---

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C.
20549

FORM 20-F/A

[    ]  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, 2012 OR

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

OR

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

Date of event requiring this shell company report

Commission File Number 0-14884

Sand
Technology Inc.(Exact name of registrant as specified in its charter)

Canada(Jurisdiction of incorporation or
organization)

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

Mr. Wayne Musselman (514) 939-3477 Fax (514)939-2042
4115 Sherbrooke St. West, Suite 500 Westmount, Quebec, Canada H3Z
1B1(Name, Telephone, Email and/or Facsimile number and Address of
Company Contact Person)

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

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

---

Securities registered pursuant to Section 12(g) of the
Act.Class A Common Shares

Securities for which there is a reporting obligation pursuant
to Section 15(d) of the Act.None

Indicate the number of outstanding shares of each of the
issuers classes of capital or common stock as of the close of the period
covered by the annual report.19,673,636 Class A Common Shares

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

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. [ x ]  Yes [   
]   No

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

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

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

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

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

IF Other indicate by check mark which financial statement
item the registrant has elected to follow.Item 17 [    
]  Item 18 [     ]

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

- ii -

---

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

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

- iii -

---

Explanatory Note

This amendment (Amendment No. 2) to our Form 20-F, which was
originally filed with the U.S. Securities and Exchange Commission on November
29, 2012 (Original 20-F), and amended by the Form 20-F/A and filed with the
U.S. Securities and Exchange Commission on December 11, 2012 (Amendment No.
1), is being filed to;

| | 1. | remove any comparison to financial statements for periods
      prior to August 1, 2010 as our transition date to International Financial
      Reporting Standards (IFRS) was August 1, 2010; and                                                                                                                                                                                                                                                                                                                                                        
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | 2. | to state that the Consolidated Financial Statements have
      been prepared in accordance with IFRS as issued by the International
      Accounting Standards Board (IASB) and in connection therewith update the
      information in Note 3a  Basis of Presentation and Statement of Compliance
      to the Consolidated Financial Statements, and to utilize the term
      substantial doubt when discussing the going concern in (a) the Auditors
      Report, and (b) in Note 2  Going Concern to the Consolidated Financial
      Statements.

This Amendment No. 2 does not modify or update the other
disclosures presented in the Original 20-F or Amendment No. 1. This Amendment
No. 2 does not reflect events occuring after the period covered by the Original
20-F or modify or update the disclosures in the Original 20-F or Amendment No. 1
that may be affected by subsequent events.

- iv -

---

SAND TECHNOLOGY INC.

Annual Report on Form 20-F/A for the Fiscal Year Ended July
31, 2012

FORWARD LOOKING STATEMENTS

From time to time, we make oral and written statements that may
be considered "forward looking statements" (rather than historical facts). We
are taking advantage of the "safe-harbour" provisions of the Private Securities
Litigation Reform Act of 1995 for any forward-looking statements we may make
from time to time, including the forward-looking statements in this Annual
Report.

You can identify these statements when you see words such as
"may", "expect", "anticipate", "estimate", "believe", "intend", and other
similar expressions. These forward-looking statements relate, among other items,
to:

- our future capital needs;o
- future expectations as to profitability and operating results;
- our ability to further develop business relationships and revenues;
- our expectations about the markets for our products and services;
- acceptance of our products and services;
- competitive factors;
- our ability to maintain operating expenses;
- our ability to attract and retain employees;
- new products and technological changes;
- our ability to develop appropriate strategic alliances;
- protection of our proprietary technology;
- our ability to acquire complementary products or businesses and integrate
  them into our business;
- our ability to increase revenue from existing products and services;
- our ability to expand the scope of our product offering.

We have based these forward-looking statements largely on our
current plans and expectations. Forward-looking statements are subject to risks
and uncertainties, some of which are beyond our control. Our actual results
could differ materially from those described in our forward-looking statements
as a result of the factors described in the Risk Factors included elsewhere in
this Annual Report, including, among others:

- the fluctuation of interest rates, credit worthiness of our clients and
  fluctuations of foreign currencies;
- our history of losses;
- the timing of our future capital needs and our ability to raise additional
  capital when needed;
- potential fluctuations in our financial results and our difficulties in
  forecasting;
- volatility of the stock markets and fluctuations in the market price of
  our stock;
- the ability to buy and sell our shares on the Over the Counter Bulletin
  Board;
- our ability to compete with other companies in our industry;
- our dependence upon a limited number of customers;
- our ability to retain and attract key personnel;
- risk of significant delays in product development;
- failure to timely develop or license new technologies;

- v -

---

- risks relating to any requirement to correct or delay the release of
  products due to software bugs or errors;
- risk of system failure or interruption;
- risks associated with any further dramatic expansions and retractions in
  the future;
- risks associated with international operations;
- problems which may arise in connection with the acquisition or integration
  of new businesses, products, services, technologies or other strategic
  relationships;
- risks associated with protecting our intellectual property, and
  potentially infringing the intellectual property rights of others;
- risks to holders of our common shares following any issuance of our
  preferred shares; and
- the ability to enforce legal claims against us or our officers or
  directors.

Except as required by applicable laws, we undertake no
obligation to publicly release the result of any revision of these
forward-looking statements to reflect events or circumstances after the date
they are made or to reflect the occurrence of unanticipated events.

- vi -

---

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

|ITEM
      1.  | IDENTITY
      OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS | 3                                                            
|-------------- | ----------------------------------------------------------- | -------------------------------------------------------------
|ITEM
      2.  | OFFER
      STATISTICS AND EXPECTED TIMETABLE               | 3                                                            
|ITEM
      3.  | KEY
      INFORMATION                                       | 3                                                            
|               | A.                                                          | Selected
      Financial Data                                
|               | B.                                                          | Capitalization
      and Indebtedness                        
|               | C.                                                          | Reasons
      for the Offer and Use of Proceeds              
|               | D.                                                          | Risk
      Factors                                           
|ITEM
      4.  | INFORMATION
      ON THE COMPANY                            | 13                                                           
|               | A.                                                          | History
      and Development of the Company                 
|               | B.                                                          | Business
      Overview                                      
|               | C.                                                          | Organizational
      Structure                               
|               | D.                                                          | Property,
      Plant and Equipment                          
|ITEM
      4A. | UNRESOLVED
      STAFF COMMENTS                             | 19                                                           
|ITEM
      5.  | OPERATING
      AND FINANCIAL REVIEW AND PROSPECTS          | 19                                                           
|               | A.                                                          | Operating
      Results                                      
|               | B.                                                          | Liquidity
      and Capital Resources                        
|               | C.                                                          | Research
      and Development, Patents and Licenses, Etc    
|               | D.                                                          | Trend
      Information                                      
|               | E.                                                          | Off-Balance
      Sheet Arrangements                         
|               | F.                                                          | Disclosure
      of contractual obligations                  
|               | G.                                                          | Safe
      Harbor                                            
|ITEM
      6.  | DIRECTORS,
      SENIOR MANAGEMENT AND EMPLOYEES            | 28                                                           
|               | A.                                                          | Directors
      and Senior Management                        
|               | B.                                                          | Compensation                                                 
|               | C.                                                          | Board
      Practices                                        
|               | D.                                                          | Employees                                                    
|               | E.                                                          | Share
      Ownership                                        
|ITEM
      7.  | MAJOR
      SHAREHOLDERS AND RELATED PARTY TRANSACTIONS     | 44                                                           
|               | A.                                                          | Major
      Shareholders                                     
|               | B.                                                          | Related
      Party Transactions                             
|               | C.                                                          | Interests
      of Experts and Counsel                       
|ITEM
      8.  | FINANCIAL
      INFORMATION                                 | 48                                                           
|               | A.                                                          | Consolidated
      Statements and Other Financial Information
|               | B.                                                          | Significant
      Changes                                    
|ITEM
      9.  | THE
      OFFER AND LISTING                                 | 49                                                           
|               | A.                                                          | Offer
      and listing details                              
|               | B.                                                          | Plan
      of distribution                                   
|               | C.                                                          | Markets                                                      
|               | D.                                                          | Selling
      Shareholders                                   
|               | E.                                                          | Dilution                                                     
|               | F.                                                          | Expenses
      of the issue                                  
|ITEM
      10. | ADDITIONAL
      INFORMATION                                | 51                                                           
|               | A.                                                          | Share
      Capital                                          
|               | B.                                                          | Memorandum
      and Articles of Association                 
|               | C.                                                          | Material
      Contracts                                     
|               | D.                                                          | Exchange
      Controls                                      
|               | E.                                                          | Taxation                                                     

- i -

---

|                | F.                                                                                 | Dividends
      and Paying Agents                                             | 63
|--------------- | ---------------------------------------------------------------------------------- | ----------------------------------------------------------------------------- | --
|                | G.                                                                                 | Statements
      by Experts                                                   | 63
|                | H.                                                                                 | Documents
      on Display                                                    | 63
|                | I.                                                                                 | Subsidiary
      Information                                                  | 64
|ITEM
      11.  | QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                   | 64                                                                           
|ITEM
      12.  | DESCRIPTION
      OF SECURITIES OTHER THAN EQUITY SECURITIES                       | 64                                                                           
|PART
      II   |                                                                                    | 64                                                                           
|ITEM
      13.  | DEFAULTS,
      DIVIDEND ARREARAGES AND DELINQUENCIES                              | 64                                                                           
|ITEM
      14.  | MATERIAL
      MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS | 64                                                                           
|ITEM
      15.  | CONTROLS
      AND PROCEDURES                                                      | 65                                                                           
|                | A.                                                                                 | Disclosure
      Controls and Procedures                                      | 65
|                | B.                                                                                 | Managements
      Annual Report on Internal Control over Financial Reporting | 65
|ITEM
      16A. | AUDIT
      COMMITTEE FINANCIAL EXPERT                                             | 66                                                                           
|ITEM
      16B. | CODE
      OF ETHICS                                                               | 66                                                                           
|ITEM
      16C. | PRINCIPAL
      ACCOUNTANT FEES AND SERVICES                                       | 66                                                                           
|ITEM
      16D  | EXEMPTIONS
      FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES                   | 67                                                                           
|ITEM
      16E. | PURCHASES
      OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS       | 67                                                                           
|ITEM
      16F  | CHANGES IN REGISTRANTS CERTIFYING ACCOUNTANT                                      |                                                                              
|ITEM
      16G  | CORPORATE GOVERNANCE                                                               |                                                                              
|PART
      III  |                                                                                    | 68                                                                           
|ITEM
      17.  | FINANCIAL
      STATEMENTS                                                         | 68                                                                           
|ITEM
      18.  | FINANCIAL
      STATEMENTS                                                         | 68                                                                           
|ITEM
      19.  | EXHIBITS                                                                           | 69                                                                           

- ii -

---

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

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

|ITEM 1. | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND
      ADVISERS
|------- | -----------------------------------------------------------

Not applicable.

|ITEM 2. | OFFER STATISTICS AND EXPECTED TIMETABLE
|------- | ---------------------------------------

Not applicable.

|ITEM 3. | KEY INFORMATION
|------- | ---------------

|A. | Selected Financial
Data
|-- | -----------------------

The selected financial data set
forth below should be read in conjunction with, and is qualified by reference
to, our consolidated financial statements and the related notes that have been
audited by our auditors, Raymond Chabot Grant Thornton LLP for the fiscal years
ended July 31, 2012 (included herein at Item 18), July 31, 2011, July 31, 2010,
July 31, 2009 and July 31, 2008, and the section "Operating and Financial Review
and Prospects" included elsewhere in this Annual Report. The consolidated
statement of operations data for the years ended July 31, 2012 and 2011 and
consolidated statements of financial position data as of July 31, 2012 and 2011,
as set forth below, are derived from our audited consolidated financial
statements and the related notes included elsewhere in this Annual Report in
accordance with International Financial Reporting Standards. The consolidated
statement of operations and comprehensive loss data for the years ended July 31,
2010, 2009 and 2008 and the consolidated statements of financial positions data
as at July 31, 2010, 2009 and 2008 have been derived from our audited
consolidated financial statements for those years in accordance with Canadian
generally accepted accounting principles and reconciled to accounting principles
generally accepted in the United States of America, which are not included in
this Annual Report but have previously been filed with the Commission.

***Basis of
Presentation***

The accompanying consolidated
financial statements represent the first annual financial statements of the
Company and its subsidiary prepared in accordance with International Financial
Reporting Standards (IFRS). The Company adopted IFRS in accordance with IFRS 1,
First-time Adoption of International Reporting Standards. The first date at
which IFRS was applied was August 1, 2010. In accordance with IFRS, the Company
has:

- Provided comparative financial information;
- Applied the same accounting policies throughout all periods presented;
- Retrospectively applied all effective IFRS standards as of July 31, 2011,
  as required; and
- Applied certain mandatory exceptions and optional exemptions as applicable
  for first time IFRS adopters.

- 3 -

---

The Companys consolidated
financial statements were previously prepared in accordance with Canadian
generally accepted accounting principles (previous GAAP). The adoption of IFRS
has not had a material impact on the Companys operations, strategic decisions,
cash flow and capital expenditures.

Historical results are not necessarily indicative of results to
be expected for any future period.

- 4 -

---

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

COMPARATIVE SUMMARY OF
      SELECTED FINANCIAL DATA (expressed in thousands of Canadian
      dollars unless otherwise indicated)Years ended July 31
    2012
    2011Operating resultsRevenue
    $2,500
    $4,634Cost of Sales and Product Support
    ($1,100)
    ($1,093)Research and Development Costs
    ($1,442)
    ($1,224)Selling, General and Administrative
      Expenses
    ($5,251)
    ($5,566)Amortization
    ($58)
    ($41)Loss from Operations
    ($5,350)
    ($3,290)Other Expense
    ($698)
    ($370)Gain on sale of discontinued operations
    8,572
    []Earnings from discontinued operations, net
      of tax
    280
    1,453Net Income (Loss)
    $2,804
    ($2,207)Financial positionCash
    $812
    $811Working Capital (Deficiency)
    $97
    ($1,248)Total Assets
    $3,213
    $2,215Total Liabilities
    $3,149
    $5,580Capital Stock
    $39,710
    $39,707Shareholders Equity (Deficit)
    $64
    ($3,364)Basic Weighted Average Number of Shares
      Outstanding
    19,446,896
    17,048,978Diluted Weighted Average Number of Shares
      Outstanding (2)
    19,574,397
    n/aPer share data (in dollars per
      share)Basic Net income (Loss) Per Share
    $0.14
    ($0.13)Diluted Net income (Loss) Per Share (2)
    $0.14
    ($0.13)Loss from Operations Per Share (Basic and
      dilutive)
    ($0.31)
    ($0.21)


|(1) | For fiscal year 2011, the Company excluded the effect of
      all convertible debt, stock options and share-purchase warrants in the
      calculation of diluted loss per share, as their impact would have been
      anti-dilutive.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

- 5 -

---

Issued and Outstanding Class A Common Shares

As of November 28, 2012, the Company had 20,209,076 Class A
Common Shares issued and outstanding. Each common share entitles its holder to
one vote.

Authorized Class B Common Shares

The Company also has authorized Class B, Series A Common
Shares of which none are issued and outstanding as of November 28, 2012.

- 6 -

---

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

Foreign exchange rate
    Fiscal
    Fiscal
    Fiscal
    Fiscal
    FiscalU.S. to Canadian Dollar:
    2012
    2011
    2010
    2009
    2008Average
    1.0083
    0.9943
    1.0491
    1.1754
    1.0352High
    1.0549
    1.0535
    1.1072
    1.2633
    1.0755Low
    0.9602
    0.9428
    0.9988
    1.0547
    0.7695


Month Ended
    High
    Low
    CloseJuly 31, 2012
    1.0044
    1.0008
    1.0029June 30, 2012
    1.0228
    1.0166
    1.0181May 31, 2012
    1.0366
    1.0278
    1.0329April 30, 2012
    0.9895
    0.9821
    0.9879March 31, 2012
    1.000
    0.9960
    0.9975February 29, 2012
    0.9910
    0.9844
    0.9895January 31, 2012
    1.0055
    0.9966
    1.0028December 31, 2011
    1.0216
    1.0162
    1.0170November 30, 2011
    1.0271
    1.0124
    1.0203October 31, 2011
    0.9996
    .0.9922
    0.9967September 30, 2011
    1.0482
    1.0372
    1.0482August 31, 2011
    0.9777
    0.9726
    0.9794


Month
    Monthly AverageJuly 2012
    1.0134June 2012
    1.0275May 2012
    1.0102April 2012
    0.9926March 2012
    0.9935February 2012
    0.9970January 2012
    1.0127December 2011
    1.0241November 2011
    1.0257October 2011
    1.0191September 2011
    1.0030August 2011
    0.9824


On November 28, 2012, the noon rate for U.S.$1.00 was
CDN$0.9929 and the closing rate was CDN$0.9919.

- 7 -

---

|B. | Capitalization and
  Indebtedness
|-- | ---------------------------------

Not applicable.

|C. | Reasons for the Offer and Use of
      Proceeds
|-- | -----------------------------------------------

Not applicable.

|D. | Risk factors
|-- | ------------

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

RISKS ASSOCIATED WITH OUR BUSINESS:

We have a history of losses.

While we realised a profit following the sale of a division
this year, we had not experienced a profitable year since fiscal year 2003, when
we had a gain from the sale of a subsidiary. On July 31, 2012 we had a working
capital of $97,140 and an accumulated deficit of $42,130,308. In order to become
profitable, we will need to generate significant additional revenues to offset
our cost of sales, sales and marketing, research and development and selling,
general and administrative expenses. We may not achieve or sustain our revenue
or profit objectives and our losses may continue or increase in the future in
which case you might lose your entire investment. If we are not able to fund our
operations through product sales in the immediate future or raise additional
financing, we will have to cease operations.

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

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

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

On April 18, 2008, the Company issued secured convertible
debentures ("Convertible Debentures") on a private placement and received gross
proceeds of $1,009,819 (U.S.$1,002,600) representing a total of 1,114 units.
Each unit consists of one 8% Convertible Debenture due December 31, 2017, having
a nominal value of U.S.$900, redeemable at the option of the Company if the bid
price of the common share has been above U.S.$1.50 for 60 consecutive trading
days, and convertible at the option of the holder into class A common shares
at U.S.$0.45 per share, and 1,000 share purchase warrants of the Company. Each
warrant entitles the holder to purchase one additional common share (warrant
share) of the Company at a price of U.S.$0.70 per warrant share at any time
until the earlier of the close of business day which is either thirty six (36) months from April 18, 2008 or the bid price of the stock
has been above U.S.$1.50 for sixty (60) consecutive trading days. Interest is
calculated at the rate of 8% per annum, payable in common shares at a rate of
U.S.$0.45 per share. Before the warrants expired on April 18, 2011, certain
holders exercised 780,000 warrants and 334,000 warrants expired. The interest is
due on each conversion date (date when the principal amount is being converted)
subsequent to January 1, 2009 or on the maturity date. The financing is secured
by a first rank hypothec on all of the Companys property and assets, movable
and immovable, corporeal and incorporeal, present and future, for the principal
accrued interest amounts. The proceeds from the private placement were used for
marketing and advertising and for expansion of the business.

- 8 -

---

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

- it may be more difficult and expensive to obtain additional
funds through financing, if available at all;

- we are more vulnerable to economic downturns and fluctuations
in interest rates, less able to withstand competitive pressures and less
flexible in reacting to changes in our industry and general economic conditions;
and

- if we default under any of our existing indebtedness or if
our creditors demand payment of a portion or all of our indebtedness, we may not
have sufficient funds to make such payments.

If we default under our financing agreements, we may have to
forfeit our rights to our assets.

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

We are highly dependent on our key employees.

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

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

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

- 9 -

---

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

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

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

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

Competitive conditions could materially adversely affect our
businesses.

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

We may be exposed to liability claims.

We have general liability insurance coverage for $5,000,000.
However, if a judgment is rendered against us in excess of the amount of our
coverage, we may have to cease operations. If we are sued for any reason, we
will have to rely on our liability insurance to pay any judgment rendered
against us.

- 10 -

---

Although we maintain a general liability insurance of
$5,000,000, there is no assurance that:

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

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

- our insurance can be maintained on acceptable terms.

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

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

While our functional currency is the Canadian dollar and we
report our results in Canadian dollars, we have revenues and operating expenses
outside of Canada. Fluctuations in the value of the Canadian dollar are
difficult to predict and can cause us to incur currency exchange costs.
Although, we cannot predict the effect of exchange rate fluctuations on our
future operating results, any material changes could cause our operating results
to be materially adversely affected.

Our existing shareholders can exercise effective control
over us.

To the knowledge of the Company, our major shareholders own
approximately 47.8% of our Class A Common Shares. Arthur G. Ritchie our former
Chairman of the Board beneficially owns approximately 17.8% of SANDs Class A
Common Shares. Thomas ODonnell, former Chief Executive Officer of SAND and a
director of SAND, beneficially owns approximately 8.7% of SANDs Class A
Common Shares. Carol Shattner, the wife of the late Jerome Shattner (Jerome
Shattner was the late Executive Vice President of the Company), beneficially
owns 5.2% of our Class A Common Shares. Two other shareholders, Irwin Zalcberg
and Carol Fiala beneficially own approximately 10.3% and 5.8% of SANDs Class
A respectively. These shareholders may, as a practical matter, continue to be
able to control the election of a majority of the directors of SAND and the
determination of many corporate actions. This concentration of ownership could
also have the effect of delaying or preventing a change in control of SAND.

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

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

- 11 -

---

RISKS ASSOCIATED WITH OUR COMMON SHARES:

The market for our common shares is limited.

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

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

As of November 28, 2012, 20,209,076 shares of our common stock
were outstanding and 5,738,382 shares are issuable upon conversion or exercise
of our outstanding Convertible Debentures, warrants and stock options. The entry
of this substantial number of shares into the public market, or the mere
expectation of the entry of those shares into the market could adversely affect
the market price of our common shares and could impair our ability to obtain
capital through securities offerings.

