the Corporation's
        common stock                                           81%                  97%                  94%
        -----------------------------------------     ---------------      ---------------      ---------------
        Term to maturity                                   7 years              7 years              7 years
        -----------------------------------------     ---------------      ---------------      ---------------
</TABLE>

        FAS 123 requires that pro forma compensation expense be reported for
        options granted in fiscal years beginning after December 15, 1994, which
        in the case of the corporation is the year ended July 31, 1996. Since
        the compensation expense is recognized over the vesting period, the pro
        forma compensation expense presented above is not indicative of the pro
        forma compensation expense that will be reported in future years if the
        corporation continues to grant options to employees.


                                       62
<PAGE>

SAND TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2001, 2000 AND 1999
(IN CANADIAN DOLLARS)
-------------------------------------------------------------------------------

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

        NEW STANDARDS

        In October 2001, the FASB issued SFAS No. 144 "Accounting for the
        Impairment or Disposal of Long-Lived Assets" which resolves significant
        implementation issues related to FASB Statement No. 121, Accounting for
        the Impairment of Long-Lived Assets and for Long-Lived Assets to be
        Disposed Of, and supersedes the accounting and reporting provisions of
        APB Opinion No. 30, Reporting the Results of Operations - Reporting the
        Effects of Disposal of a Segment of a Business, and Extraordinary,
        Unusual and Infrequently Occurring Events and Transactions, for the
        disposal of a business segment. SFAS 144 is effective for fiscal years
        beginning after December 15, 2001, and interim periods within those
        fiscal years, with early application encouraged. The impact of adoption
        of SFAS 144 on Sand's financial position and results of operations is
        not expected to be material.


                                       63