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

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

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

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

- 12 -

---

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

Our internal controls over financial reporting may not prevent
or detect misstatements because of their inherent limitations, including the
possibility of human error, the circumvention or overriding of controls, or
fraud. Even effective internal controls can only provide reasonable assurance
with respect to the preparation and fair presentation of financial statements.
If we fail to maintain effective internal controls, including the failure to
implement required new or improved controls, or if we experience difficulties in
their implementation, our business and operating results could be harmed and we
could fail to meet our financial reporting obligations, which could cause
investors to lose confidence in our reported financial information and have a
material adverse effect on our stock price.

|ITEM 4. | INFORMATION ON THE COMPANY
|------- | --------------------------

A. History and Development of the Company

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

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

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

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

- 13 -

---

During the year ended July 31, 2012, the Company undertook a
major restructuring of its activities and mission:

- In October, 2011, the Company successfully sold its SAP ILM Product Line
  to Informatica Corporation and realized a gain of $8,571,967;
- In June 2012, the Companys Board of Directors and management team
  initiated a review of the business, including consideration of all available
  strategic options, with the objective of maximizing value for shareholders. As
  a result, the Company chose to reduce its sales initiatives and its product
  development and refocused its activities on a range of associated services,
  including maintenance, support, training and system implementation consulting
  to better service its existing client base. Furthermore, the Company reduced
  its work force eliminating 20 positions, the United Kingdom, the U.S.
  Australia and Germany in an effort to contain costs.

|B. | Business Overview
|-- | -----------------

1) Business Description

SAND is involved in the design, development, marketing and
support of software products and services that deliver usable business
information from Big Data. The software products, collectively known as the SAND
Analytic Platform, are designed to provide an efficient and cost effective way
for business users to make fast and easy inquiries of large data sets without
the intervention of specialist information technology professionals.

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

2) Products and Services

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

SAND Analytic Platform

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

During fiscal 2011 and 2012, the focus of the R&D work was
associated with enhancing in-database analytics, performance enhancements and
scalability with the introduction of the Massively Parallel Processing (MPP)
architecture. The support of the PMML (Predictive Model Markup Language)
standard enables processing complex statistical and mathematical models inside
the database engine. The MPP architecture enables the SAND database to scale to
many terabytes and still deliver great performance.

- 14 -

---

3) Key Business Segments and Uses of
Our Software Solutions

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

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

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

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

4) Business Locations

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

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

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

5) Key partners

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

6) Company Strategy

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

- 15 -

---

In June 2012, the Companys Board of Directors and management
team initiated a review of the business, including consideration of all
available strategic options, with the objective of maximizing value for
shareholders. As a result, the Company chose to reduce its sales initiatives and
its product development and refocused its activities on a range of associated
services, including maintenance, support, training and system implementation
consulting to better service its existing client base. Furthermore, the Company
reduced its work force eliminating 20 positions in Canada, the United Kingdom,
the U.S., Australia and Germany in an effort to contain costs.

7) Competition

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

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

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

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

8) Proprietary Rights

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

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

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

- 16 -

---

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

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

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

On October 5, 2011 SAND sold its SAP Information Lifecycle
Management or ILM Product Line to Informatica Software, Inc.

9) Seasonality

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

10) Impact of Governmental
Regulations

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

|C. | Organizational
Structure
|-- | ------------------------

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

- 17 -

---

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


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



|D. | Property, Plant and
  Equipment
|-- | -------------------------------

As at July 31, 2012, we leased a total of approximately 7,668
square feet of office space in two cities across North America, 215 square feet
in London, England and 2,561 square feet in Hamburg, Germany. The weighted
average annualized cost per square foot of the total of 16,850 square feet
occupied is $22.67 including real estate taxes and operating expenses. No lease
extends beyond November 30, 2021.

- 18 -

---

|ITEM 4A. | UNRESOLVED STAFF COMMENTS
|-------- | -------------------------

Not Applicable.

|ITEM 5. | OPERATING AND FINANCIAL REVIEW AND
      PROSPECTS
|------- | --------------------------------------------------

|A. | OPERATING RESULTS
|-- | -----------------

1) Financial Condition

Total assets of $3,212,678 as of July 31, 2012 were 45% higher
than the previous year total of $$2,215,227. The increase is mostly attributable
to the balance of payment of $790,320 (US$800,000) from the sale of our SAP
Information Lifecycle Management or ILM Product Line to Informatica Software,
Inc. in October 2011. Trade and other receivables balance of $476,833 as of July
31, 2012 were 12% lower than the previous year balance of $541,959 , Research
and Development Tax Credits Receivable balance of $502,514 as of July 31, 2012
were 24.3% lower than the previous year balance of $663,857 due to a reduction
in staffing and associated tax credits, the Prepaid Expenses balance of $70,039
as of July 31, 2012 was 40.3% lower than the previous year balance of $117,305
and to the net Capital Assets balance of $376,352 as of July 31, 2012 was over
350% higher than the previous year balance of $81,361 following the addition of
leasehold improvements.

Total liabilities of $3,148,647 as of July 31, 2012 were 46%
lower than the previous year balance of $5,579,561. The decrease is mainly
attributable to the repayment of the due to shareholders in the amount
$1,914,837. In addition, Accounts Payable and Accrued Liabilities balance of
$677,099 as of July 31, 2012 was 12.8% lower than the previous year balance of
$776,623, Deferred Revenues balance (short-term and long-term) of $1,352,916 as
of July 31, 2012 was 27.9% lower than the previous year balance of $1,875,927.
The Convertible Debentures balance of $834,368, combined with its associated
component in other financial liabilities of $154,264 as of July 31, 2012, were
2.3% lower than the previous year combined balance of $1,012,174.

2) Operations

Revenue  Total and Variation

The following table provides a summary of the revenue
fluctuations for fiscal years 2012 and 2011:

|                              |   | Year ended |  |   | Year ended | 
|----------------------------- | - | ---------- |  | - | ---------- | 
|                              |   | July 31,   |  |   | July 31,   | 
|Revenue - Total and Variation |   | 2012       |  |   | 2011       | 
|Revenue                       |   |            |  |   |            | 
|Revenue                       | $ | 2,500,228  |  | $ | 4,633,693  | 
|Year-over-year variation      |   | -46.0%     |  |   |            | 

Revenues for 2011 and 2012 are presented net of revenues
generated from discontinued operations

The decrease in revenue for the year ended July 31, 2012 is
attributable to the decrease in sales efforts following the corporate
restructuring and lay-off of employees and because of the completion of a higher
amount of sales of high value software licenses in Europe during the first half
of Fiscal 2011 than during the first half of Fiscal 2012.

- 19 -

---

Revenue  Segment and Variation

Following the sale of its SAP division in the fall of 2011, the
Company operates in three geographical segments: Canada, the United States and
Europe. The following table provides a summary of the changes in revenue by
geographical segments for the years ended July 31, 2012 and 2011:

|                                |   | Canada     | 
|------------------------------- | - | ---------- | 
|                                |   | Year ended | 
|                                |   | July 31,   | 
|Revenue - Segment and Variation |   | 2012       | 
|Revenue                         |   |            | 
|Revenue                         | $ | 444,587 $  | 
|Year-over-year
      variation  |   | 2.4%       | 

|                                |   | United States | 
|------------------------------- | - | ------------- | 
|                                |   | Year ended    | 
|                                |   | July 31,      | 
|Revenue - Segment and Variation |   | 2012          | 
|Revenue                         |   |               | 
|Revenue                         | $ | 282,425 $     | 
|Year-over-year
      variation  |   | -21.5%        | 

|                                |   | Europe      | 
|------------------------------- | - | ----------- | 
|                                |   | Year ended  | 
|                                |   | July 31,    | 
|Revenue - Segment and Variation |   | 2012        | 
|Revenue                         |   |             | 
|Revenue                         | $ | 1,773,216 $ | 
|Year-over-year
      variation  |   | -53.8%      | 

In Canada, sales for the year ended July 31, 2012 were slightly
higher because the Company was able to maintain similar levels of maintenance,
support and increase its consulting and service revenue. In the United States,
sales for the year ended July 31, 2012 were lower than the comparative previous
years sales due to increased competition and decreased sales opportunities
resulting from the continued sluggish US economy.

In Europe, despite a relatively good third quarter compared to
the same period in 2011, sales for the year ended July 31, 2012 were lower than
the previous years sales results due to the overall decrease in the sales of
product licenses and services because of stiff competition.

- 20 -

---

Operating Expenses

The following table provides a summary of the operating
expenses for the fiscal years 2012 and 2011:

|                                                   |   | Year ended |  |   | Year ended | 
|-------------------------------------------------- | - | ---------- |  | - | ---------- | 
|                                                   |   | July 31,   |  |   | July 31,   | 
|Operating Expenses                                 |   | 2012       |  |   | 2011       | 
|                                                   |   |            |  |   |            | 
|Cost of sales and product support                  | $ | 1,099,741  |  | $ | 1,092,995  | 
|Year-over-year variation                           |   | 0.6%       |  |   |            | 
|Percentage of revenues                             |   | 44.0%      |  |   | 23.6%      | 
|                                                   |   |            |  |   |            | 
|Research and development costs, net                |   | 1,441,537  |  |   | 1,223,963  | 
|Year-over-year variation                           |   | 17.8%      |  |   |            | 
|Percentage of revenues                             |   | 57.7%      |  |   | 26.4%      | 
|                                                   |   |            |  |   |            | 
|Amortization of capital assets                     |   | 44,577     |  |   | 40,597     | 
|Year-over-year variation                           |   | 9.8%       |  |   |            | 
|Percentage of revenues                             |   | 1.8%       |  |   | 0.9%       | 
|                                                   |   |            |  |   |            | 
|Selling, general and administrative
      expenses |   | 5,264,235  |  |   | 5,566,470  | 
|Year-over-year variation                           |   | -5.4%      |  |   |            | 
|Percentage of revenues                             |   | 210.6%     |  |   | 120.1%     | 

Cost of Sales and Product Support

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

Research and Development Costs

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

Amortization of Capital Assets and Other Assets

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

Selling, General and Administrative Expenses

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

- 21 -

---

During the year ended July 31, 2012, cost of sales and product
support decreased compared to the previous year amounts mostly as a result of
the reduced level of activities and the change in the mix of revenues as the
Company generated fewer sales of software fom all its product lines following
the sale of the SAP ILM Product Line in the first quarter.

During the year ended July 31, 2012, net research and
development costs increased slightly because the amount of tax credits revenue
netted against R&D expenses were lower than in the previous year. Also, the
Company only progressively rationalized its workforce following the sale of the
SAP Information Lifecycle Management (ILM) Product Line realized in the fall of
2011. During the fourth quarter, the Company announced that it has reduced its
workforce eliminating a number of positions in Canada, the United Kingdom, the
US and Germany in an effort to contain costs, some of which were in R&D.

The increase in Amortization of Capital Assets in fiscal year
2012 from the amortization in fiscal year 2011 was due to the increase in total
fixed assets, mainly due to the addition of leasehold improvement. During the
year ended July 31, 2012, the decrease in selling, general and administrative
expenses was 6.9% when compared to the year ended July 31, 2011. While selling
and administrative expenses remained stable during the first 9 months of the
year, as a result of sale of the SAP ILM Product Line in the first quarter and
the restructuring announced at the end of the third quarter, the level of
expenses started to decrease. It is the objective of the company to decrease its
selling, general and administrative expenses as the Company maintains its
continued focus on controlling costs by keeping the headcount to an optimal
level, spending selectively and effectively and controlling travel and
entertainment. Interest expense of $108,860 for fiscal year 2012 was 63.5% lower
than the previous year amount of $297,878 as a result of the reimbursement of
the Due to Shareholders made during the year and lower accretion expense on the
convertible debentures.

The foreign exchange loss of $368,887 for fiscal 2012 was
significantly higher than the amount of $72,146 recorded for fiscal 2011. The
increase is due primarily to its significant holding of US cash and a US
receivable from the sale of its SAP ILM Product Line at the end of the first
quarter of fiscal 2012 and the crystallization of the foreign exchange impact at
that time.

Net Income (Loss)  Total and Variation

The following table provides a summary of the net income (loss)
for fiscal years 2012 and 2011.:

Year ended
    
    
    Year endedJuly 31,
    
    
    July 31,Net income (loss) - Total andVariation
    
    2012
    
    
    2011Income (Loss) before sale of business
      segment (1)
    $
    (6,047,930
    )
    $
    (3,660,356
    )Earnings fromdiscontinued operation
    
    279,660
    
    
    1,453,364Loss (Gain) on sale of business segment
    
    8,571,967
    
    
    -Net Income (Loss)
    $
    2,803,697
    
    $
    (2,206,992
    )Year-over-year
      variation
    
    227%


The loss before the sale of the discontinued operations was
$6,047,930 compared to $3,660,356 in 2011. The increase in the loss is due
primarily to the decrease in sales of new software licenses and the resulting
decrease in gross margin. In addition, the decrease in sales efforts following
the sale of the SAP division in the first quarter and the restructuring announced during the
4thquarter impacted our ability to generate new clients. The
fluctuation in exchange rates also negatively impacted income for fiscal year
ended July 31, 2012.

- 22 -

---

The gain on sale of a business segment in the amount of
$8,571,967 is in relation to the sale of our SAP ILM Product Line to Informatica
Corporation in October 2011. The Company realised income of $279,660 from its
discontinued operation in 2011 compared to $1,453,364 during the year ended July
31, 2011.

As a result of the gain on sale of a business segment, we
recognized a net income of $2,803,697 for the year ended July 31, 2012 compared
to a loss of $2,206,992 for fiscal 2011.

Inflation

Inflation has not had a material impact on the Companys
operations.

Impact of Foreign Currency

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

Changes in foreign exchange rates had a negative impact on our
results of operations for fiscal year 2012. While the average rate of the US$
was 1.008 compared to $0.9943 in 2011, an important loss on foreign exchange was
realized in the first quarter as a result of its significant holding of US cash
and a US receivable from the sale of its SAP ILM Product Line in October 2011.
Our results were also negatively affected by the important decrease of the Euro
which averaged 1.2752 for the year ended July 31, 2012 compared to 1.3666 for
the same period in 2011. The variation of average rates for the British pound
and the Australian dollars were not significant.

Summary of Quarterly Results

The following tables set forth the unaudited statements of
operations for each of the quarters of fiscal years 2012 and 2011. The quarterly
results, in managements opinion, have been prepared on a basis consistent with
the audited consolidated financial statements and include the adjustments
necessary for a fair presentation of the information.

- 23 -

---

|                                                    |   | Year ended July 31, 2012 |   |   | Year ended July 31, 2011 |  
|--------------------------------------------------- | - | ------------------------ | - | - | ------------------------ | -
|QUARTERLY RESULTS                                   |   | Q4                       |   |   | Q3                       |  
|                                                    |   |                          |   |   |                          |  
|Revenue                                             | $ | 312,499                  |   | $ | 889,143                  |  
|Quarter-over-quarter variation                      |   | -64.9%                   |   |   | 27.3%                    |  
|                                                    |   |                          |   |   |                          |  
|Cost of sales and product support                   | $ | 279,342                  |   | $ | 303,687                  |  
|Quarter-over-quarter variation                      |   | -8.0%                    |   |   | 13.9%                    |  
|                                                    |   |                          |   |   |                          |  
|Gross margin                                        |   | 10.6%                    |   |   | 65.8%                    |  
|                                                    |   |                          |   |   |                          |  
|Total other operating
      expenses                | $ | 1,747,240                |   | $ | 1,891,192                |  
|Quarter-over-quarter variation                      |   | -7.6%                    |   |   | 8.4%                     |  
|                                                    |   |                          |   |   |                          |  
|Discontinued operations                             | $ | 369,398                  |   | $ | -                        |  
|                                                    |   |                          |   |   |                          |  
|Profitability                                       |   |                          |   |   |                          |  
|Net income
      (loss)                             |   | (1,344,685               | ) |   | (1,305,736               | )
|Quarter-over-quarter variation                      |   | 3.0%                     |   |   | -0.5%                    |  
|Basic and
      diluted income (loss) per share     |   | (0.07                    | ) |   | (0.07                    | )
|Weighted average number of shares
      outstanding |   | 19,668,636               |   |   | 19,559,303               |  

* Quarterly results for 2012 and 2011 are presented according
to IFRS

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

- 24 -

---

|B. | Liquidity and Capital
  Resources
|-- | ---------------------------------

Our cash balance as at July 31, 2012 was $811,655 compared to
$810,745 as at July 31, 2011 and $579,270 at August 1, 2010.

The changes in cash are as follows:

|                                                      |   | For the year ended July 31, |  
|----------------------------------------------------- | - | --------------------------- | -
|                                                      |   | 2012                        |  
|                                                      |   |                             |  
|Cash flows from (used for) operating
      activities | $ | (4,994,066                  | )
|Changes in working capital items                      |   | (166,396                    | )
|Cash flows from (used for) investing
      activities |   | 7,090,962                   |  
|Cash flows from (used for) financing activities       |   | (1,911,019                  | )
|Effect of exchange rate change on cash                |   | (18,571                     | )
|Net increase (decrease in cash)                       |   | 910                         |  

The increase from July 31, 2011 to July 31, 2012 is
attributable to the Companys sale of its SAP ILM Product Line to Informatica
Corporation for a consideration of US$8,000,000 offset by the use of funds for
operations and for the reimbursement of payables and debt.

The Company generated a negative cash flow of $4,994,066 from
operating activities during the year ended July 31, 2012 as compared to a
negative cash flow of $979,269 from operating activities during the year ended
July 31, 2011, resulting from sale of the SAP division and the reduced level of
activities. The overall decrease in cash flows from operating activities is the
result of lower sales and gross margin from the remaining activities and from
discontinued operations compared to the same period in 2011.

Changes in working capital items for the year ended July 31,
2012 represented a decrease of $203,896 while they was an increase $870,119 for
the same period a year earlier mostly because of a decrease in deferred revenue
and payables in the current period.

Investing activities for the years ended July 31, 2012 and 2011
were composed of capital expenditures of $209,568 and $57,436 respectively and
of the proceeds from sale of discontinued operations in the amount of $7,433,530
in 2012.

Financing activities represent funds provided by shareholders
and private investors and the issuance of share capital or units and the
repayment of debt. The Company generated a negative cash flow of $2,016,519 from
financing activities during the year ended July 31, 2012 as compared to a
positive cash flow of $444,434 from financing activities during the year ended
July 31, 2011. For the year ended July 31, 2012, the negative cash flow is
mainly attributable to the significant payment made to the Companys former
President and Chief Executive Officer from the initial proceeds of the sale of
the SAP ILM Product Line in the amount of $1,914,837. The Company also
reimbursed the bridge loan of $1,000,000 that had been raised in the first
quarter.

During the same period in 2011, the Company had raised $448,558
through the issuance of units related to private placements and cash inflows in
the amount $362,067 from advances from shareholders which were offset by
reimbursements of $304,028 made during the year.

Working Capital

As of July 31, 2012, there was a working capital surplus of
$97,140 as compared to a working capital deficiency of $1,248,354 as of July 31,
2011. Working capital surplus (deficiency) has been calculated as the difference between current assets and current liabilities.
The significant improvement in working capital between July 31, 2011 and July
31, 2012 is mainly attributable to the proceeds generated from the sale of the
SAP ILM Product Line to Informatica Corporation for a consideration of US
$8,000,000 which were used in part for the repayment of debt, borrowings and
payables.

- 25 -

---

As of July 31, 2012, the Companys long-term debt consisted of
the following:

|                           |  | July 31, |  |  | July 31,  |  |  | August 1, | 
|-------------------------- |  | -------- |  |  | --------- |  |  | --------- | 
|                           |  | 2012     |  |  | 2011      |  |  | 2010      | 
|Long term debt             |  |          |  |  |           |  |  |           | 
|Due to shareholders (a)    |  | -        |  |  | 1,914,837 |  |  | 1,874,153 | 
|Convertible debentures (b) |  | 834,368  |  |  | 696,961   |  |  | 647,321   | 
|Other liabilities (b)      |  | 154,264  |  |  | 315,213   |  |  | 342,927   | 
|                           |  | 988,632  |  |  | 2,927,011 |  |  | 2,864,401 | 

|a) | During the year, the Company reimbursed the balance of
      due to shareholders in the amount of $1,914,837.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|b) | Convertible debentures consisting of 1,114 Units issued
      as part of a private placement transaction on April 18, 2008. Each unit
      consists of one 8% Convertible Debenture due December 31, 2017, having a
      nominal value of U.S.$900, redeemable at the option of the Company if the
      bid price of the common share has been above $1.50 for 60 consecutive
      trading days, and convertible at the option of the holder into class A
      Common Shares at U.S.$0.45 per share, and 1,000 share purchase warrants of
      the Company. Each warrant entitles the holder to purchase one additional
      common share (warrant share) of the Company at a price of U.S.$0.70 per
      warrant share at any time until the earlier of the close of business day
      which is either thirty six (36) months from April 18, 2008 or the bid
      price of the stock has been above U.S.$1.50 for sixty (60) consecutive
      trading days. Interest is calculated at the rate of 8% per annum, payable
      in Common Shares at a rate of U.S.$0.45 per share. Before the warrants
      expired on April 18, 2011, certain holders exercised 780,000 warrants and
      334,000 warrants expired. The interest is due on each conversion date
      (date when the principal amount is being converted) subsequent to January
      1, 2009 or on the maturity date. The financing is secured by a first rank
      hypothec on all of the Companys property and assets, movable and
      immovable, corporeal and incorporeal, present and future, for the
      principal accrued interest amounts. The redemption value of the
      convertible debentures on the maturity date, December 31, 2017, is
      U.S.$1,777,944.

|C. | Research and Development, Patents and
      Licenses
|-- | ----------------------------------------------------

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

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

We maintain our main research and development facility in
Westmount, Canada. We also have a network of research and development
technologists in the United States and the United Kingdom. As of November 28,
2012, there are 5 technologists. After research and development tax credits,
SAND spent $1,441,537 in 2012 and $1,223,963 in 2011 on research and
development.

- 26 -

---

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

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

Research and development expenses, before research and
development tax credits, were $1,616,537, an increase of 4.3% over the
$1,549,671 that was spent for the same period a year earlier. The Company only
progressively rationalized its workforce following the sale of the SAP
Information Lifecycle Management (ILM) Product Line realized in the fall of
2011. During the fourth quarter, the Company announced that it had reduced its
workforce eliminating a number of positions in Canada, the United Kingdom, the
U.S., Australia and Germany in an effort to contain costs, some of which were in
R&D. Research and development expenses are expected to decrease in the
following year.

|D. | Trend Information
|-- | -----------------

Revenue growth in fiscal year 2012 was lower than expected due
to (a) customers cut in IT spending due to the slowdown in the economy, and (b)
a cautious attitude of customers towards investing in long-term solutions. We
will continue to monitor these trends and factors in the current fiscal year
ending July 31, 2013.

|E. | Off-balance Sheet
  Arrangements
|-- | --------------------------------

None.

|F. | Disclosure of contractual
  obligations
|-- | ---------------------------------------

The following table provides a summary of the material
financial obligations as of July 31, 2012:

Payments due
      by periodTotal
    Less than 1
      year
    1 - 3 years
    3 - 5 years
    More than 5
      yearsOperating lease obligations
    $ 1,873,569
    $ 232,993
    $ 401,408
    $ 1,239,168
    Debt Component of Convertible Debentures
      (1)
    1,798,000
    
    
    1,798,000
    Total
    $ 3,671,569
    $ 232,993
    $ 401,408
    $ 3,037,168
    


|(1) | - The amount represents the redemption value of the
      convertible debentures on the maturity date, December 31, 2017. Reference
      should be made to the audited consolidated financial statements for the
      book value as at July 31, 2011.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

- 27 -

---

|G. | Safe Harbor
|-- | -----------

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

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

|A. | Directors and Senior
  Management
|-- | ---------------------------------

Directors

The following table sets forth certain information concerning
our directors, including their beneficial ownership of shares of the Company as
of November 28, 2012. Unless otherwise indicated, each nominee holds sole voting
and investment power over his shares.

Name, Residence and
      Office Held
    Director
      Since
    Principal
      Occupation
    Number and
      Percentage of Common Shares Beneficially
      Owned or ControlledP. Wayne Musselman (1)
      Toronto, Ontario, Canada Director
    2007
    Accountant and Business Consultant.
    102,788 (0.5%)Thomas M. ODonnell Woodstock,
      Illinois, United States Director
    2008
    Former Chief Executive Officer
      of SAND Chief Executive Officer of Edge Specialists LLC
    1,761,843 (9.0%)Duncan Painter (2)
      Letchworth, Herts, United Kingdom Director
    2010
    Executive and Business Consultant
    428,572 (2.2%)


- 28 -

---

Name, Residence and
      Office Held
    Director
      Since
    Principal
      Occupation
    Number and
      Percentage of Common Shares Beneficially
      Owned or ControlledGeorge Wicker (1)(2)
      
      Palm Beach Gardens, Florida, United States Director
    1996
    Attorney and Business Consultant
    377,738 (1.9%)


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

As of November 28, 2012, the directors of the Company as a
group beneficially owned 2,670,941 Common Shares representing approximately
13.6% of the outstanding Common Shares of the Company excluding Common Shares
subject to exercise of share purchase warrants or to conversion of convertible
debentures. The information as to Common Shares beneficially owned or over which
control or direction is exercised, not being within the knowledge of the
Company, has been furnished by the respective directors and officers
individually.

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

Mr. Thomas M. ODonnell has an extensive career in the software
and financial markets. He is Chief Executive Officer, founder and majority owner
of Edge Specialists LLC, which is an independent software vendor with extensive
United States patent protection providing derivative trading tools including
options, stocks and futures trading. He is a co-inventor of two extensive
trading software patents, a C.P.A. and a graduate of Harvard Business School. In
addition, Mr. ODonnell was a Designated Primary Market Maker on the Chicago
Board of Options Exchange and has extensive experience in the financial markets.
Effective November 1, 2009, Thomas M. ODonnell was appointed President and
Chief Executive Officer of SAND, as Arthur G. Ritchie retired. He held this
position until he resigned in June of 2012. In connection with the sale of the
Convertible Debentures, we entered into a Voting Agreement dated April 18, 2008,
with Arthur G. Ritchie and Bradley G. Griffith on behalf of the subscribers of
the Convertible Debentures, whereby Mr. Ritchie agreed to vote his shares in
favour of the election of a director nominated by the holders of such
Convertible Debentures holding a majority of the aggregate principal amount of
the Convertible Debentures outstanding. Mr. ODonnell was elected as a director
in connection with this agreement and the sale of the Convertible
Debentures.

Mr. Duncan Painter is currently the Chief Executive Officer of
Top Right Group, a subsidiary of Guardian Media Group. He was previously the
managing director of BSkyBs customer intelligence unit, Sky IQ which provides
data and information to financial services companies. Prior to his tenure at
BSkyB, he led both the U.K. Marketing Services and Global Marketing Services
Consulting and Delivery businesses at Experian Plc.

- 29 -

---

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

Senior Management

During the fourth quarter of fiscal 2012, Senior management
including the Chief Executive Officer, the President, the Chief Financial
Officer and the Vice-president of Research and Development either resigned or
left the Company. The Board of Directors currently assumes the responsibilities
associated with these positions. The following table shows certain information
with respect to former executives and other officers:

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


|Notes: |                                                                                                                                                                                                                                 
|------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                                                                                 
|(1)    | Richard Grondin was appointed Chief Technology
      Officer on November 1, 2009. Mr. Grondin left the Company in July 2012.                                                                                                    
|       |                                                                                                                                                                                                                                 
|(2)    | Tony J. Giuliano was appointed as
      Vice-President, Finance and Administration of the Company on October 4,
      2010. Mr. Giuliano left the Company in June 2012.                                                         
|       |                                                                                                                                                                                                                                 
|(3)    | Tony J. Giuliano was appointed as Corporate
      Secretary of the Company on November 16, 2010. Mr. Giuliano left the
      Company in June 2012.                                                                              
|       |                                                                                                                                                                                                                                 
|(4)    | Michael Pilcher was appointed Chief Operating
      Officer of the Company on April 1, 2010 and President on July 12, 2011.
      Mr. Pilcher left the Company in June of 2012.                                                 
|       |                                                                                                                                                                                                                                 
|(5)    | Thomas M. ODonnell was appointed President and
      Chief Executive Officer of the Company on November 1st, 2009,
      relinquished the role of President on July 12, 2011 and resigned as CEO
      effective June 30, 2012.

Mr. Michael Pilcher was previously Sales Director Hiring
Solutions, EMEA at LinkedIn Corporation, the largest professional network in the
world. Prior to LinkedIn, he worked at Oracle Corporation where he led the U.K.
insurance group, at Sybase where he ran U.K. Financial Services and at Tenfold
Corporation where, as world-wide Vice-President Sales, he completed a highly
successful IPO.

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

- 30 -

---

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

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

|B. | Compensation
|-- | ------------

Compensation of Directors

For the year ended July 31, 2012, P. Wayne Musselman and George
Wicker are each entitled to $40,000 for serving as a director. All
non-management directors are entitled to be compensated with stock options from
the 2010 Stock Incentive Plan. Each non-management director is entitled to
receive 50,000 stock options per calendar year with the Chairman of the Audit
Committee and Chairman of the Compensation Committee entitled to receive an
additional 15,000 stock options per calendar year. For the year ended July 31,
2012, no options were granted to Directors.

Executive Compensation Analysis

General Principles of Executive Compensation

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

Determining Compensation

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

Components of Overall Compensation

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

- 31 -

---

Base Salary

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

Incentive Bonus

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

Option-Based or Share-Base Award Plans

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

Other Compensation

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

Compensation of Executive Management

The following table sets forth information concerning the
compensation paid to the Companys President and Chief Executive Officer and
named executive officers (the "Named Executive Officers") as required disclosure
in accordance with applicable Canadian securities regulations during the
Companys three fiscal years ended July 31, 2012, 2011 and 2010:

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

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

During the year ended July 31, 2012, the Company had four Named
Executive Officers, whose names and positions held within the Company are set
out in the summary compensation table below:

- 32 -

---

Summary Compensation Table

Name and
      Principal Position
    Year
    Annual
      Compensation
    Long-Term
      CompensationSalary ($)
    Bonus ($)
    Other ($)
    Awards
    PayoutsShare-
      Based Awards ($)
    Option-
      Based Awards ($)
    LTIP
      Payouts ($)
    All Other
      Compensation ($)Thomas M. ODonnell(1)Former Chief Executive Officer
    2012 2011 2010
    131,027 39,772 -
    - - -
    60,474 - -
    - - -
    26,092 294,458 -
    - - -
    - - -Michael Pilcher(2)Former President and Chief Operating Officer
    2012 2011 2010
    331,826 238,290
      82,555
    122,987 - -
    - - -
    - - -
    105,032 87,729
      -
    - - -
    - - -Tony J. Giuliano(4)Former
      V.P. Finance, Chief Financial Officer and Corporate
      Secretary
    2012 2011 2010
    102,000 120,000 -
    9,911 - -
    - - -
    - - -
    9,995 19,991 -
    - - -
    - - -Richard Grondin(3)Former
      Chief Technology Officer
    2012 2011 2010
    233,154 235,000
      167,351
    112,954 34,768 18,122
    8,921 18,400 8,077
    - - -
    9,995 123,942 -
    - - -
    - - -


|Notes: |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1)    | Mr. ODonnell became President and Chief Executive
      Officer of SAND on November 1, 2009. Mr. ODonnell relinquished his role
      as President on July 12, 2011. For his service during the period from
      November 1, 2009 to January 31, 2011, Mr. ODonnell received stock options
      from the 2010 Stock Incentive Plan in the amount of 50,000 stock options
      per month. Commencing February 1, 2011, Mr. ODonnell is entitled to
      receive 10,000 stock options per month. Mr. ODonnell resigned as Chief
      Executive Officer on June 30, 2012. Other compensation for 2012 include
      deferred compensation in the amount of $60,474.
|(2)    | Mr. Pilcher became Chief Operating Officer on April 1,
      2010 and President and Chief Operating Officer on July 12, 2011. Mr.
      Pilcher was granted 849,910 stock options from the 2010 Stock Incentive
      Plan of which, 219,426 stock option vested on April 1, 2010, an additional
      315,242 vested in June 2012. Mr. Pilcher left the Company in June 2012.                                                                                                                                                                                                                                                                                            
|(3)    | Mr. Richard Grondin became Chief Technology Officer on
      November 1, 2009. Mr. Grondin received 310,000 stock options from the 2010
      Stock Incentive Plan on April 1, 2010. Mr. Grondin left the Company in
      July 2012.                                                                                                                                                                                                                                                                                                                                                                                                                                     
|(4)    | Mr. Tony Giuliano became Chief Financial Officer on
      October 4, 2010 and Corporate Secretary on November 16, 2010. Mr. Giuliano
      received 50,000 stock options from the 2010 Stock Incentive Plan on April
      1, 2010 and received 50,000 stock options on December 31, 2011. Mr.
      Giuliano left the Company in June 2012.                                                                                                                                                                                                                                                                                                                              

Outstanding Option-Based Awards

As at July 31, 2012, stock options held by the Named Executive
Officers are indicated below under section E  Share Ownership.

- 33 -

---

Pension Plan Benefits

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

Securities Authorized for Issuance under Equity Compensation
Plans

The following tables summarize as of November 28, 2012, the
equity compensation plans pursuant to which equity securities of the Company may
be issued:

Stock-Option Plans Information

Plan Category
    Number of Common
      Shares to be Issued Upon Exercise of Outstanding
      Vested and Unvested Stock Options
    Weighted Average
      Exercise Price of Outstanding Options
    Number of Common
      Shares Remaining Available for Future Issuance Under
      the Equity Compensation PlansEquity Compensation Plans of the Company approved by
      the shareholders
    909,668
    $0.01
    7,090,332Total:
    909,668
    $0.01
    7,090,332


Share Award Plan Information

Plan Category
    Number of Common
      Shares to be Issued Upon Exercise of Outstanding
      Share Awards
    Weighted Average
      Exercise Price of Outstanding Options
    Number of Common
      Shares Remaining Available for Future Issuance Under
      the Equity Compensation PlansEquity Compensation Plans of the Company approved by
      the shareholders
    0
    
    1,000,000Total:
    0
    
    1,000,000


Directors and Officers Liability Insurance

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

|C. | Board Practices
|-- | ---------------

Date of expiration of current term of office

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

- 34 -

---

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

| | (a) | On April 18, 2008, we entered into a Voting Agreement
      with Arthur G. Ritchie and Bradley G. Griffith on behalf of the
      subscribers of the Convertible Debentures issued pursuant to a private
      placement on April 24, 2008 for aggregate proceeds of US$1,002,600. Under
      the terms of the Voting Agreement, Mr. Ritchie agreed to vote his shares
      in favour of the election of a director nominated by the holders of such
      Convertible Debentures holding a majority of the aggregate principal
      amount of the Convertible Debentures outstanding. Mr. ODonnell was
      elected as a director in connection with this agreement and the sale of
      the Convertible Debentures.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | (b) | Effective November 1, 2009, Arthur G. Ritchie, SAND and
      Jerart Financial Services Limited (a company wholly-owned by Arthur G.
      Ritchie) (Jerart) entered into a Marketing and Sales Assistance
      Agreement. Jerart agreed to provide SAND with partner services such as
      identifying potential customers, leading the sale through establishing the
      primary relationship to the influencers and decision makers, submitting
      proposals and developing the business case. The fees are based on a
      percentage of the sales. The percentage is based on the type of level of
      partner services as defined in the contract;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | (c) | On August 1, 2007, a Consulting Agreement was entered by
      and between Arthur G. Ritchie, SAND and Jerart. Jerart agreed to provide
      SAND with corporate management services through the person of Arthur G.
      Ritchie himself and which provides that Arthur G. Ritchie shall act as
      President and Chief Executive Officer of SAND. Effective November 1, 2009,
      Arthur G. Ritchie retired as President and Chief Executive Officer of SAND
      and a new Consulting Agreement was entered into between Arthur G.
      Ritchie, SAND and Jerart as part of his retirement package. Jerart agreed
      to provide SAND with corporate management services through the person of
      Arthur G. Ritchie himself. The agreement commenced on November 1, 2009 and
      will continue for a term of two years. The Company is required to pay
      Jerart an annual consulting fee in the amount of $250,000 payable on the
      first business day of every month in monthly installments of $20,833 plus
      all applicable taxes. If the agreement is terminated by the Company for
      any reason whatsoever prior to the expiry of the term, the remaining
      unpaid balance of the consulting fee will become immediately due and
      payable to Jerart;
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | (d) | Certain loan agreements between Arthur G. Ritchie, SAND
      and Jerart, prior to November 1, 2009, were replaced on such date by a
      Repayment Agreement. Pursuant to such Repayment Agreement, the amounts
      owed by SAND to Arthur G. Ritchie will be repaid in equal installments
      over three (3) years commencing January 1, 2011. The amounts due under the
      Repayment Agreement continue to bear interest at 15% per annum and are
      payable on a semi-annual basis. Please see Item 7B  Related Party
      Transactions for more details; and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | (e) | On October 31, 2009, Arthur G. Ritchie, Jerart and
      Bradley G. Griffith entered into a Priority Agreement whereby Bradley G.
      Griffith as fondé de pouvoirfor the holders of the Convertible
      Debentures agreed that the security in interest granted to Arthur G.
      Ritchie shall rank concurrently and pari passuwith the security
      granted to the holders of the Convertible
Debentures.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

Officers Services Contract

During the fourth quarter of fiscal 2012, Senior management
including the Chief Executive Officer, the President, the Chief Financial
Officer and the Vice-president of Research and Development either resigned or left the Company. The Board of Directors currently
assumes the responsibilities associated with these positions.

- 35 -

---

During the fiscal year ended July 31, 2012, the Company had a
Consulting Agreement with Thomas M. ODonnell, as Chief Executive Officer, and
Employment Agreements with Michael Pilcher, as President and Chief Operating
Officer, Tony J. Giuliano, as Vice President, Finance and Administration and
Chief Financial Officer and Richard Grondin, as Chief Technology Officer.

Audit Committee

Audit Committee Charter

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

Composition of Audit Committee

Name
    Independent
    Financially LiterateP. Wayne Musselman
    Yes
    YesGeorge Wicker
    Yes
    Yes


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

During fiscal 2012, following the resignation of two Directors,
the announcement of a restructuring and the departure of Senior management
including the Chief Executive Officer, the President, the Chief Financial
Officer and the Vice-president of Research and Development, the Board of
Directors retained the services of a strategic advisor and a financial
consultant to assist them in fulfilling the responsibilities normally associated
with these positions.

Audit Committee Meetings

The Audit Committee meets on a quarterly basis and holds
special meetings as circumstances require. During the year ended on July 31,
2012, the Audit Committee held four meetings. All members attended the four
meetings of the Audit Committee held during the last fiscal year.

- 36 -

---

Audit Committee Responsibilities

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

| | a) | Reviewing the audited financial statements of the Company
      and recommending whether such statements should be approved by the
      Board;                                                                                                         
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                         
| | b) | Reviewing and approving the unaudited interim financial
      statements of the Company;                                                                                                                                                                
| |    |                                                                                                                                                                                                                                                         
| | c) | Recommending to the Board the firm of independent
      auditors to be nominated for appointment by shareholders at each annual
      general meeting of the Company and, where necessary, the removal of the
      independent auditors of the Company;
| |    |                                                                                                                                                                                                                                                         
| | d) | Reviewing the scope and adequacy of audits to be
      conducted by the independent auditors of the Company;                                                                                                                                            
| |    |                                                                                                                                                                                                                                                         
| | e) | Adopting and annually reassessing formal terms of
      reference for the independent auditors of the Company;                                                                                                                                          
| |    |                                                                                                                                                                                                                                                         
| | f) | Monitoring and evaluating the independence and
      performance of the independent auditors of the Company;                                                                                                                                            
| |    |                                                                                                                                                                                                                                                         
| | g) | Pre-approving all non-audit services to be provided to
      the Company by its independent auditors prior to the commencement of such
      services;                                                                                                  
| |    |                                                                                                                                                                                                                                                         
| | h) | Reviewing all post-audit management letters containing
      the recommendations of the independent auditors of the Company and the
      response or follow-up thereto from management;                                                                
| |    |                                                                                                                                                                                                                                                         
| | i) | Reviewing and monitoring the integrity, adequacy and
      timeliness of the financial reporting and disclosure practices of the
      Company;                                                                                                         
| |    |                                                                                                                                                                                                                                                         
| | j) | Reviewing and, if deemed advisable, approving all related
      party transactions as defined in the governing legislation of the
      Company;                                                                                                        
| |    |                                                                                                                                                                                                                                                         
| | k) | Monitoring the compliance of the Company with legal and
      regulatory requirements related to financial reporting and
    disclosure;                                                                                                                
| |    |                                                                                                                                                                                                                                                         
| | l) | Monitoring and evaluating the adequacy of the internal
      accounting and audit procedures of the Company;                                                                                                                                            
| |    |                                                                                                                                                                                                                                                         
| | m) | Reviewing and ensuring the acceptability of the
      accounting principles of the Company;                                                                                                                                                             
| |    |                                                                                                                                                                                                                                                         
| | n) | Identifying the principal financial risks of the
      Company;                                                                                                                                                                                         
| |    |                                                                                                                                                                                                                                                         
| | o) | Overseeing reporting on internal controls of management
      and ensuring that management has designed and implemented an effective
      system of internal controls;                                                                                 
| |    |                                                                                                                                                                                                                                                         
| | p) | Annually reviewing and reassessing the adequacy of the
      duties and responsibilities of the Audit Committee;
and                                                                                                                                    

- 37 -

---

| | q) | Any other matters that the Audit Committee feels are
      important to its mandate or that the Board chooses to delegate to
    it.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------

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

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

Governance, Nomination, Human Resources and Compensation
Committee

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

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

Composition of the Governance Committee

The Governance Committee is composed of Duncan Painter and
George Wicker, all of whom were non-management and independent directors during
the fiscal year ended July 31, 2012 and satisfy the current requirements of the
NASDAQ Stock Market relating to independence. Duncan Painter is the Chairman of
the Governance Committee.

Governance Committee Meetings

During the year ended July 31, 2012, the Compensation Committee
met numerous times.

Governance Committee Responsibilities

The Governance Committee has the following duties and
responsibilities:

| | a) | Developing, monitoring and ensuring the effectiveness of
      the corporate governance policies and practices of the Company;                                                                                                   
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                  
| | b) | Identifying and selecting nominees for election of the
      Board of Directors of the Company and identifying and proposing to the
      Board of Directors candidates to fill in the vacancies on the Board of
      Directors;
| |    |                                                                                                                                                                                                                                  
| | c) | Ensuring the independence of the Board of
    Directors;                                                                                                                                                                         
| |    |                                                                                                                                                                                                                                  
| | d) | Evaluating the effectiveness and performance of
      individual directors, the Board of Directors and its
  committees;                                                                                                         

- 38 -

---

| | e) | Assisting the Board in setting the objectives for the
      Chief Executive Officer of the Company and evaluating his
    performance;                                                                                                                                                                          
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                 
| | f) | Establishing human resources policies and practices,
      including compensation and recruitment policies and practices for senior
      management, as well as establishing levels of salary, bonus, benefits and
      incentives provided to executive officers of the Company and its
      affiliates; and
| |    |                                                                                                                                                                                                                                                                                                                 
| | g) | Various other matters related to the foregoing as set out
      in the Charter of the Committee.                                                                                                                                                                                                                

Statement of Corporate Governance Practices

The Company has reviewed its corporate governance practices in
light of the guidelines contained in

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

Board of Directors Delegation

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

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

During the fiscal year ended July 31, 2012, the following
directors are "independent" pursuant to National Policy 58-201 Corporate
Governance Guidelines("NP 58-201") as they qualify as "independent"
directors, as such term is defined in Regulation 52-110 respecting Audit
Committees: Wayne Musselman, Duncan Painter and George Wicker.

Up until his resignation as Chief Executive Officer on June 30,
2012, Thomas M. ODonnell was not independent.

During fiscal 2012, following the resignation of two Directors,
the announcement of a restructuring and the departure of Senior management
including the Chief Executive Officer, the President, the Chief Financial
Officer and the Vice-president of Research and Development, the Board of
Directors retained the services of a strategic advisor and a financial
consultant to assist them in fulfilling the responsibilities normally associated
with these positions.

Directorships

Not applicable

- 39 -

---

Orientation and Continuing Education

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

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

Orientation and education of directors is an ongoing matter. As
such, ongoing informal discussions between management and members of the Board
are encouraged.

Ethical Business Conduct

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

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

Nomination of Directors

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

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

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

Compensation

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

- 40 -

---

Other Board Committees

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

Assessments

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

|D. | Employees
|-- | ---------

On July 31, 2012, the Company had 19 employees, including 11
full-time employees with SAND Canada, 3 full-time employees and 1 part-time
employee with Sand U.S., 1 part-time employee with Sand U.K., and 2 full-time
employees and 1 part-time employee with Sand Germany.

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

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

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

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

- 41 -

---

|E. | Share Ownership
|-- | ---------------

The shareholdings of the directors and officers of the Company
as at November 28, 2012 are as follows:

Name
    Position Held
    Number and Percentage
      of Outstanding Common Shares Owned
    Number of Vested and
      Unvested Stock Options HeldThomas M. ODonnell
    Director
    1,761,843 (8.7%)
    60,000 vestedDuncan Painter
    Director
    428,572 (2.1%)
    nilGeorge Wicker
    Director
    377,738 (1.9%)
    nilP. Wayne Musselman
    Director
    102,788 (0.5%)
    130,000 vestedTotal Common Shares held by
      Directors and Officers and Total Vested and
      Unvested Stock Options
    2,670,941 (13.2%)
    190,000 vested No options
      unvested


Arrangements Involving the Employees in the Capital of the
Company

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

1996 Stock Incentive Plan

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

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

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

- 42 -

---

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

During the fiscal year ended July 31, 2012, no stock options
were granted, no stock options expired, 357,000 stock options were forfeited and
no stock options were exercised under the 1996 Stock Incentive Plan.

During the period August 1, 2012 to November 28, 2012, no stock
options were granted, expired, forfeited or exercised under the 1996 Stock
Incentive Plan.

Share Award Plan

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

On August 28, 2007, the Board of Directors of the Company
authorized the award of up to 665,000 Common Shares. On September 30, 2007, the
Company granted 402,500 share awards which are dependent on the award recipients
achieving certain defined objectives including continued employment with the
Company for a period of 3 years. As of September 30, 2010, following the 3-year
employment period and after taking into account terminations and resignations,
277,500 share awards became eligible for issuance to recipients. On December 17,
2010, in lieu of issuing Common Shares for such share awards, the Board of
Directors issued 277,500 stock options from the 2010 Stock Incentive Plan.

During the fiscal year ended July 31, 2012, no share awards
were granted.

During the period August 1, 2012 to November 28, 2012, no share
awards were granted.

2010 Stock Incentive Plan

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

- 43 -

---

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

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

On January 10, 2012, the Shareholders adopted a resolution to
increase the authorized amount of Class A Common Shares subject to awards or
options under the 2010 Stock Incentive Plan from 4,000,000 to 8,000,000.

As at November 28, 2012, 3,863,256 options had been granted and
1,109,668 remained outstanding under the 2010 Incentive Plan and 4,136,744
options remained available for grant under that plan.

During the fiscal year ended July 31, 2012, 567,500 stock
options were granted, 1,090,000 stock options expired, 70,000 stock options were
forfeited and 390,000 stock options were exercised under the 2010 Incentive
Plan.

During the period from August 1, 2012 to November 28, 2012, no
stock options were granted, 10,000 stock options expired, 1,024,415 stock
options were forfeited and no stock options were exercised under the 2010
Incentive Plan.

|ITEM 7. | MAJOR SHAREHOLDERS AND RELATED PARTY
      TRANSACTIONS
|------- | -------------------------------------------------------

As of November 28, 2012, the Company had 20,209,076 Class A
Common Shares outstanding. Each Class A Common Share entitles its holder to
one vote.

|A. | Major Shareholders
|-- | ------------------

The following are the only persons who, to our knowledge,
beneficially own or exercise control or direction over shares carrying more than
five percent (5%) of the votes attached to Class A Common Shares of the
Company at November 28, 2012:

- 44 -

---

Approximate Number of
      Class A Common Shares Owned, Controlled or
      Directed, Directly or Indirectly
    Percentage of Class
      A Common Shares Owned, Controlled or DirectedArthur G. Ritchie
    3,598,388
    17.8%Thomas M. ODonnell
    1,761,843
    8.7%Irwin Zalcberg
    2,073,068
    10.3%Carol Fiala
    1,179,572
    5.8%Carol Shattner
    1,058,600
    5.2%Total Common Shares Owned,
      Controlled or Directed, Directly or Indirectly by the
      Major Shareholders
    9,671,471
    47.8%


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

To our knowledge, as of November 28, 2012, 20,209,076 Class A
Common Shares were held of record by persons whose registered addresses were in
the United States. Many of our Class A Common Shares are held in the name of
intermediaries.

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

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

|B. | Related Party
      Transactions
|-- | --------------------------------
|   |                                 
|1) | Arthur G. Ritchie               

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

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

- 45 -

---

Company to purchase all Common Shares
in the capital stock of the Company owned directly or indirectly by Arthur G.
Ritchie at a purchase price per share equal to the greater of:

| | i.  | the average closing price of the shares on the OTC
      Bulletin Board over the previous 30- day period plus 15%, or
| | --- | ---------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                      
| | ii. | the book value of the shares as determined by the
      auditors of the Company.                                     

| |     | As at July 31, 2011, the Company was in default
      as it did not make its January 1, 2011 installment. However, a Standstill
      Agreement was signed between the Company and Arthur G. Ritchie, effective
      February 1, 2011, and the default was cured during the three months ended
      October 31, 2011 as the Company paid the significant shareholder a
      pro-rata amount of $1,329,781 from the initial proceeds received on the
      transaction described in Note 7 of the consolidated financial statements.
      During the fiscal year ended July 31, 2012, the Company paid out the
      remainder of the amount outstanding. The Company received a full release
      of the associated hypothec.                                
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     | As at July 31, 2012, no amount was outstanding
      under the loan agreement. As at July 31, 2011 $1,685,411 including accrued
      interest of $481,751 was outstanding under the loan agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     | In conjunction with the original loan
      agreement, the Company also issued 103,061 warrants to Arthur G. Ritchie,
      with each warrant entitling the holder to purchase one Class A Common
      Share of the Company at a price of US$0.44 per share and each warrant
      being valid for the term of the agreement. The residual valuation method
      was used to allocate the proceeds between the debt and equity components
      of the shareholder loan. It was determined that the value of the debt
      component would comprise the entire face value of the loan since the loan
      had no maturity date. Hence, the value of the equity component was
      determined to be nil. These warrants expired during the fiscal year 2010.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | (b) | The Company, effective November 1, 2009, also signed a
      consulting agreement with Arthur G. Ritchie. The agreement provides for a
      fixed payment on the first of each month in the amount of $21,013 and
      expires on October 31, 2011. Payments made under the consulting agreement
      during the year ended July 31, 2012 amounted to $105,065 with a balance
      owing at July 31, 2012 of nil. Payments made under the consulting
      agreement during the year ended July 31, 2011 amounted to $210,130 with a
      balance owing at July 31, 2011 of $42,026 (August 1, 2010  nil).                                                                                                                                                  
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | (c) | Arthur G. Ritchie was entitled to, under his previous
      employment contracts, bonuses based on the achievement of gross revenues
      resulting from the licensing, sale or other disposition of the Companys
      Nucleus software products. The bonuses terminated effective November 1,
      2009 when he ceased to be the President and Chief Executive Officer. As at
      July 31, 2012, July 31, 2011 and August 1, 2010, bonuses payable amounted
      to nil, $165,386 and $165,386, respectively.                                                                                                                                                                                                                                             

During fiscal year 2008, an Inter-Creditor Priority Agreement
was signed between Arthur G. Ritchie (loans disclosed under a), b) and c) above)
and the holders of the Convertible Debentures (collectively the parties), at
the time when the Company issued the Convertible Debentures. The parties agreed
that the sums owing under the Convertible Debentures will be paid by the Company
to the Convertible Debenture holders in priority to the sums owed by the Company
to Arthur G. Ritchie. Specifically, for every $2 paid to the Convertible
Debenture holders, the Company shall remit $1 to Arthur G. Ritchie, representing
the repayment of principal only. The Inter-Creditor Priority Agreement was
amended on October 31, 2009 pursuant to which the parties agreed that the sums
owing under the Convertible Debentures will be paid by the Company to the
holders of the Convertible Debentures pari passuto the sums owing by the
Company to Arthur G. Ritchie such that for every $1 paid to the
Convertible Debenture holders, the Company shall remit $1 to Arthur G.
Ritchie.

- 46 -

---

|2) | Thomas M. ODonnell
|-- | -------------------

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

|3) | Private Placements
|-- | ------------------

In April 2008, the Company issued secured convertible
debentures ("Convertible Debentures") on a private placement basis and received
gross proceeds of $1,009,819 (U.S.$1,002,600) to investors, one of whom is
Thomas M. ODonnell, the Chief Executive Officer of the Company, representing a
total of 1,114 units. Each unit consists of one 8% Convertible Debenture due
December 31, 2017 and 1,000 share purchase warrants of the Company. Each warrant
entitles the holder to purchase one additional common share (Warrant Share) of
the Company at a price of U.S.$0.70 per share. Interest is calculated at the
rate of 8% per annum, payable in Common Shares at a rate of U.S.$0.45 per share.
The financing is secured by a first rank hypothec on all of the Companys
property and assets, movable and immovable, corporeal and incorporeal, present
and future, for the principal accrued interest amounts.

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

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

Key Management Personnel

In addition to the amount due to shareholders as described
above, related party transactions that the Company incurs include those with key
management personnel which consist of the Chief Executive Officer, the
President, the Chief Financial Officer and the Vice-president of Research and
Development along with other members of the Board of Directors. They control
14.2% of the voting shares of the Company.

- 47 -

---

Key management personnel compensation is comprised of the
following for the years ended July 31, 2012 and 2011:

|                                                                                                                   |   | July 31,  |  |   | July 31,  | 
|------------------------------------------------------------------------------------------------------------------ | - | --------- |  | - | --------- | 
|                                                                                                                   |   | 2012      |  |   | 2011      | 
|Wages, salaries, bonus and other short-term
      benefits, including amounts paid through their holding companies | $ | 1,193,253 |  | $ | 799,738   | 
|Share-based compensation                                                                                           |   | 185,069   |  |   | 710,034   | 
|                                                                                                                   | $ | 1,378,322 |  | $ | 1,509,772 | 

|                           |   | July 31, |  |   | July 31, |  |   | August 1, | 
|-------------------------- | - | -------- |  | - | -------- |  | - | --------- | 
|                           |   | 2012     |  |   | 2011     |  |   | 2010      | 
|Payable to related parties | $ | 80,000   |  | $ | -        |  | $ | -         | 

During the fourth quarter, Senior management including the
Chief Executive Officer, the President, the Chief Financial Officer and the
Vice-President of Research and Development left the Corporation. The Board of
Directors retained the services of a strategic advisor and a financial
consultant to assist them in fulfilling the responsibilities normally associated
with these positions.

|C. | Interests of Experts and
  Counsels
|-- | -----------------------------------

Not applicable.

|ITEM 8. | FINANCIAL INFORMATION
|------- | ---------------------

|A. | Consolidated Statements and Other Financial
      Information
|-- | -------------------------------------------------------------

Consolidated Financial Statements

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

Legal Proceedings

The Company is party to claims and lawsuits in the normal
course of business, which are being contested. In the opinion of management, the
outcome of such claims and lawsuits will not have a material effect on the
Companys financial results and position, and accordingly, no amounts have been
recorded as at July 31, 2012.

Dividend Record and Policy

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

- 48 -

---

|B. | Significant Changes
|-- | -------------------

Subsequent to July 31, 2012, the Company had the following
significant events:

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

The Company was then advised by the
Autorité des Marchés Financiers (the AMF) that, in accordance with the
guidelines set out in Policy Statement 12-203 respecting Cease Trade Orders for
Continuous Disclosure Defaults, it had issued a cease trade order that prohibits
all trading of the securities of the Company. The cease trade order was lifted
by the AMF in October 2012.

|ITEM 9. | THE OFFER AND LISTING
|------- | ---------------------

|A. | Offer and listing
details
|-- | -------------------------

The following tables set forth the price ranges and volume of
Common Shares during the periods indicated on the OTCBB.

Quarter Ended
    High
    Low
    VolumeJuly 31, 2012
    0.22
    0.05
    482,800April 30, 2012
    0.41
    0.11
    485,500January 31, 2012
    0.63
    0.25
    372,100October 31, 2011
    0.65
    0.30
    166,100July 31, 2011
    0.63
    0.37
    305,486April 30, 2011
    0.62
    0.34
    383,984January 31, 2011
    0.42
    0.28
    335,877October 31, 2010
    0.46
    0.25
    215,699


- 49 -

---

Fiscal
      Year Ended)
    High
    Low
    VolumeJuly 2012
    0.65
    0.05
    1,506,500July 2011
    0.63
    0.25
    1,241,046


|B. | Plan of
Distribution
|-- | --------------------

Not applicable.

|C. | Markets
|-- | -------

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

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

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

|D. | Selling Shareholders 
|-- | ---------------------
|   |                      
|   | Not applicable.      
|   |                      
|E. | Dilution             
|   |                      
|   | Not applicable.      
|   |                      
|F. | Expenses of the issue
|   |                      
|   | Not applicable.      

- 50 -

---

|ITEM 10. | ADDITIONAL INFORMATION
|-------- | ----------------------

|A. | Share Capital
|-- | -------------

Not applicable.

|B. | Memorandum and Articles of
    Association
|-- | ------------------------------------------

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

Directors Powers

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

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

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

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

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

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

- 51 -

---

Election and Qualifications of Directors

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

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

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

Meetings

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

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

Limitations on Ownership of Securities

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

Change in Control of Company

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

Ownership Threshold

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

- 52 -

---

Description of Share Capital

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

Class A Common Shares

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

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

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

Class B Shares

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

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

- 53 -

---

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

- 54 -

---

Class B, Series A Shares

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

Voting Rights

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

Cumulative Dividends

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

Liquidation, Dissolution or Winding-Up

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

Modification Procedure

The rights, privileges, restrictions and conditions attached to
the Class B, Series A Shares may be added to, changed or removed only with the
prior approval of the holders of the Class B, Series A Shares given as specified
herein, in addition to any vote or authorization required by law or the articles
of the Company.

- 55 -

---

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

Conversion Rights

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

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

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

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

- 56 -

---

Change of Rights of Shareholders

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

|C. | Material Contracts
|-- | ------------------

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

- The Company is a party to the Asset Purchase Agreement dated October 4,
  2011 (the "Asset Purchase Agreement") among the Company, STSI Licensing, LLC,
  Sand Technology Corporation, Sand Technology Limited, Sand Technology
  (Ireland) Limited, Sand Technology Deutschland GmbH, Sand Technology Australia
  Pty Ltd, and Informatica Software, Limited. Under the terms of the Asset
  Purchase Agreement, the Company and its subsidiaries sold certain of their
  assets relating to their Nearline and SAP Nearline lines of business for
  consideration of up to US$8 million. After deductions for earn-out milestones,
  customers consent holdback, an escrow amount relating to representations and
  warranties and other amounts, the Company received initial proceeds of
  U.S.$4,172,465 at the closing of this transaction. In connection with this
  transaction, the Company entered into a Restricted Covenants Agreement dated
  October 4, 2011 (the "Restrictive Covenants Agreement") pursuant to which the
  Company agreed to not, and to ensure that its affiliates do not, engage in
  certain activities competitive with the business sold under the Asset Purchase
  Agreement for a period of two years after the date of the Restricted Covenants
  Agreement. The Company collected an additional US$3,000,000 during the year
  ended July 31, 2012. The Company anticipates it will be able to meet all its
  obligations under the asset purchase agreement governing this transaction to
  collect the remaining amount due from the sale and an amount US$800,000 was
  recorded in other receivables.
- On September 7, 2011, the Company completed a bridge loan financing in the
  amount of $1,000,000 from a group of investors. The bridge loan has a term of
  three months with interest at 15% and was entirely repaid at its maturity date
  of November 30, 2011. Interest was prepaid from the proceeds of the bridge
  loan.
- In March 2011, the Company completed a non-brokered private placement where
  the Company issued 1,071,432 units for U.S.$0.70 per unit, for total gross
  proceeds of U.S.$750,000 to investors, one of whom is Thomas M. ODonnell, the
  former Chief Executive Officer of the Company. Each unit consists of two Class
  A Common Shares and one warrant to purchase one Class A Common Share for
  an exercise price of U.S.$0.50 per share.
- Please see Item 6B - Compensation and Item 7B - Related Party Transactions
  for contracts entered into by SAND with its directors and officers.

- 57 -

---

|D. | Exchange Controls
|-- | -----------------

Other than as provided in the Investment Canada Act(Canada) (the "Investment Act"), there are currently no limitations imposed
by Canadian laws, decrees or regulations that restrict the import or export of
capital, including foreign exchange controls, or that affect the remittance of
dividends to non-resident holders of the Companys securities. However, any such
remittances of dividends paid to United States residents are subject to
withholding tax at a rate equal to a maximum of 15% of the amount paid (see
Section E  Taxation under Item 10  Additional Information).

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

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

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

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

| | a) | by the acquisition of voting shares or the voting
      interests by any person in the ordinary course of that persons business
      as a trader or dealer in securities;                        
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                    
| | b) | in connection with the realization of security granted
      for a loan or other financial assistance and not for any purpose related
      to the Investment Act;                                 
| |    |                                                                                                                                                                                                    
| | c) | for facilitating its financing and not for any purpose
      related to the Investment Act on the condition that the acquirer divest
      control within two years after control was acquired;
and

- 58 -

---

| | d) | by reason of an amalgamation, merger, consolidation or
      corporate reorganization following which the ultimate or indirect control
      in fact of the Company through the ownership of voting interests remains
      unchanged.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|E. | Taxation
|-- | --------

Certain Canadian Federal Income Tax Consequences

The discussion under this heading summarises the material
Canadian federal income tax consequences of acquiring, holding and disposing of
Common Shares of the Company for a shareholder of the Company who is not
resident in Canada but is resident in the United States who benefits from the
provisions of the Convention and who will acquire and hold Common Shares of the
Company as capital property for the purpose of the Income Tax Act(Canada) (the "Tax Act"). This summary does not apply to a shareholder who
carries on business in Canada through a "permanent establishment" situated in
Canada or who has a fixed tax base regularly available to him through which he
or she performs independent personal services in Canada if the shareholders
holding in the Company is effectively connected with such permanent
establishment or fixed base. This summary is based on the provisions of the Tax
Act and the regulations thereunder and on the Companys understanding of the
administrative practices of the Canada Revenue Agency and takes into account all
specific proposals to amend the Tax Act or regulations made by the Minister of
Finance of Canada to November 28, 2012. It has been assumed that there will be
no other relevant amendment of any governing law although no assurance can be
given in this respect. This discussion is general only and is not a substitute
for independent advice from a shareholders own Canadian and U.S. tax
advisors.

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

Dividends on Common Shares

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

Disposition of Common Shares

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

- 59 -

---

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

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

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

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

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

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

Certain United States Federal Income Tax
Considerations

The following discussion summarises the material United States
federal income tax consequences to certain U.S. Holders (as defined below) of
the acquisition, ownership and disposition of the Companys Common Shares. This
discussion assumes such holders hold the Common Shares as capital assets for
United States Federal income tax purposes. This discussion does not address
consequences peculiar to persons subject to special provisions of federal income tax
law, such as tax-exempt organizations, qualified retirement plans, financial
institutions, life insurance companies, real estate investment trusts, regulated
investment companies, broker-dealers, non-resident alien individuals or foreign
companies, shareholders actually or constructively owning Common Shares
representing 10% of the vote and value of the Company, a person that holds
shares as part of a straddle or hedging or conversion transaction, or a person
liable for alternative minimum tax. In addition, this discussion does not
address any state, local or foreign tax consequences.

- 60 -

---

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

U.S. Holders

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

Distributions on Common Shares

Dividends (without reduction for Canadian income tax withheld)
paid to a no corporate U.S. Holder in taxable years beginning before January 1,
2011 that constitute qualified dividend income will be taxable to such holder at
a maximum tax rate of 15% provided that the non corporate U.S. Holder holds
shares for more than 60 days during the 121 day period beginning 60 days before
the ex-dividend date and meets other holding period requirements. A U.S. Holder
must include the dividend in its taxable income when the holder receives the
dividend, actually or constructively. The dividend will not be eligible for the
dividends-received deduction generally allowed to U.S. corporations in respect
of dividends received from other U.S. corporations. The amount of the dividend
distribution that a U.S. Holder must include in its income will be the U.S.
dollar value of the payments made, determined at the spot rate on the date of
the dividend distribution, regardless of whether the payment is in fact
converted into U.S. dollars. Generally, any gain or loss resulting from currency
exchange fluctuations during the period from the date the U.S. Holder includes
the dividend payment in income to the date it converts the payment into U.S.
dollars will be treated as ordinary income or loss and will not be eligible for
the special tax rate applicable to qualified dividend income. The gain or loss
generally will be income or loss from sources within the U.S. for foreign tax
credit limitation purposes. Distributions in excess of current and accumulated
earnings and profits, as determined for U.S. federal income tax purposes, will
be treated as a non-taxable return of capital to the extent of U.S. Holders
basis in the shares and thereafter as capital gain.

- 61 -

---

Subject to certain limitations, the Canadian tax withheld will
be creditable against a U.S. Holders United States federal income tax
liability. Special rules apply in determining the foreign tax credit limitation
with respect to dividends that are subject to the maximum 15% tax rate. To the
extent a refund of the tax withheld is available to a U.S. Holder, the amount of
tax withheld that is refundable will not be eligible for credit against the U.S.
Holder United States federal income tax liability.

Disposition of Common Shares

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

Other Considerations

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

Passive Foreign Investment Company

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

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

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

New Reporting Requirements

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

- 62 -

---

Backup Withholding

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

|F. | Dividends and paying
  agents
|-- | -----------------------------

Not applicable.

|G. | Statements by
experts
|-- | ---------------------

Not applicable.

|H. | Documents on
Display
|-- | --------------------

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

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

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

- 63 -

---

|I. | Subsidiary
Information
|-- | ----------------------

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

|ITEM 11. | QUANTITATIVE AND QUALITATIVE DISCLOSURES
      ABOUT MARKET RISK
|-------- | ----------------------------------------------------------------

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

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

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

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

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

|ITEM 12. | DESCRIPTION OF SECURITIES OTHER THAN EQUITY
      SECURITIES
|-------- | ------------------------------------------------------------

Not applicable.

PART II

|ITEM 13. | DEFAULTS, DIVIDEND ARREARAGES AND
      DELINQUENCIES
|-------- | -----------------------------------------------------

None.

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

None.

- 64 -

---

|ITEM 15. | CONTROLS AND PROCEDURES
|-------- | -----------------------

|A. | Disclosure Controls and
  Procedures
|-- | ------------------------------------

As of July 31, 2012, an evaluation was carried out, under the
supervision of and with the participation of management, including a Director
performing the functions similar to those performed by the Chief Executive
Officer ("CEO") and a another Director performing the functions similar to those
performed by the Chief Financial Officer ("CFO"), of the effectiveness of the
Companys disclosure controls and procedures as defined in National Instrument
52-109 - Certification of Disclosure in Issuers Annual and Interim Filingand in Rule 13a-15 or 15d-15 under the Exchange Act.

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

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

During fiscal 2012, following the resignation of two Directors,
the announcement of a restructuring and the departure of Senior management
including the Chief Executive Officer, the President, the Chief Financial
Officer and the Vice-president of Research and Development, the Board of
Directors retained the services of a strategic advisor and a financial
consultant to assist them in fulfilling the responsibilities normally associated
with these positions.

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

Our Directors performing the functions similar to those
performed by the CEO and the CFO, assisted by their consultants, conducted an
evaluation of the effectiveness of our internal control over financial reporting
based on the framework in Internal Control - Integrated Frameworkissued
by the Committee of Sponsoring Organizations of the Treadway Commission. Based
on this evaluation, they concluded that the Companys internal control over
financial reporting was effective as of July 31, 2012.

- 65 -

---

The changes made to our internal controls over financial
reporting during the fiscal year ended July 31, 2012 have not materially
affected, or are not reasonably likely to materially affect our internal
controls over financial reporting.

|**ITEM 16A.** | AUDIT COMMITTEE FINANCIAL EXPERT
|------------- | --------------------------------

P. Wayne Musselman is a non-management and unrelated director.
P. Wayne Musselman is the Chairman of the Audit Committee during the year ended
July 31, 2012.

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

|**ITEM 16B.** | CODE OF ETHICS
|------------- | --------------

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

|**ITEM 16C.** | PRINCIPAL ACCOUNTANT FEES AND SERVICES
|------------- | --------------------------------------

|(a) | Audit Fees
|--- | ----------

The aggregate fees billed for professional services rendered by
Raymond Chabot Grant Thornton LLP, the principal accountant for the Company, for
the audit of the Companys annual financial statements and services normally
provided by such accountants in connection with the Companys statutory and
regulatory filings for the Companys fiscal year ended July 31, 2012, were
$55,000 ($95,000 in the fiscal year ended July 31, 2011).

|(b) | Audit-Related Fees
|--- | ------------------

There were no fees billed for assurance and related services by
Raymond Chabot Grant Thornton LLP that are reasonably related to the performance
of the audit or review of the Companys financial statements for the Companys
fiscal year ended July 31, 2012 ($nil in the fiscal year ended July 31,
2011).

|(c) | Tax Fees
|--- | --------

The aggregate fees billed for products and services rendered by
Deloitte & Touche LLP for tax compliance, tax advice and tax planning for
the Companys fiscal ended July 31, 2012 were $8,000 ($63,480 in the fiscal year
ended July 31, 2011).

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

- 66 -

---

|(d) | All Other Fees
|--- | --------------

The aggregate fees billed for professional services rendered by
Raymond Chabot Grant Thornton LLP other than the fees reported in this Item 16C
above during the Companys fiscal year ended July 31, 2012 was $23,950 (nil in
fiscal year ended July 31, 2011).

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

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

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

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

None of the hours expended by Raymond Chabot Grant Thornton LLP
on its engagement to audit the Companys financial statements for the fiscal
year ended July 31, 2012, were performed by persons other than full-time
permanent employees of Raymond Chabot Grant Thornton LLP.

Interest of Auditors

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

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

None.

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


None.

|**ITEM 16F.** | CHANGE IN REGISTRANTS CERTIFYING
      ACCOUNTANT
|------------- | --------------------------------------------------

Not applicable.

|**ITEM 16G.** | CORPORATE GOVERNANCE
|------------- | --------------------

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

- 67 -

---

PART III

|ITEM 17. | FINANCIAL STATEMENTS
|-------- | --------------------

Not applicable.

|ITEM 18. | FINANCIAL STATEMENTS
|-------- | --------------------

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

The Audited Consolidated Financial Statements and the related
notes included in this Annual Report as at and for the years ended July 31, 2012
and 2011 were prepared in accordance with International Financial Reporting
Standards as issued by the International Accounting Standard Board and are
expressed in Canadian dollars.

The Audited Consolidated Financial Statements as at July 31,
2010, 2009 and 2008 were prepared in accordance with Canadian generally accepted
accounting principles and reconciled to accounting principles generally accepted
in the United States of America, which are not included in this Annual Report
but have previously been filed with the Commission.

For a history of the exchange rates which were used for
Canadian dollars against U.S. dollars, see Section A  Selected Financial
Dataunder Item 3 "Key Information" of this Report.

- 68 -

---



Consolidated Financial Statements 
  July 31, 2012

---

SAND Technology Inc.

Consolidated Financial Statements 
  July 31, 2012

---

|                                    |                                  
|----------------------------------- | ---------------------------------
|**Independent Auditors Report of** |                                  
|Registered Public Accounting Firm   | Raymond Chabot Grant Thornton LLP
|                                    | Suite 2000                       
|                                    | National Bank Tower              
|                                    | 600 De La Gauchetière Street West
|To the Shareholders of              | Montréal, Quebec H3B 4L8         
|SAND Technology Inc.                |                                  
|                                    | Telephone: 514-878-2691          
|                                    | Fax: 514-878-2127                
|                                    | www.rcgt.com                     

We have audited the accompanying consolidated financial
  statements of SAND Technology Inc. which comprise the consolidated balance
  sheets as at July 31, 2012, and 2011 and August 1, 2010, and the consolidated
  statements of comprehensive income, consolidated statements of changes in
  shareholders equity and consolidated statements of cash flows for the years
  ended July 31, 2012 and 2011, and a summary of significant accounting policies
  and other explanatory information.

Managements responsibility for the consolidated financial
  statements

Management is responsible for the preparation and fair
  presentation of these consolidated financial statements in accordance with
  International Financial Reporting Standards as issued by the International
  Accounting Standards Board, and for such internal control as management
  determines is necessary to enable the preparation of consolidated financial
  statements that are free from material misstatement, whether due to fraud or
  error.

Auditors responsibility

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

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

CharteredPartnership of Professional AccountantsMember of Grant Thornton International Ltd

---

2

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

Opinion

In our opinion, the consolidated financial statements present
  fairly, in all material respects, the financial position of SAND Technology Inc.
  as at July 31, 2012, and 2011 and August 1, 2010, and its financial performance
  and its cash flows for the years ended July 31, 2012 and 2011 in accordance with
  International Financial Reporting Standards as issued by the International
  Accounting Standards Board.

Emphasis of matter

Without modifying our opinion, we draw attention to Note 2 to
  the consolidated financial statements, which indicate that the Company has
  continuing losses and negative cash flows from operations. Accordingly, there
  exists a material uncertainty that casts substantial doubt about the Companys
  ability to continue as a going concern.

Other matter

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

Montréal, Canada 
  November 28, 2012

__________________________________
  1CPA auditor,
  CA public accountancy permit no. A121855

---

|SAND Technology Inc.           
|-------------------------------
|Consolidated Balance Sheets    
|As at                          
|(Expressed in Canadian Dollars)
|                               
|                               

|                                                      |  |       |  |   | July 31,    |   |   | July 31,    |   |   | August 1,   |  
|----------------------------------------------------- |  | ----- |  | - | ----------- | - | - | ----------- | - | - | ----------- | -
|                                                      |  | Note  |  |   | 2012        |   |   | 2011        |   |   | 2010        |  
|ASSETS                                                |  |       |  |   |             |   |   |             |   |   |             |  
|Current Assets                                        |  |       |  |   |             |   |   |             |   |   |             |  
|Cash                                                  |  |       |  | $ | 811,655     |   | $ | 810,745     |   | $ | 579,270     |  
|Trade and other receivables                           |  | 8     |  |   | 476,833     |   |   | 541,959     |   |   | 739,144     |  
|Research and development tax
      credits receivable |  |       |  |   | 502,514     |   |   | 663,857     |   |   | 660,000     |  
|Prepaid expenses                                      |  |       |  |   | 70,039      |   |   | 117,305     |   |   | 74,541      |  
|                                                      |  |       |  |   | 1,861,041   |   |   | 2,133,866   |   |   | 2,052,955   |  
|                                                      |  |       |  |   |             |   |   |             |   |   |             |  
|Other receivables                                     |  | 7,9   |  |   | 975,285     |   |   | -           |   |   | -           |  
|Capital assets                                        |  | 10    |  |   | 376,352     |   |   | 81,361      |   |   | 64,488      |  
|                                                      |  |       |  | $ | 3,212,678   |   | $ | 2,215,227   |   | $ | 2,117,443   |  
|                                                      |  |       |  |   |             |   |   |             |   |   |             |  
|LIABILITIES                                           |  |       |  |   |             |   |   |             |   |   |             |  
|Current Liabilities                                   |  |       |  |   |             |   |   |             |   |   |             |  
|Trade and other payables                              |  | 12    |  | $ | 677,099     |   | $ | 776,623     |   | $ | 984,149     |  
|Deferred revenue                                      |  |       |  |   | 1,086,802   |   |   | 1,179,652   |   |   | 1,135,814   |  
|Deferred lease inducements                            |  |       |  |   | -           |   |   | -           |   |   | 19,558      |  
|Due to shareholders                                   |  | 13    |  |   | -           |   |   | 1,425,945   |   |   | 896,369     |  
|                                                      |  |       |  |   | 1,763,901   |   |   | 3,382,220   |   |   | 3,035,890   |  
|                                                      |  |       |  |   |             |   |   |             |   |   |             |  
|Deferred revenue                                      |  |       |  |   | 266,114     |   |   | 696,275     |   |   | 106,124     |  
|Deferred lease inducements                            |  |       |  |   | 130,000     |   |   | -           |   |   | -           |  
|Due to shareholders                                   |  | 13    |  |   | -           |   |   | 488,892     |   |   | 977,784     |  
|Convertible debentures                                |  | 14    |  |   | 834,368     |   |   | 696,961     |   |   | 647,321     |  
|Other financial liabilities                           |  | 14    |  |   | 154,264     |   |   | 315,213     |   |   | 342,927     |  
|                                                      |  |       |  |   | 3,148,647   |   |   | 5,579,561   |   |   | 5,110,046   |  
|                                                      |  |       |  |   |             |   |   |             |   |   |             |  
|SHAREHOLDERS' EQUITY                                  |  |       |  |   |             |   |   |             |   |   |             |  
|Share capital                                         |  | 16,17 |  |   | 39,710,565  |   |   | 39,706,665  |   |   | 38,976,108  |  
|Contributed surplus                                   |  |       |  |   | 2,483,774   |   |   | 1,863,006   |   |   | 758,302     |  
|Deficit                                               |  |       |  |   | (42,130,308 | ) |   | (44,934,005 | ) |   | (42,727,013 | )
|                                                      |  |       |  |   | 64,031      |   |   | (3,364,334  | ) |   | (2,992,603  | )
|                                                      |  |       |  | $ | 3,212,678   |   | $ | 2,215,227   |   | $ | 2,117,443   |  

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

On behalf of the Board of Directors,

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

3

---

|SAND Technology Inc.                                                     
|-------------------------------------------------------------------------
|Consolidated Statements of Comprehensive Income                          
|Years ended                                                              
|(Expressed in Canadian Dollars, except for number of common
      shares)

|                                                        |  | Note |  |   | July
      31, 2012 |   |   | July
      31, 2011 |  
|------------------------------------------------------- |  | ---- |  | - | ------------------- | - | - | ------------------- | -
|                                                        |  |      |  |   |                     |   |   |                     |  
|Revenue                                                 |  |      |  | $ | 2,500,228           |   | $ | 4,633,693           |  
|Cost of sales and product support                       |  |      |  |   | 1,099,741           |   |   | 1,092,995           |  
|Gross profit                                            |  |      |  |   | 1,400,487           |   |   | 3,540,698           |  
|                                                        |  |      |  |   |                     |   |   |                     |  
|Operating expenses                                      |  |      |  |   |                     |   |   |                     |  
|Research and development costs, net                     |  | 4    |  |   | 1,441,537           |   |   | 1,223,963           |  
|Selling, general and
      administrative               |  |      |  |   | 5,308,812           |   |   | 5,607,068           |  
|                                                        |  |      |  |   | 6,750,349           |   |   | 6,831,031           |  
|Operating loss                                          |  |      |  |   | (5,349,862          | ) |   | (3,290,333          | )
|Net finance expense                                     |  | 5    |  |   | 698,068             |   |   | 370,023             |  
|Loss from continuing operations                         |  |      |  |   | (6,047,930          | ) |   | (3,660,356          | )
|Gain on sale of discontinued operations                 |  | 7    |  |   | 8,571,967           |   |   | -                   |  
|Earnings from discontinued operations, net
      of tax |  | 7    |  |   | 279,660             |   |   | 1,453,364           |  
|Net income (loss) and comprehensive income (loss)       |  |      |  | $ | 2,803,697           |   | $ | (2,206,992          | )
|                                                        |  |      |  |   |                     |   |   |                     |  
|Basic income (loss) per share                           |  | 18   |  | $ | 0.14                |   | $ | (0.13               | )
|From continuing operations                              |  |      |  | $ | (0.31               | ) | $ | (0.21               | )
|                                                        |  |      |  |   |                     |   |   |                     |  
|Diluted income (loss) per share                         |  | 18   |  | $ | 0.14                |   | $ | (0.13               | )
|From continuing operations                              |  |      |  | $ | (0.31               | ) | $ | (0.21               | )
|                                                        |  |      |  |   |                     |   |   |                     |  
|Basic weighted average number of common shares          |  | 18   |  |   | 19,466,896          |   |   | 17,048,978          |  
|Diluted weighted average number of common
      shares  |  | 18   |  |   | 19,574,397          |   |   | 17,048,978          |  

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

4

---

|SAND Technology Inc.                                                     
|-------------------------------------------------------------------------
|Consolidated Statements of Changes in Shareholders
      Equity         
|Years ended July 31, 2012, and 2011                                      
|(Expressed in Canadian Dollars, except for number of common
      shares)

|                                                        |  |      |  |  | Share Capital |  |   |            |  |   |             |  |   |             |  
|------------------------------------------------------- |  | ---- |  |  | ------------- |  | - | ---------- |  | - | ----------- |  | - | ----------- | -
|                                                        |  |      |  |  | Number of     |  |   |            |  |   |             |  |   |             |  
|                                                        |  |      |  |  | class "A"     |  |   |            |  |   | Contributed |  |   |             |  
|                                                        |  | Note |  |  | common shares |  |   | Amount     |  |   | surplus     |  |   | Deficit     |  
|                                                        |  |      |  |  |               |  |   |            |  |   |             |  |   |             |  
|Balance as at August 1, 2010                            |  |      |  |  | 15,889,620    |  | $ | 38,976,108 |  | $ | 758,302     |  | $ | (42,727,013 | )
|                                                        |  |      |  |  |               |  |   |            |  |   |             |  |   |             |  
|Net loss                                                |  |      |  |  |               |  |   |            |  |   |             |  |   |             |  
|                                                        |  |      |  |  | -             |  |   | -          |  |   | -           |  |   | (2,206,992  | )
|Common shares issued as part of private
      placement |  | 15   |  |  | 2,142,864     |  |   | 579,175    |  |   | -           |  |   | -           |  
|Common shares issued in settlement of debt              |  | 16   |  |  | 411,152       |  |   | 143,903    |  |   | -           |  |   | -           |  
|Warrants exercised                                      |  | 14   |  |  | 780,000       |  |   | 6,879      |  |   | -           |  |   | -           |  
|Warrants issuance as part of a private placement        |  | 15   |  |  |               |  |   |            |  |   | 195,898     |  |   |             |  
|Stock options exercised                                 |  | 17   |  |  | 60,000        |  |   | 600        |  |   | -           |  |   | -           |  
|Share-based compensation                                |  | 17   |  |  | -             |  |   | -          |  |   | 908,806     |  |   | -           |  
|Balance as at July 31, 2011                             |  |      |  |  | 19,283,636    |  | $ | 39,706,665 |  | $ | 1,863,006   |  | $ | (44,934,005 | )
|                                                        |  |      |  |  |               |  |   |            |  |   |             |  |   |             |  
|                                                        |  |      |  |  |               |  |   |            |  |   |             |  |   |             |  
|Balance as at July 31, 2011                             |  |      |  |  | 19,283,636    |  | $ | 39,706,665 |  | $ | 1,863,006   |  | $ | (44,934,005 | )
|                                                        |  |      |  |  |               |  |   |            |  |   |             |  |   |             |  
|Net income                                              |  |      |  |  |               |  |   |            |  |   |             |  |   |             |  
|                                                        |  |      |  |  | -             |  |   | -          |  |   | -           |  |   | 2,803,697   |  
|Warrants issuance as part of a bridge loan              |  | 11   |  |  |               |  |   |            |  |   | 220,321     |  |   |             |  
|Exercise of stock options                               |  | 17   |  |  | 390,000       |  |   | 3,900      |  |   | -           |  |   | -           |  
|Share-based compensation                                |  | 17   |  |  |               |  |   |            |  |   | 400,447     |  |   | -           |  
|Balance as at July 31, 2012                             |  |      |  |  | 19,673,636    |  | $ | 39,710,565 |  | $ | 2,483,774   |  | $ | (42,130,308 | )

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

5

---

|SAND Technology Inc.                 
|-------------------------------------
|Consolidated Statements of Cash Flows
|Years ended                          
|(Expressed in Canadian Dollars)      

|                                                                           |  |      |  |   | July 31,   |   |   | July 31,   |  
|-------------------------------------------------------------------------- |  | ---- |  | - | ---------- | - | - | ---------- | -
|                                                                           |  | Note |  |   | 2012       |   |   | 2011       |  
|OPERATING ACTIVITIES                                                       |  |      |  |   |            |   |   |            |  
|Net income (loss)                                                          |  |      |  | $ | 2,803,697  |   | $ | (2,206,992 | )
|Adjustment for non-cash and other items                                    |  |      |  |   |            |   |   |            |  
|Depreciation of capital assets                                             |  | 10   |  |   | 57,577     |   |   | 40,597     |  
|Gain on sale of discontinued
      operations                              |  | 7    |  |   | (8,571,967 | ) |   | -          |  
|Stock-based compensation                                                   |  | 17   |  |   | 400,447    |   |   | 908,806    |  
|Accretion of debt component of
      convertible debentures                |  | 14   |  |   | 137,407    |   |   | 49,640     |  
|Change in fair value of other financial
      liabilities                  |  |      |  |   | (160,949   | ) |   | (27,714    | )
|Accretion of bridge loan                                                   |  |      |  |   | 220,321    |   |   | -          |  
|Interest expense on financial liabilities
      measured at amortized cost |  |      |  |   | 132,402    |   |   | 275,952    |  
|Amortization of deferred lease
      inducement                            |  |      |  |   | (13,000    | ) |   | (19,558    | )
|Changes in working capital items                                           |  |      |  |   |            |   |   |            |  
|Trade and other
      receivable                                           |  |      |  |   | 67,665     |   |   | 208,105    |  
|Research and development tax credits
      receivable                      |  |      |  |   | 161,343    |   |   | (3,858     | )
|Prepaid expenses                                                           |  |      |  |   | 48,150     |   |   | (42,078    | )
|Other receivables                                                          |  | 9    |  |   | (199,935   | ) |   | -          |  
|Trade and other
      payables                                             |  |      |  |   | (143,987   | ) |   | 59,023     |  
|Deferred revenue                                                           |  |      |  |   | (99,633    | ) |   | 648,893    |  
|Cash flows from operating activities                                       |  |      |  |   | (5,160,462 | ) |   | (109,184   | )
|                                                                           |  |      |  |   |            |   |   |            |  
|INVESTING ACTIVITIES                                                       |  |      |  |   |            |   |   |            |  
|Purchase of capital assets                                                 |  | 10   |  |   | (352,568   | ) |   | (57,436    | )
|Proceeds from
      sale of discontinued operations                        |  | 7    |  |   | 7,443,530  |   |   | -          |  
|Cash flows from investing activities                                       |  |      |  |   | 7,090,962  |   |   | (57,436    | )
|                                                                           |  |      |  |   |            |   |   |            |  
|FINANCING ACTIVITIES                                                       |  |      |  |   |            |   |   |            |  
|Financing
      interest paid                                              |  |      |  |   | (105,582   | ) |   | (69,642    | )
|Deferred lease inducements                                                 |  |      |  |   | 143,000    |   |   | -          |  
|Due to
      shareholders                                                  |  | 13   |  |   | -          |   |   | 362,067    |  
|Repayments of due to
      shareholders                                    |  | 13   |  |   | (1,914,837 | ) |   | (304,028   | )
|Proceeds from
      bridge loan                                            |  | 11   |  |   | 962,500    |   |   | -          |  
|Repayment of bridge loan                                                   |  | 11   |  |   | (1,000,000 | ) |   | -          |  
|Exercise of
      stock options                                            |  | 17   |  |   | 3,900      |   |   | 600        |  
|Warrants exercised                                                         |  | 14   |  |   | -          |   |   | 6,879      |  
|Issuance of
      units related to private placements                      |  | 15   |  |   | -          |   |   | 448,558    |  
|Cash flows from financing activities                                       |  |      |  |   | (1,911,019 | ) |   | 444,434    |  
|Effect of exchange rate changes on cash                                    |  |      |  |   | (18,571    | ) |   | (46,339    | )
|Net increase in cash                                                       |  |      |  |   | 910        |   |   | 231,475    |  
|Cash, beginning of year                                                    |  |      |  |   | 810,745    |   |   | 579,270    |  
|Cash, end of year                                                          |  |      |  | $ | 811,655    |   | $ | 810,745    |  

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

6

---

|SAND Technology Inc.                                          
|--------------------------------------------------------------
|Notes to Consolidated Financial Statements                    
|July 31, 2012 and 2011                                        
|(Expressed in Canadian Dollars, unless otherwise
      stated)

|**1 -** | NATURE AND GENERAL BUSINESS DESCRIPTION
|------- | ---------------------------------------

SAND Technology Inc. is the ultimate
  parent company. It is domiciled in Canada and is a federally incorporated
  company under the Canada Business Corporations Act. SAND Technology Inc.
  maintains its registered office at 4115 Sherbrooke St. West, Westmount, Quebec,
  Canada, and is a publicly-traded company listed on the Over-the-Counter (OTC)
  Bulletin Board in the United States under the symbol SNDTF. Its fiscal year
  end is July 31.

SAND Technology Inc. and its
  wholly-owned subsidiaries (collectively the Company) are involved in the
  design, development, marketing and support of software products and services
  that reduce large amounts of data into a small footprint and enable users to
  retrieve usable business information from large amounts of data.

|***2 -*** | GOING CONCERN
|--------- | -------------

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

With the exception of the gain in the
  amount $8,571,967 realized from the sale of its SAP Information Lifecycle
  Management (ILM) Product Line, the Company has incurred operating losses in the
  past years and has accumulated a deficit of $42,130,308 as at July 31, 2012. The
  Company has also generated negative cash flows from operations. Historically,
  the Company financed its operating and capital requirements mainly through
  issuances of debt and equity. The Companys continuation as a going concern is
  dependent upon, amongst other things, attaining a satisfactory revenue level,
  the support of its customers, a return to profitable operations and the
  generation of cash from operations, the ability to secure new financing
  arrangements and new capital. These matters are dependent on a number of items
  outside of the Companys control. These material uncertainties cast substantial
  doubt regarding the Companys ability to continue as a going concern.

During the year ended July 31, 2012,
  the Company addressed some of the uncertainties described above by the following
  transactions:

| | 1. | It successfully sold its SAP ILM Product Line and
      realized a gain of $8,571,967;                                                                                                                                                                                                                        
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2. | It reimbursed the due to shareholders in the amount of
      $1,914,837;                                                                                                                                                                                                                                      
| | 3. | The Companys board of directors and management team
      initiated a review of the business, including consideration of all
      available strategic options, with the objective of maximizing value for
      shareholders.                                                                               
| | 4. | The Company reduced its workforce eliminating 20
      positions in Canada, the United Kingdom, the U.S., Australia and Germany
      in an effort to contain costs. This initiative allows the Company to
      further preserve capital while maintaining a core team to support the
      ongoing business;

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

7

---

|SAND Technology Inc.                                          
|--------------------------------------------------------------
|Notes to Consolidated Financial Statements                    
|July 31, 2012 and 2011                                        
|(Expressed in Canadian Dollars, unless otherwise
      stated)

|3 | -SIGNIFICANT ACCOUNTING
      POLICIES
|- | --------------------------------------

| | a) | Basis of Presentation and Statement of
      Compliance                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |    | The consolidated financial statements present the
      Companys consolidated balance sheets as at July 31, 2012, July 31, 2011
      and August 1, 2010, as well as its consolidated income, comprehensive
      income, cash flows, and changes in shareholders equity for the years
      ended July 31, 2012 and 2011. Until July 31, 2011, the Companys
      consolidated financial statements were prepared in accordance with
      Canadian Generally Accepted Accounting Principles (GAAP) that applied
      prior to the conversion to International Financial Reporting Standards
      (IFRS). In preparing these consolidated financial statements, management
      applied IFRS 1, First-time Adoption of International Financial Reporting
      Standards and amended certain recognition and measurement methods to
      comply with IFRS. The consolidated financial statements of the Company
      have been prepared in accordance with IFRS as issued by the International
      Accounting Standards Board. The comparative figures for 2011 were restated
      to reflect these adjustments. Certain reconciliations and descriptions of
      the effect of the transition from Canadian GAAP to IFRS on shareholders
      equity, comprehensive income and cash flows have been provided in Note
      25.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |    | The consolidated financial statements were approved and
      authorized for issue by the Board of Directors on November 28,
      2012.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | b) | Basis of Measurement                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |    | These consolidated financial statements have been
      prepared on the historical cost basis except for financial liabilities
      defined under IFRS as liabilities measured at fair value through profit
      and loss (FVTPL) which are measured at fair value.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | c) | Critical Accounting Estimates, Judgements and
      Assumptions                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |    | The preparation of the consolidated financial statements
      in conformity with IFRS requires management to make judgments, estimates
      and assumptions that affect the application of accounting policies and the
      reported amounts of assets, liabilities, income and expenses. Significant
      changes in the underlying assumptions could result in significant changes
      to these estimates. Consequently, management reviews these estimates on a
      regular basis. Revisions to accounting estimates are recognized in the
      period in which the estimates are revised and in any future periods
      affected. Information about these significant judgments, assumptions and
      estimates that have the most significant effect on the recognition and
      measurement of assets, liabilities, income and expenses are summarized
      below:                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |    | Impairments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |    | At the end of each reporting period the Company performs
      a test of impairment, if there are indicators of impairment. An impairment
      loss is recognized when the carrying value of an asset or cash generating
      unit exceeds its recoverable amount, which in turn is the higher of its
      fair value less costs to sell and its value in use. The value in use is
      based on discounted estimated future cash flows. The cash flows are
      derived from the budget or forecasts for the next five years and do not
      include restructuring activities that the Company is not yet committed to
      or significant future investments that will enhance the performance of the
      asset or cash generating unit being tested. The value in use will vary
      depending on the discount rate applied to the discounted cash flows, the
      estimated future cash inflows, and the growth rate used for extrapolation
      purposes.                                                                                                                                                                                                                                                                                                                                                                        

8

---

|SAND Technology Inc.                                          
|--------------------------------------------------------------
|Notes to Consolidated Financial Statements                    
|July 31, 2012 and 2011                                        
|(Expressed in Canadian Dollars, unless otherwise
      stated)

Deferred income taxesDeferred tax assets are recognized for unused tax losses and tax credits
  to the extent that it is probable that taxable income will be available against
  which the losses can be utilized. These estimates are reviewed at every
  reporting date. Significant management judgment is required to determine the
  amount of deferred tax assets that can be recognized, based upon the likely
  timing and the level of the reversal of existing timing differences, future
  taxable income and future tax planning strategies. Refer to Note 19 for more
  information regarding the income tax provisions.

Fair value measurement of financial
  instrumentsWhere the fair value of financial assets and financial
  liabilities recorded in the balance sheet cannot be derived from active markets,
  they are determined using valuation techniques including the discounted cash
  flows model. The inputs to these models are taken from observable markets where
  possible, but where this is not feasible, a degree of judgment is required in
  establishing fair values. The judgments include considerations of inputs such as
  liquidity risk, credit risk and volatility. Changes in assumptions about these
  factors could affect the reported fair value of financial instruments. Refer to
  23 for more information regarding the fair value measurement of financial
  instruments.

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

Allowance for doubtful accounts and
  revenue adjustmentsEach reporting period, the Company makes an
  assessment of whether accounts receivable are collectible from customers.
  Accordingly, management establishes an allowance for estimated losses arising
  from non-payment and other revenue adjustments, taking into consideration
  customer creditworthiness, current economic trends and past experience. If
  future collections and trends differ from estimates, future earnings will be
  affected. Refer to Note 8 and Note 23 for more information regarding the
  allowance for doubtful accounts and the related credit risks.

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

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

9

---

|SAND Technology Inc.                                          
|--------------------------------------------------------------
|Notes to Consolidated Financial Statements                    
|July 31, 2012 and 2011                                        
|(Expressed in Canadian Dollars, unless otherwise
      stated)

|d) | Basis of Consolidation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | The consolidated financial statements include the
      accounts of the parent Company and its wholly-owned subsidiaries, Sand
      Technology Deutschland GmbH, located in Germany, Sand Technology Limited,
      located in the United Kingdom, Sand Technology (Ireland) Limited, located
      in Ireland, Sand Technology Corp. and STSI Licensing, LLC, located in the
      United States and Sand Technology Pty Ltd, located in Australia.                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | All subsidiaries have a reporting date identical to that
      of the parent Company. Amounts reported in the financial statements of the
      subsidiaries follow the same accounting policies adopted by the parent
      Company.                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | All intercompany transactions and accounts have been
      eliminated on consolidation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|e) | Cash and Cash Equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | Cash includes cash on hand and demand deposits. The
      Company considers all highly liquid investments, with a maturity of three
      months or less, to be cash equivalents. There were no cash equivalents as
      of July 31, 2012, July 31, 2011 and August 1, 2010.                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|f) | Trade Receivables                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | Impairment of trade receivables is constantly monitored.
      Evidence of impairment may occur when the financial difficulties of a
      debtor become known or payment delays occur. Impairments are based on
      historical values, observed customer solvency, the aging of trade
      receivables and customer-specific and industry risks. In addition, the
      Company reviews external credit ratings as well as bank and trade
      references when available. As at July 31, 2012, July 31, 2011 and August
      1, 2010, the provision for doubtful accounts was nil.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|g) | Capital Assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | Capital assets are recorded at cost less accumulated
      depreciation and provisions for write-downs. When the cost of a part of an
      item of capital assets is significant in relation to the total cost of an
      item and the items have different useful lives, they are accounted for as
      separate items (major components) of capital assets.                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | Depreciation is calculated using the straight-line method
      to write-down the cost to its estimated residual value, with a constant
      charge over the estimated useful lives of the assets as
      follows:                                                                                                                                                                                                                                                                                                                                                                    

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

Material residual value estimates and
  estimates of useful life are updated as required, but at least annually.

h)Impairment of Capital Assets

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

10

---

|SAND Technology Inc.                                          
|--------------------------------------------------------------
|Notes to Consolidated Financial Statements                    
|July 31, 2012 and 2011                                        
|(Expressed in Canadian Dollars, unless otherwise
      stated)

|i) | Leased Assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | Leases in which a significant portion of the risks and
      rewards of ownership are retained by the lessor are classified as
      operating leases. Payments under an operating lease are charged to the
      consolidated statement of comprehensive income on a straight-line basis
      over the period of the lease. Related expenses, such as maintenance and
      insurance, are charged to income as incurred.                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|j) | Trade and Other Payables                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | Trade and other payables and accrued liabilities are
      obligations to pay for goods or services that have been acquired in the
      normal course of business. Trade and other payables and accrued
      liabilities are classified as current liabilities if payment is due within
      one year or less. If not, they are presented as non-current liabilities.
      Accounts payables and accrued liabilities are recognized initially at fair
      value plus transaction costs and subsequently measured at amortized cost
      using the effective interest method.                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|k) | Basic and Diluted Income (Loss) per Common
      Share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | Basic net income (loss) per share (Basic EPS) is
      computed by dividing net income (loss) available to common shareholders of
      the parent company by the weighted average number of common shares
      outstanding for the period.                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | Diluted earnings per share is computed by dividing
      adjusted net income available to common shareholders of the parent company
      by the weighted average number of common shares outstanding adjusted for
      the effects of all dilutive common share issuances. Dilutive common share
      issuances shall be deemed to have been converted into ordinary shares at
      the beginning of the period or if later, at the date of issue of the
      potential common shares.                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | For the purpose of calculating diluted earnings per
      share, the Company shall assume the exercise of dilutive stock options,
      warrants, debt conversion and interest expense paid in kind. The assumed
      proceeds from these instruments shall be regarded as having been received
      from the issue of common shares at the average market price of common
      shares during the period. The convertible debenture is antidilutive
      whenever its interest (net of tax and other changes in income or expense)
      per common share obtainable on conversion exceeds basic earnings per
      share.

11

---

|SAND Technology Inc.                                          
|--------------------------------------------------------------
|Notes to Consolidated Financial Statements                    
|July 31, 2012 and 2011                                        
|(Expressed in Canadian Dollars, unless otherwise
      stated)

|l) | Income Taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | The Company uses the liability method of accounting for
      income taxes under which deferred tax assets and liabilities are
      recognized for the estimated future tax consequences attributable to
      differences between the financial statement carrying amounts of existing
      assets and liabilities and their respective tax bases and operating loss
      and tax credit carryforwards. However, deferred tax is not provided on the
      initial recognition of goodwill or on the initial recognition of an asset
      or liability unless the related transaction is a business combination or
      affects tax or accounting profit. Deferred tax assets and liabilities are
      measured using enacted or substantially enacted tax rates in effect for
      the year in which those temporary differences are expected to be recovered
      or settled. The effect on deferred tax assets and liabilities of a change
      in tax rates is recognized as part of the provision for income taxes in
      the period that includes the enactment date. Deferred tax liabilities are
      always provided for in full. Deferred tax assets are recognized to the
      extent that it is probable that they will be able to be utilized against
      future taxable income. Deferred tax assets and liabilities are offset only
      when the Company has a right and intention to set off current tax assets
      and liabilities from the same taxation authority.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|m) | Deferred Lease Inducements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | Deferred lease inducements are being amortized on a
      straight-line basis over the term of the lease as a reduction of lease
      expense.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|n) | Convertible Debentures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | The component parts of compound financial instruments
      (convertible debenture) issued by the Company are usually classified
      separately as financial liabilities and equity in accordance with the
      substance of the contractual arrangements. Usually, the conversion option
      that will be settled by the exchange of a fixed amount of cash for a fixed
      number of the Companys own equity instruments is classified as an equity
      instrument. Since the instrument does not meet the fixed for fixed test,
      the conversion option is classified as a separate other financial
      liability.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | At the date of issue, the debt component is recognized at
      fair value, which is estimated using the prevailing market interest rate
      for similar non-convertible instruments. Subsequently, the debt component
      is measured at amortized cost.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | The value of the conversion option classified as other
      financial liability is determined at fair value at the date of issue. This
      amount is re-measured at every balance sheet date. When and if the
      conversion option is exercised, the liability component of convertible
      debentures will be transferred to share capital. If the conversion option
      remains unexercised at the maturity date of the convertible debenture, the
      liability component of the convertible debentures will be transferred to
      contributed surplus.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | Transaction costs that relate to the issue of the
      convertible debenture such as legal fees, that are directly attributable
      to the incurrence of financial liabilities are recorded directly in profit
      and loss.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|o) | Shareholders Equity                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | Share capital represents the amount received on the issue
      of shares, less issuance costs, net of any underlying income tax benefit
      from these issuance costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | Contributed surplus includes amounts related to stock
      options and warrants until such equity instruments are exercised in which
      case the amounts are transferred to share capital. Contributed surplus
      also includes equity component of convertible debentures when
      the conversion option remains unexercised at the maturity date of the
      convertible debentures.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

12

---

|SAND Technology Inc.                                          
|--------------------------------------------------------------
|Notes to Consolidated Financial Statements                    
|July 31, 2012 and 2011                                        
|(Expressed in Canadian Dollars, unless otherwise
      stated)

|   | Deficit includes all current and prior period retained
      profits or losses.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | Proceeds from unit placements are allocated between
      shares and warrants issued according to their relative fair value, using
      the Black-Scholes option pricing model to determine the fair value of the
      warrants, and using the quoted price of existing shares at the time of
      issuance to determine the fair value of the shares.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|p) | Foreign Currency Translation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | The Companys functional and reporting currency is the
      Canadian dollar. Transactions denominated in currencies other than the
      functional currency are converted into Canadian dollars using the exchange
      rate in effect at the date of the transaction or the average rate for the
      period in the case of recurring revenue and expense transactions. Monetary
      assets and liabilities are revalued into the functional currency at each
      balance sheet date using the exchange rate in effect at the balance sheet
      date, with any resulting exchange gains or losses being credited or
      charged to the profit or loss. Non-monetary assets and liabilities are
      recorded in the functional currency using the exchange rate in effect at
      the date of the transaction and are not revalued for subsequent changes in
      exchange rates.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|q) | Revenue Recognition                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | The Company generates revenues principally through the
      sale of software licences and services. Software licence revenues are
      normally generated from licensing the perpetual use of the Companys
      software products. Service revenues are generated from sales of
      maintenance, implementation, consulting and training services performed
      for customers that licence the Companys products.                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | Revenue from the sale of software licence agreements is
      recognized upon delivery of the software if persuasive evidence of an
      arrangement exists, collection is probable and the fee is fixed or
      determinable. Sale of software is recognised when the Company has
      transferred to the buyer the significant risk and rewards of ownership of
      the good supplied. Significant risks and rewards are generally considered
      to be transferred to the buyer when the customer has taken undisputed
      delivery of the goods.                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | Revenues from maintenance services for licences
      previously sold and implemented are recognized over the term of the
      contract.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | Revenues from sales with extended payment terms are
      recognized when collectability is reasonably assured.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | Revenues from consulting and training services not
      considered as a part of the implementation of software licences are
      recognized as the services are provided.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | Amounts received in advance of the delivery of products
      or of the performance of services are classified as deferred revenue.
      Revenues recognized in advance of invoicing to the customer are recorded
      as unbilled receivables where the collection of the receivable is
      probable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

13

---

|SAND Technology Inc.                                          
|--------------------------------------------------------------
|Notes to Consolidated Financial Statements                    
|July 31, 2012 and 2011                                        
|(Expressed in Canadian Dollars, unless otherwise
      stated)

|r) | Research and Development Costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | Research costs are charged to operations in the period in
      which they are incurred. Development costs are expensed as incurred unless
      a project meets the criteria under IFRS to be capitalized as an intangible
      asset. The Company has not met this criteria to date.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|s) | Tax Credits                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | The Company is entitled to scientific research and
      experimental development tax credits (research tax credits) granted by
      the Canadian federal government and the government of the province of
      Quebec. Federal research tax credits, which are non-refundable, are earned
      on qualified research and development expenditures and can only be used to
      offset federal income taxes otherwise payable. Provincial research tax
      credits, which are refundable, are earned on qualified research and
      development expenditures incurred in the province of Quebec. Research tax
      credits must be reviewed and approved by the tax authorities and it is
      possible that the amounts granted will differ from the amounts
      recorded.                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | The Company is also entitled to refundable tax credits
      for the development of e-business in information technologies. Such
      credits are earned at an annual rate of 30% of salaries paid to eligible
      employees engaged in eligible activities, to a maximum annual tax credit
      of $20,000 per eligible employee. These credits are recognized when there
      is reasonable assurance that the Company has met the requirements of the
      program and there is reasonable assurance that the sums will be received.
      The tax credits are subject to the receipt of an eligibility certificate
      each year confirming that the Company has met the eligibility
      criteria.                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | Research and development tax and e-business credits
      relating to eligible expenditures are included in earnings against the
      related expenses in the period in which the expenditures are incurred,
      provided that the Company is reasonably certain that the credits will be
      received.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|t) | Employee Benefits                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | Short-term employee benefits                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | Short-term employee benefits include wages, salaries,
      compensated absences, and bonuses. Short-term employee benefit obligations
      are measured on an undiscounted basis and are expensed as the related
      service is provided.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | A liability is recognized for the amount expected to be
      paid under short-term cash bonus if the Company has a present legal or
      constructive obligation to pay this amount as a result of past service
      provided by the employee, and the obligation can be estimated
      reliably.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | Termination benefits                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | Termination benefits are recognized as an expense when
      the Company is committed demonstrably, without realistic possibility of
      withdrawal, to a formal detailed plan or through a contractual agreement,
      to either terminate employment before the normal retirement date, or to
      provide termination benefits as a result of an offer made to encourage
      voluntary redundancy. Termination benefits for voluntary redundancies are
      recognized as an expense if the Company has made an offer of voluntary
      redundancy, it is probable that the offer will be accepted, and the number
      of acceptances can be estimated reliably. If benefits are payable more
      than twelve months after the reporting period, then they are discounted to
      their present value.

14

---

|SAND Technology Inc.                                          
|--------------------------------------------------------------
|Notes to Consolidated Financial Statements                    
|July 31, 2012 and 2011                                        
|(Expressed in Canadian Dollars, unless otherwise
      stated)

|u) | Share-Based Payments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | The Company has a share-based employee compensation plan
      that grants stock options to executive officers, directors, full-time
      employees and consultants. This plan is classified as an equity-settled
      plan. The fair value of the service is measured indirectly by reference to
      the fair value of the equity instruments granted as at the date of the
      grant. The expense is recognized over the vesting period of the options
      granted, and is recognized as an expense in earnings with a corresponding
      credit to contributed surplus. Forfeitures are estimated at the time of
      the grant and are included in the measurement of the expense and are
      subsequently adjusted to reflect actual events.                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | At the end of each reporting period, the Company
      re-assesses its estimate of the number of stock options that are expected
      to vest and recognizes the impact of any revisions in earnings. No
      adjustment is made to any expense recognized in prior periods if the
      options ultimately exercised are different to that estimated on
      vesting.                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | Any consideration paid by employees and directors on
      exercise of stock options is credited to share capital together with any
      related share-based compensation expense originally recorded in
      contributed surplus.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|v) | Provisions and Contingent Liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | Provisions for product warranties, legal disputes,
      onerous contracts or other claims are recognized when the Company has a
      present legal or constructive obligation as a result of a past event, it
      is probable that an outflow of economic resources will be required from
      the Company and amounts can be estimated reliably. Timing or amount of the
      outflow may still be uncertain.                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | Provisions are measured at the estimated expenditure
      required to settle the present obligation, based on the most reliable
      evidence available at the reporting date, including the risks and
      uncertainties associated with the present obligation. Where there are a
      number of similar obligations, the likelihood that an outflow will be
      required in settlement is determined by considering the class of
      obligations as a whole. Provisions are discounted to their present value,
      where the time value of money is material.                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | In those cases where the possible outflow of economic
      resources as a result of present obligations is considered improbable or
      remote, no liability is recognized.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|w) | Financial Assets and Liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | Recognition, initial measurement and
      de-recognition                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | Financial assets and financial liabilities are recognised
      when the Company becomes a party to the contractual provisions of the
      financial instrument and are measured initially at fair value adjusted by
      transactions costs, except for those carried at fair value through profit
      or loss which are measured initially at fair value. Subsequent measurement
      of financial assets and financial liabilities are described below.
      Financial assets are derecognised when the contractual rights to the cash
      flows from the financial asset expire, or when the financial asset and all
      substantial risks and rewards are transferred. A financial liability is
      derecognised when it is extinguished, discharged, cancelled or
      expires.

15

---

|SAND Technology Inc.                                          
|--------------------------------------------------------------
|Notes to Consolidated Financial Statements                    
|July 31, 2012 and 2011                                        
|(Expressed in Canadian Dollars, unless otherwise
      stated)

|   | Classification and subsequent measurement of financial
      assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | For the purpose of subsequent measurement, the Companys
      financial assets are classified into the following categories upon initial
      recognition: [] loans and receivables                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | All financial assets except for those at fair value
      through profit or loss (FVTPL) are subject to review for impairment at
      least at each reporting date to identify whether there is any objective
      evidence that a financial asset or a group of financial assets is
      impaired. Different criteria to determine impairment are applied for each
      category of financial assets, which are described below. All income and
      expenses relating to financial assets that are recognised in profit or
      loss are presented within net finance expense, finance income or other
      financial items, except for the impairment of trade receivables which is
      presented within selling, general and administrative expenses.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | Loans and receivables                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | Loans and receivables are non-derivative financial assets
      with fixed or determinable payments that are not quoted in an active
      market. After initial recognition, these are measured at amortised cost
      using the effective interest method, less provision for impairment.
      Discounting is omitted where the effect of discounting is immaterial. The
      Companys cash, trade and other receivables, except for sales tax
      receivable fall into this category of financial instruments.                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | Individually significant receivables are considered for
      impairment when they are past due or when other objective evidence is
      received that a specific counterparty will default.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | Classification and subsequent measurement of financial
      liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | The Companys financial liabilities include trade and
      other payables, except for sales tax payable, due to shareholders,
      convertible debentures and other financial liabilities. Financial
      liabilities, except for other financial liabilities, are measured at
      amortised cost using the effective interest rate method, Other financial
      liabilities are designated at fair value through profit or loss and are
      carried subsequently at fair value with gains or losses recognized in
      profit or loss.                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|x) | Fair Value Measurements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | The Company determines fair value using a fair value
      hierarchy that distinguishes between market participant assumptions
      developed based on market data (observable inputs) obtained from sources
      independent of the reporting entity, and a reporting entitys own
      assumptions (unobservable inputs) about market participant assumptions
      developed based on the best information available in the
      circumstances.                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | Fair value is the price that would be received to sell an
      asset or paid to transfer a liability in the Companys principal or most
      advantageous market for the asset or liability in an orderly transaction
      between market participants at the measurement date, essentially the exit
      price.                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | A financial instruments level within the fair
      value hierarchy is based on the lowest level of any input that is
      significant to the fair value measurement. However, the determination of
      what constitutes observable requires significant judgment by the
      Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

16

---

|SAND Technology Inc.                                          
|--------------------------------------------------------------
|Notes to Consolidated Financial Statements                    
|July 31, 2012 and 2011                                        
|(Expressed in Canadian Dollars, unless otherwise
      stated)

The levels of fair value hierarchy are
  as follows:

- Level one  Unadjusted quoted market prices in
      active markets for identical assets or liabilities;
- Level two  Inputs other than level one inputs that
      are either directly or indirectly observable; and
- Level three  Unobservable inputs developed using
      estimates and assumptions, which are developed by the reporting entity and
      reflect those assumptions that a market participant would use.

|y) | Standards, amendments and interpretations to existing
      standards that are not yet effective and have not been adopted early by
      the Company                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | At the date of authorization of these consolidated
      financial statements, certain new standards, amendments and
      interpretations to existing standards have been published by the IASB but
      are not yet effective, and have not been adopted early by the
      Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | Management anticipates that all of the relevant
      pronouncements will be adopted in the Companys accounting policies for
      the first period beginning after the effective date of the pronouncement.
      Information on new standards, amendments and interpretations that are
      expected to be relevant to the Companys financial statements are provided
      below. Certain other new standards and interpretations have been issued
      but are not expected to have a material impact on the Companys financial
      statements.                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | IFRS 13 Fair Value Measurement (IFRS 13)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | IFRS 13 does not affect which items are required to be
      fair-valued, but clarifies the definition of fair value and provides
      related guidance and enhanced disclosures about fair value measurements.
      It is applicable for annual periods beginning on or after January 1, 2013.
      The Companys management have yet to assess the impact of this new
      standard.                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | IFRS 9 Financial Instruments (IFRS 9)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | The IASB aims to replace IAS 39 Financial Instruments:
      Recognition and Measurement in its entirety. IFRS 9 is being issued in
      phases. To date, the chapters dealing with recognition, classification,
      measurement and de-recognition of financial assets and liabilities have
      been issued. These chapters are effective for annual periods beginning
      January 1, 2015. Further chapters dealing with impairment methodology and
      hedge accounting are still being developed. The Companys management have
      yet to assess the impact of this new standard on the Companys
      consolidated financial statements. However, they do not expect to
      implement IFRS 9 until all of its chapters have been published and they
      can comprehensively assess the impact of all
      changes.

17

---

|SAND Technology Inc.                                          
|--------------------------------------------------------------
|Notes to Consolidated Financial Statements                    
|July 31, 2012 and 2011                                        
|(Expressed in Canadian Dollars, unless otherwise
      stated)

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

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

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

|4 | -RESEARCH AND DEVELOPMENT
      COSTS
|- | -------------------------------------

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

| |                                              |   | July 31,  |   |   | July 31,  |  
| | -------------------------------------------- | - | --------- | - | - | --------- | -
| |                                              |   | 2012      |   |   | 2011      |  
| |                                              |   |           |   |   |           |  
| | Research and development costs               | $ | 1,616,537 |   | $ | 1,549,671 |  
| | Government assistance Investment tax credits |   | (175,000  | ) |   | (325,708  | )
| |                                              | $ | 1,441,537 |   | $ | 1,223,963 |  

|5 | NET FINANCE
      EXPENSE
|- | --------------------------

| |                                                     |   | July 31, |   |   | July 31, |  
| | --------------------------------------------------- | - | -------- | - | - | -------- | -
| |                                                     |   | 2012     |   |   | 2011     |  
| |                                                     |   |          |   |   |          |  
| | Accretion interest on convertitble
      debentures | $ | 137,407  |   | $ | 49,640   |  
| | Change in fair value of other financial liabilities |   | (160,949 | ) |   | (27,714  | )
| | Accreted interest on bridge loan                    |   | 220,321  |   |   | -        |  
| | Interest expense - due to shareholders              |   | 84,315   |   |   | 261,310  |  
| | Other Interest                                      |   | 48,087   |   |   | 14,642   |  
| | Net foreign exchange loss                           |   | 368,887  |   |   | 72,146   |  
| | Net finance expense                                 | $ | 698,068  |   | $ | 370,024  |  

18

---

|SAND Technology Inc.                                          
|--------------------------------------------------------------
|Notes to Consolidated Financial Statements                    
|July 31, 2012 and 2011                                        
|(Expressed in Canadian Dollars, unless otherwise
      stated)

|6 |  INFORMATION INCLUDED IN CONSOLIDATED STATEMENT OF
      COMPREHENSIVE INCOME
|- | ------------------------------------------------------------------------------

| | Employee benefits            |   |           |  |   |           | 
| | ---------------------------- | - | --------- |  | - | --------- | 
| |                              |   | July 31,  |  |   | July 31,  | 
| |                              |   | 2012      |  |   | 2011      | 
| |                              |   |           |  |   |           | 
| | Wages, salaries and benefits | $ | 4,635,688 |  | $ | 4,791,750 | 
| | Share-based compensation     |   | 404,447   |  |   | 908,806   | 
| |                              | $ | 5,040,135 |  | $ | 5,700,556 | 

Depreciation expense of capital assets
  for the years ended July 31, 2012 and 2011 amounted to $57,577 and $40,597
  respectively.

|7 |  DISCONTINUED OPERATIONS
|- | -------------------------

On October 4, 2011, the Company
  completed the sale of its SAP Information Lifecycle Management (ILM) Product
  Line to a third party for a consideration of $8,439,200 (US$8,000,000). After
  deductions for earn-out milestones, customers consent holdback, an escrow
  amount relating to representations and warranties and other amounts, the Company
  received proceeds of $7,443,530 (US$7,200,000) during the year ended July 31,
  2012. The Company anticipates it will be able to meet all its obligations under
  the asset purchase agreement governing this transaction to collect the remaining
  amount due from the sale and an amount $790,320 (US$800,000) was recorded in
  other receivables.

As a result of this transaction, the
  Company recorded a gain of $8,571,967 taking into account the full proceeds from
  the sale that are expected to be recovered (including the transfer of deferred
  revenues and other working capital elements of $350,650), reduced by a small
  amount of capital assets transferred and legal and personnel expenses incurred
  of $217,883. The Company will not have any income taxes to pay on this
  transaction as it has sufficient income tax loss carryforwards from prior years
  to offset the gain.

As a result of the sale of its SAP
  Information Lifecycle Management (ILM) Product Line, the Company has presented,
  for the years ended July 31, 2012 and 2011, the net earnings from this business
  segment separately in the consolidated statement of operations. The net earnings
  are comprised of the revenues derived from and the direct costs associated with
  the business segment, as follows:

19

---

|SAND Technology Inc.                                          
|--------------------------------------------------------------
|Notes to Consolidated Financial Statements                    
|July 31, 2012 and 2011                                        
|(Expressed in Canadian Dollars, unless otherwise
      stated)

| |                                                               |   | July 31,   |  |   | July 31,   | 
| | ------------------------------------------------------------- | - | ---------- |  | - | ---------- | 
| |                                                               |   | 2012       |  |   | 2011       | 
| |                                                               |   |            |  |   |            | 
| | Revenue                                                       | $ | 574,464    |  | $ | 2,237,978  | 
| | Direct costs                                                  |   | 294,804    |  |   | 784,614    | 
| | Earnings before income taxes                                  |   | 279,660    |  |   | 1,453,364  | 
| | Gain on sale of discontinued operations                       |   | 8,571,967  |  |   |            | 
| | Income taxes                                                  |   | -          |  |   | -          | 
| | Net earnings and cashflows generated                          | $ | 8,851,627  |  | $ | 1,453,364  | 
| |                                                               |   |            |  |   |            | 
| | Basic earnings per share from discontinued operations         | $ | 0.45       |  | $ | 0.08       | 
| | Diluted earnings per share from
      discontinued operations | $ | 0.45       |  | $ | 0.08       | 
| |                                                               |   |            |  |   |            | 
| | Basic weighted average number of common
      shares          |   | 19,466,896 |  |   | 17,048,978 | 
| | Diluted weighted average number of common shares              |   | 19,574,398 |  |   | 17,048,978 | 

|8 | TRADE AND OTHER
      RECEIVABLES
|- | ----------------------------------

| |                      |   | July 31, |  |   | July 31, |  |   | August 1, | 
| | -------------------- | - | -------- |  | - | -------- |  | - | --------- | 
| |                      |   | 2012     |  |   | 2011     |  |   | 2010      | 
| |                      |   |          |  |   |          |  |   |           | 
| | Trade receivables    | $ | 307,937  |  | $ | 541,959  |  | $ | 739,144   | 
| | Sales tax receivable |   | 168,896  |  |   | -        |  |   | -         | 
| |                      | $ | 476,833  |  | $ | 541,959  |  | $ | 739,144   | 

Since most of the Companys customers
  are relatively large companies in various industries and with a strong history
  of payment, the allowance for doubtful accounts was nil as at July 31, 2012 and
  2011 and August 1, 2010.

The carrying amounts of the Companys
  trade receivables are denominated in the following currencies:

| |                    |   | July 31, |  |   | July 31, |  |   | August 1, | 
| | ------------------ | - | -------- |  | - | -------- |  | - | --------- | 
| |                    |   | 2012     |  |   | 2011     |  |   | 2010      | 
| |                    |   |          |  |   |          |  |   |           | 
| | Canadian dollars   | $ | 9,884    |  | $ | 22,527   |  | $ | 41,103    | 
| | US dollars         |   | 158,650  |  |   | 168,451  |  |   | 51,259    | 
| | UK Pounds          |   | 51,110   |  |   | -        |  |   | 545,979   | 
| | Euros              |   | 87,424   |  |   | 350,981  |  |   | 100,803   | 
| | Australian dollars |   | 869      |  |   | -        |  |   | -         | 
| |                    | $ | 307,937  |  | $ | 541,959  |  | $ | 739,144   | 

20

---

|SAND Technology Inc.                                          
|--------------------------------------------------------------
|Notes to Consolidated Financial Statements                    
|July 31, 2012 and 2011                                        
|(Expressed in Canadian Dollars, unless otherwise
      stated)

|9 | OTHER
      RECEIVABLES
|- | ------------------------

| |                                                      |  |      |  |   | July 31, |  |   | July 31, |  |   | August 1, | 
| | ---------------------------------------------------- |  | ---- |  | - | -------- |  | - | -------- |  | - | --------- | 
| |                                                      |  | Note |  |   | 2012     |  |   | 2011     |  |   | 2010      | 
| |                                                      |  |      |  |   |          |  |   |          |  |   |           | 
| | Long-term trade receivables                          |  |      |  | $ | 184,965  |  | $ | -        |  | $ | -         | 
| | Receivable from the sale of the SAP ILM product line |  | 7    |  |   | 790,320  |  |   | -        |  |   | -         | 
| |                                                      |  |      |  | $ | 975,285  |  | $ | -        |  | $ | -         | 

|10 | CAPITAL
      ASSETS
|-- | ---------------------

| |                              |   |           |   |   |               |   |   | Research and |  |   |              |  |   |           |  
| | ---------------------------- | - | --------- | - | - | ------------- | - | - | ------------ |  | - | ------------ |  | - | --------- | -
| |                              |   | Computer  |   |   | Furniture and |   |   | development  |  |   | Leasehold    |  |   |           |  
| |                              |   | equipment |   |   | equipment     |   |   | equipment    |  |   | improvements |  |   | Total     |  
| | Cost                         |   |           |   |   |               |   |   |              |  |   |              |  |   |           |  
| | Balance as at August 1, 2010 | $ | 325,132   |   | $ | 569,433       |   | $ | 161,565      |  | $ | 294,287      |  | $ | 1,350,417 |  
| | Additions                    |   |           |   |   | 13,333        |   |   | 14,546       |  |   | 29,557       |  |   | 57,436    |  
| | Disposal                     |   | (210,994  | ) |   | (37,875       | ) |   |              |  |   | -            |  |   | (248,869  | )
| | Balance as at July 31, 2011  |   | 114,138   |   |   | 544,891       |   |   | 176,111      |  |   | 323,844      |  |   | 1,158,984 |  
| | Balance as at July 31, 2011  | $ | 114,138   |   | $ | 544,891       |   | $ | 176,111      |  | $ | 323,844      |  | $ | 1,158,984 |  
| | Additions                    |   | -         |   |   | 5,749         |   |   | 1,094        |  |   | 345,725      |  |   | 352,568   |  
| | Disposal                     |   | (3,155    | ) |   | -             |   |   | -            |  |   | -            |  |   | (3,155    | )
| | Balance as at July 31, 2012  | $ | 110,983   |   | $ | 550,640       |   | $ | 177,205      |  | $ | 669,569      |  | $ | 1,508,397 |  

| |                              |   |           |   |   |               |   |   | Research and |  |   |              |  |   |           |  
| | ---------------------------- | - | --------- | - | - | ------------- | - | - | ------------ |  | - | ------------ |  | - | --------- | -
| |                              |   | Computer  |   |   | Furniture and |   |   | development  |  |   | Leasehold    |  |   |           |  
| |                              |   | equipment |   |   | equipment     |   |   | equipment    |  |   | improvements |  |   | Total     |  
| | Accumulated depreciation     |   |           |   |   |               |   |   |              |  |   |              |  |   |           |  
| | Balance as at August 1, 2010 | $ | 307,120   |   | $ | 546,563       |   | $ | 154,527      |  | $ | 277,719      |  | $ | 1,285,929 |  
| | Depreciation                 |   | 2,611     |   |   | 15,016        |   |   | 6,300        |  |   | 16,670       |  |   | 40,597    |  
| | Disposal and write-offs      |   | (211,028  | ) |   | (37,875       | ) |   | -            |  |   | -            |  |   | (248,903  | )
| | Balance as at July 31, 2011  |   | 98,703    |   |   | 523,704       |   |   | 160,827      |  |   | 294,389      |  |   | 1,077,623 |  
| | Balance as at July 31, 2011  | $ | 98,703    |   | $ | 523,704       |   | $ | 160,827      |  | $ | 294,389      |  | $ | 1,077,623 |  
| | Depreciation                 |   | 5,706     |   |   | 5,814         |   |   | 7,304        |  |   | 38,753       |  |   | 57,577    |  
| | Disposals                    |   | (3,155    | ) |   | -             |   |   | -            |  |   | -            |  |   | (3,155    | )
| | Balance as at July 31, 2012  | $ | 101,254   |   | $ | 529,518       |   | $ | 168,131      |  | $ | 333,142      |  | $ | 1,132,045 |  

21

---

|SAND Technology Inc.                                          
|--------------------------------------------------------------
|Notes to Consolidated Financial Statements                    
|July 31, 2012 and 2011                                        
|(Expressed in Canadian Dollars, unless otherwise
      stated)

| |                              |   |           |  |   |               |  |   | Research and |  |   |              |  |   |         | 
| | ---------------------------- | - | --------- |  | - | ------------- |  | - | ------------ |  | - | ------------ |  | - | ------- | 
| |                              |   | Computer  |  |   | Furniture and |  |   | development  |  |   | Leasehold    |  |   |         | 
| |                              |   | equipment |  |   | equipment     |  |   | equipment    |  |   | improvements |  |   | Total   | 
| | Carrying amounts             |   |           |  |   |               |  |   |              |  |   |              |  |   |         | 
| | Balance as at August 1, 2010 | $ | 18,012    |  | $ | 22,870        |  | $ | 7,038        |  | $ | 16,568       |  | $ | 64,488  | 
| | Balance as at July 31, 2011  |   | 15,435    |  |   | 21,187        |  |   | 15,284       |  |   | 29,455       |  |   | 81,361  | 
| | Balance as at July 31, 2012  |   | 9,729     |  |   | 21,122        |  |   | 9,074        |  |   | 336,427      |  |   | 376,352 | 

|11 |  BRIDGE LOAN
|-- | -------------

On September 7, 2011, the Company
  completed a bridge loan with a group of investors. The bridge loan consisted of
  a loan of $1,000,000 to the Company in exchange for a promissory note of
  $1,000,000 and 500,000 warrants. The promissory note had a maturity date of
  November 30, 2011 with an interest rate of 15%. The interest on the promissory
  note was prepaid from the proceeds of the loan. Each of the 500,000 warrants
  issued allowed the investors to purchase 1 common share at a price of $0.50 per
  warrant. The warrants expire on September 7, 2014. The bridge loan was repaid in
  its entirety at the maturity date of November 30, 2011.

The Company allocated the proceeds from
  the bridge loan between the loan and the warrants according to their relative
  fair value, using the Black-Scholes option pricing model to determine the fair
  value of the warrants. The fair value allocated to the loan was estimated at
  $779,679 and was recorded in current liabilities. The fair value allocated to
  the warrants was estimated at $220,321 and was recorded in contributed surplus.
  The fair value of the warrants at the time of the completion of the bridge loan
  was estimated using the Black-Scholes option pricing model with the following
  assumptions:

| | Share price             | $ | 0.58    | 
| | ----------------------- | - | ------- | 
| | Dividend yield          |   | -       | 
| | Expected volatility     |   | 252%    | 
| | Risk free interest rate |   | 3.00%   | 
| | Expected life           |   | 3 years | 

Expected volatility was calculated
  using the average closing price change on the Over-The-Counter Bulletin Board
  for 3 years prior to the issue date of the warrants.

|***12*** | TRADE AND OTHER PAYABLES
|--------- | ------------------------

| |                                        |   | July 31, |  |   | July 31, |  |   | August 1, | 
| | -------------------------------------- | - | -------- |  | - | -------- |  | - | --------- | 
| |                                        |   | 2012     |  |   | 2011     |  |   | 2010      | 
| |                                        |   |          |  |   |          |  |   |           | 
| | Trade payables and accrued liabilities | $ | 584,517  |  | $ | 690,282  |  | $ | 834,371   | 
| | Salaries and commission payable        |   | 12,582   |  |   | 74,952   |  |   | 57,186    | 
| | Sales tax payable                      |   | -        |  |   | 11,389   |  |   | 66,884    | 
| | Payable to certain board membeers      |   | 80,000   |  |   | -        |  |   | -         | 
| | Advance from a private investor        |   | -        |  |   | -        |  |   | 25,708    | 
| |                                        | $ | 677,099  |  | $ | 776,623  |  | $ | 984,149   | 

22

---

|SAND Technology Inc.                                          
|--------------------------------------------------------------
|Notes to Consolidated Financial Statements                    
|July 31, 2012 and 2011                                        
|(Expressed in Canadian Dollars, unless otherwise
      stated)

The advance from a private investor was
  settled as part of the private placement completed on March 17, 2011 (Note
  15b)).

|13 | -DUE TO SHAREHOLDERS AND RELATED PARTY
      TRANSACTIONS
|-- | ---------------------------------------------------------

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

| | (a) | During fiscal year 2011 and fiscal year 2010, the Company
      obtained various loans from the former Chief Executive Officer, who is
      also a shareholder, in the form of Promissory Notes for a total amount of
      $341,621 (US$325,000) of which $41,728 (US$40,000) was provided in 2011and
      $299,893 (US$285,000)) was provided in 2010. Under the terms of the
      Promissory Notes, the amounts are repayable within 30 days of receipt of a
      written demand from the note holder. The Promissory Notes bear interest at
      10% payable on the last business day of each calendar month. As at July
      31, 2010, an amount of $300,893 (US$287,847), including accrued interest
      of $2,927 (US$2,847), was outstanding on the Promissory Notes. During the
      year ended July 31, 2011, a private placement was completed (Note 15)
      which converted the principal value amounting to $341,621 (US$325,000) of
      the Promissory Notes. As at July 31, 2012, an amount of accrued interest
      of nil was outstanding (July 31, 2011 - $22,014 (US$23,040); August 1,
      2010 - nil).                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | (b) | During fiscal year 2009, the Company formalized the
      conditions pertaining to a loan obtained from a significant shareholder.
      The loan originated from amounts owed by the Company to the shareholder by
      virtue of his previous employment contracts as President and Chief
      Executive Officer. The significant shareholder ceased to be President and
      Chief Executive Officer on November 1, 2009. The total amount owing under
      the loan agreement as at November 1, 2009 was $1,466,677. Under the terms
      of the loan agreement, the loan is repayable in three (3) principal annual
      instalments of $488,892 over 3 years on January 1, 2011, 2012 and 2013.
      The loan bears interest at 15% that is payable semi-annually on January 1
      and June 30 of each year. The amount may be prepaid at any time by the
      Company without penalty. In the event of default to pay an amount when
      due, the significant shareholder shall have the right to convert all
      outstanding amounts owed to him hereunder into common shares of the
      Company based on the average closing price of the shares on the OTC
      Bulletin Board for the month immediately preceding the month in which such
      right is exercised. In addition and also upon
      default,  the significant shareholder shall have
      the right to require the Company to purchase all common shares in the capital
      stock of the Company owned directly or indirectly by the significant shareholder
      at a purchase price per share equal to the greater of:

23

---

|SAND Technology Inc.                                          
|--------------------------------------------------------------
|Notes to Consolidated Financial Statements                    
|July 31, 2012 and 2011                                        
|(Expressed in Canadian Dollars, unless otherwise
      stated)

| | i)  | the average closing price of the shares on the OTC
      Bulletin Board over the previous 30-day period plus 15%, or
| | --- | --------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                     
| | ii) | the book value of the shares as determined by the
      auditors of the Company.                                    

| |     | As at July 31, 2011, the Company was in default as it did
      not make its January 1, 2011 installment. However, a Standstill Agreement
      was signed between the Company and the significant shareholder, effective
      February 1, 2011, and the default was cured during the three months ended
      October 31, 2011 as the Company paid the significant shareholder a
      pro-rata amount of $1,329,781 from the initial proceeds received on the
      transaction described in Note 7. During the year, the Company paid out the
      remainder of the amount outstanding. The Company received a full release
      of the associated hypothec.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     | As at July 31, 2012, no amount was outstanding under the
      loan agreement. As at July 31, 2011 $1,685,411 including accrued interest
      of $481,751 was outstanding under the loan agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | (c) | The former President and Chief Executive Officer was
      entitled to, under his previous employment contracts, bonuses based on the
      achievement of gross revenues resulting from the licensing, sale or other
      disposition of the Companys Nucleus software products. The bonuses
      terminated effective November 1, 2009 when he ceased to be the President
      and Chief Executive Officer. As at July 31, 2012, July 31, 2011 and August
      1, 2010, bonuses payable amounted to nil, $165,386 and $165,386,
      respectively.                                                                                                        
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | (d) | The Company, effective November 1, 2009, also signed a
      consulting agreement with the former President and Chief Executive
      Officer. The agreement provides for a fixed payment on the first of each
      month in the amount of $21,013 and expired on October 31, 2011. Payments
      made under the consulting agreement during the year ended July 31, 2012
      amounted to $105,065 with a balance owing at July 31, 2012 of nil.
      Payments made under the consulting agreement during the year ended July
      31, 2011 amounted to $210,130 with a balance owing at July 31, 2011 of
      $42,026 (August 1, 2010  nil).             

During fiscal year 2008, an
  inter-creditor priority agreement was signed between the former President and
  Chief Executive Officer and significant shareholder (loans disclosed under b),
  c) and d) above) and the holders of the secured convertible debentures
  (collectively the parties), at the time when the Company issued the secured
  convertible debentures described in Note 14. The parties agreed that the sums
  owing under the secured convertible debentures will be paid by the Company to
  the convertible debenture holders in priority to the sums owed by the Company to
  the principal shareholder. Specifically, for every $2 paid to the convertible
  debenture holders, the Company shall remit $1 to the significant shareholder,
  representing the repayment of principal only. Following the formalization of the
  loan received from the significant shareholder, including the scheduled
  repayment as described in Note 13b), the inter-creditor priority agreement was
  amended on October 31, 2009 pursuant to which the parties agreed that the sums
  owing under the convertible debentures will be paid by the Company to the
  holders of the convertible debentures pari passu to the sums owing by the
  Company to the significant shareholder such that for every $1 paid to the
  convertible debenture holders, the Company shall remit $1 to the significant
  shareholder.

Mr. ODonnell, former Chief Executive
  Officer of the Company, purchased in April 2008, 334 units of the convertible
  debentures issued at that time. Please refer to note 14  Convertible
  Debentures.

24

---

|SAND Technology Inc.                                          
|--------------------------------------------------------------
|Notes to Consolidated Financial Statements                    
|July 31, 2012 and 2011                                        
|(Expressed in Canadian Dollars, unless otherwise
      stated)

Key Management Personnel

In addition to the amount due to
  shareholders as described above, related party transactions that the Company
  incurs include those with key management personnel which consist of the Chief
  Executive Officer, the President, the Chief Financial Officer and the
  Vice-President of Research and Development along with other members of the board
  of directors. They control 14.2% of the voting shares of the Company.

Key management personnel compensation
  is comprised of the following for the years ended July 31, 2012 and 2011:

| |                                                                                                                    |   | July 31,  |  |   | July 31,  | 
| | ------------------------------------------------------------------------------------------------------------------ | - | --------- |  | - | --------- | 
| |                                                                                                                    |   | 2012      |  |   | 2011      | 
| | Wages, salaries, bonus and other short-term
      benefits, including amounts paid through their holding companies | $ | 1,193,253 |  | $ | 799,738   | 
| | Share-based compensation                                                                                           |   | 185,069   |  |   | 710,034   | 
| |                                                                                                                    | $ | 1,378,322 |  | $ | 1,509,772 | 

During the fourth quarter, senior
  management including the Chief Executive Officer, the President, the Chief
  Financial Officer and the Vice-president of Research and Development left the
  Company. The board of directors retained the services of a strategic advisor and
  a financial consultant to assist them in fulfilling the responsibilities
  normally associated with these positions.

The transactions with related parties
  occurred in the normal course of business. All outstanding balances with these
  related parties are to be settled in cash within twelve months of the reporting
  date.

|14 | - CONVERTIBLE DEBENTURES
|-- | ------------------------

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

25

---

|SAND Technology Inc.                                          
|--------------------------------------------------------------
|Notes to Consolidated Financial Statements                    
|July 31, 2012 and 2011                                        
|(Expressed in Canadian Dollars, unless otherwise
      stated)

Certain warrant holders exercised their
  Warrant Shares associated with the secured convertible debentures prior to their
  expiry date of April 18, 2011. As a result of ratchet provisions contained in
  the warrant security, the exercise price was reduced from US$0.70 per Warrant
  Share to CDN $0.01 per Warrant Share. On May 5, 2011, the Company issued 780,000
  common shares pursuant to the exercise of the Warrants for proceeds of $6,879
  (US$7,800) while 334,000 warrants expired.

For accounting purposes, the debenture
  contains both a debt component and other financial liability component being the
  share warrants, the conversion option and the interest payable in shares. The
  Company allocated the proceeds from the convertible debenture between the debt
  component and the other financial liability according to their relative fair
  value:

- The debt component of the Convertible Debentures
      was originally calculated at fair value. The effective interest rate
      determined at the time was 15% and the amount calculated at the issue date was
      $461,735. The carrying value of the debt is being accreted to its face value
      over its life to maturity. The accretion expense, being the amortization of
      the convertible debenture discount, is included in net finance expense in the
      statement of comprehensive income. The accretion expense recorded for the
      years ended July 31, 2012 and 2011 was $137,407 and $49,640 respectively.
- The other financial liabilities component of the
      Convertible Debenture was originally calculated at fair value. Subsequently,
      the other financial liabilities are revalued at fair value at every balance
      sheet date. The amount calculated at the issue date was $548,084. The change
      in fair value of the other financial liabilities component is recorded in net
      finance expense in the statement of comprehensive income.

|15 |  PRIVATE PLACEMENTS
|-- | --------------------

| | a) | On November 6, 2009, the Company completed a Non-Brokered
      Private Placement Subscription Agreement (Private Placement) in the
      amount of $587,835 (US$550,000) for Units in the Company at a price of
      US$0.70 per Unit, resulting in the issuance of 785,715 Units. Each Unit
      consists of two class A common shares and one share purchase warrant
      (Warrant) of the Company. Each Warrant entitles the holder to purchase
      one additional common share (Warrant Share) of the Company at a price of
      US$0.50 per Warrant Share at any time until the earlier of the close of
      business day which is either thirty six (36) months from the closing date,
      November 6, 2009, or the date on which the bid price of the stock has been
      above US$1.50 for sixty (60) consecutive trading days. On April 6, 2011
      the exercise price was reduced from US$0.50 per Warrant Share to CDN $0.01
      per Warrant Share. The Company received $429,495 (US$400,000) from private
      investors and $158,340 (US$150,000) from the Chief Executive Officer. The
      Private Placement resulted in the issuance of 1,571,431 common shares and
      785,715 warrants of the Company.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |    | The Company allocated the proceeds from the issuance of
      the Units between the common shares and the warrants according to their
      relative fair value, using the Black-Scholes option pricing model to
      determine the fair value of the warrants. The fair value allocated to the
      common shares was estimated at $445,667 and was recorded in share capital.
      The fair value allocated to the warrants was estimated at $142,168 and was
      recorded in contributed surplus. The fair value of the warrants at the
      time of issue of the Private Placement was estimated using the
      Black-Scholes option pricing model with the following
      assumptions:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

26

---

|SAND Technology Inc.                                          
|--------------------------------------------------------------
|Notes to Consolidated Financial Statements                    
|July 31, 2012 and 2011                                        
|(Expressed in Canadian Dollars, unless otherwise
      stated)

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

Expected volatility was calculated
  using the average closing price change on the Over-The-Counter Bulletin Board
  for 3 years prior to the issue date of the warrants.

| | b) | On March 17, 2011, the Company completed Non-Brokered
      Private Placement Subscription Agreement (Private Placement) in the
      amount of $775,073 (US$750,000) for Units in the Company at a price of
      US$0.70 per Unit, resulting in the issuance of 1,071,432 Units. Each Unit
      consists of two class A common shares and one share purchase warrant
      (Warrant) of the Company. Each Warrant entitles the holder to purchase
      one additional common share (Warrant Share) of the Company at a price of
      US$0.50 per Warrant Share at any time until the earlier of the close of
      business day which is either thirty six (36) months from the closing date,
      March 17, 2011, or the date on which the bid price of the stock has been
      above US$1.50 for sixty (60) consecutive trading days. The Company
      received $448,558 (US$425,000) from private investors and $326,515
      (US$325,000) from the Chief Executive Officer. The Private Placement
      resulted in the issuance of 2,142,864 common shares and 1,071,432 warrants
      of the Company.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    | The Company allocated the proceeds from the issuance of
      the Units between the common shares and the warrants according to their
      relative fair value, using the Black-Scholes option pricing model to
      determine the fair value of the warrants. The fair value allocated to the
      common shares was estimated at $579,175 and was recorded in share capital.
      The fair value allocated to the warrants was estimated at $195,898 and was
      recorded in contributed surplus. The fair value of the warrants at the
      time of issue of the Private Placement was estimated using the
      Black-Scholes option pricing model with the following
      assumptions:                                                                                                                                                                                                                                                                                                                                                                                                                          

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

Expected volatility was calculated
  using the average closing price change on the Over-The-Counter Bulletin Board
  for 3 years prior to the issue date of the warrants.

27

---

|SAND Technology Inc.                                          
|--------------------------------------------------------------
|Notes to Consolidated Financial Statements                    
|July 31, 2012 and 2011                                        
|(Expressed in Canadian Dollars, unless otherwise
      stated)

|***16 -*** | SHARE CAPITAL
|---------- | -------------

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

Issued and outstanding 
       19,673,636 class "A" common shares 
       (July 31, 2011 - 19,283,636 common shares) 
       (August 1, 2010  15,889,620 common shares)

2012 transactions

During the year ended July 31, 2012,
  the Company issued 390,000 common shares upon the exercise of 390,000 stock
  options at an exercise price of $0.01 for proceeds of $3,900.

2011 transactions

On February 2, 2011, the Company issued
  411,152 common shares to current and former Directors of the Company in
  settlement of debt in the amount of $143,903 owing to these individuals for past
  service as Directors.

On March 24, 2011, the Company issued
  2,142,864 common shares to private investors including the Chief Executive
  Officer as part of a Non-Brokered Private Placement Subscription Agreement for
  proceeds of $775,073 (US$750,000) as described in Note 15.

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

On May 5, 2011, the Company issued
  780,000 common shares upon the exercise of 780,000 warrants relating to the
  Convertible Debenture offering in April 2008 at an exercise price of USD$0.01
  for proceeds of $6,879.

|17 |  STOCK OPTIONS, WARRANTS AND SHARE
      AWARDS
|-- | ------------------------------------------------

|a) | Stock Option Plans                       
|-- | -----------------------------------------
|   |                                          
|   | The Company has three stock option plans:
|   |                                          
|   | 1.                                       
|   |                                          
|   | 2.                                       

28

---

|SAND Technology Inc.                                          
|--------------------------------------------------------------
|Notes to Consolidated Financial Statements                    
|July 31, 2012 and 2011                                        
|(Expressed in Canadian Dollars, unless otherwise
      stated)

| | 3. | Under the 2010 Stock Incentive Plan, the Company may
      grant options or share awards to its full- time employees, executive
      officers, directors and consultants up to a maximum of 8,000,000 class A
      common shares.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

Stock options vest as stipulated in the
  stock option agreement and, under the 2010 Stock Incentive Plan, and have a
  vesting period ranging from immediately to 3 years, with a maximum term of 10
  years. Stock options issued under the 1996 Stock Incentive Plan and the 1996
  Stock Option Plan have a maximum term of 20 years.

The following table summarizes
  information about the Companys stock options as of July 31, 2012:

| |                                        |  | July 31, 2012 |   |  | July 31, 2011 |  
| | -------------------------------------- |  | ------------- | - |  | ------------- | -
| |                                        |  |               |   |  | Weighted      |  
| |                                        |  |               |   |  | average       |  
| |                                        |  | Number of     |   |  | exercise      |  
| |                                        |  | options       |   |  | price         |  
| |                                        |  |               |   |  | (US $)        |  
| | Options outstanding, beginning of year |  | 3,473,583     |   |  | 0.11          |  
| | Granted                                |  | 567,500       |   |  | 0.01          |  
| | Exercised                              |  | (390,000      | ) |  | (0.01         | )
| | Expired                                |  | (1,090,000    | ) |  | (0.01         | )
| | Forfeited                              |  | (427,000      | ) |  | (0.84         | )
| | Options outstanding, end of year       |  | 2,134,083     |   |  | 0.01          |  
| | Options exercisable, end of year       |  | 1,689,385     |   |  | 0.01          |  

29

---

|SAND Technology Inc.                                          
|--------------------------------------------------------------
|Notes to Consolidated Financial Statements                    
|July 31, 2012 and 2011                                        
|(Expressed in Canadian Dollars, unless otherwise
      stated)

During the year ended July 31, 2012,
  the weighted fair value of the stock options in the amount of $228,475 at the
  time of grant was estimated using the Black-Scholes option pricing model with
  the following assumptions:

| | Weighted average share price at grant date | $ | 0.40    | 
| | ------------------------------------------ | - | ------- | 
| | Exercise price at grant date               | $ | 0.01    | 
| | Dividend yield                             |   | -       | 
| | Expected volatility                        |   | 390%    | 
| | Risk free interest rate                    |   | 1.35%   | 
| | Expected life                              |   | 8 years | 

The weighted average share price at the
  date of exercise for the year ended July 31, 2012 was $0.54

Expected volatility was calculated
  using the average closing price change on the Over-The-Counter Bulletin Board
  for 8 years prior to the issue date of the warrants.

During the year ended July 31, 2011,
  the weighted fair value of the stock options in the amount of $1,240,650 at the
  time of grant was estimated using the Black-Scholes option pricing model with
  the following assumptions:

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

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

Expected volatility was calculated
  using the average closing price change on the Over-The-Counter Bulletin Board
  for 3 years prior to the issue date of the warrants.

30

---

|SAND Technology Inc.                                          
|--------------------------------------------------------------
|Notes to Consolidated Financial Statements                    
|July 31, 2012 and 2011                                        
|(Expressed in Canadian Dollars, unless otherwise
      stated)

The following table summarizes
  significant ranges of exercise prices of outstanding and exercisable options
  held by employees, officers and directors as of July 31, 2012:

| |           |  | July 31, 2012       |  |  | July 31, 2012       | 
| | --------- |  | ------------------- |  |  | ------------------- | 
| |           |  | Options Outstanding |  |  | Options Exercisable | 
| |           |  |                     |  |  | Weighted            | 
| |           |  |                     |  |  | average             | 
| |           |  | Number of           |  |  | remaining           | 
| |           |  | options             |  |  | life
      (years)  | 
| |           |  |                     |  |  |                     | 
| |           |  |                     |  |  |                     | 
| | U.S.$0.01 |  | 2,134,083           |  |  | 6.26                | 

During the year ended July 31, 2012,
  567,500 stock options were granted at an exercise price of $0.01, in accordance
  with the 2010 Stock Incentive Plan, which was below the market price of the
  Companys class A common shares at the time the stock options were granted,
  390,000 were exercised, 427,000 were forfeited and 1,090,000 options had
  expired.

During the year ended July 31, 2011,
  3,295,756 stock options were granted at an exercise price of $0.01, in
  accordance with the 2010 Stock Incentive Plan, which was below the market price
  of the Companys class A common shares at the time the stock options were
  granted. Also, 60,000 were exercised, 27,310 options expired and 91,863 were
  forfeited.

Share-based compensation expense
  included in selling, general and administrative expenses for the years ended
  July 31, 2012 and 2011 was $400,447 and $908,806 respectively.

|b) | Warrants                                                                                                                              
|-- | --------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                       
|   | The following table summarizes information about the
      Companys share warrants, which are all fully vested and
      outstanding:

| |                            |  | July 31, 2012        |  |  | July 31, 2011        | 
| | -------------------------- |  | -------------------- |  |  | -------------------- | 
| |                            |  | Warrants Outstanding |  |  | Warrants Outstanding | 
| |                            |  |                      |  |  | Weighted             | 
| |                            |  |                      |  |  | average              | 
| |                            |  | Number of            |  |  | remaining            | 
| |                            |  | warrants             |  |  | life
      (years)   | 
| |                            |  |                      |  |  |                      | 
| |                            |  |                      |  |  |                      | 
| | Balance, beginning of year |  | 1,857,147            |  |  | 1.63                 | 
| | Granted                    |  | 500,000              |  |  | 2.10                 | 
| | Exercised                  |  | -                    |  |  | -                    | 
| | Expired                    |  | -                    |  |  | -                    | 
| |                            |  |                      |  |  |                      | 
| | Balance, end of year       |  | 2,357,147            |  |  | 1.73                 | 

31

---

|SAND Technology Inc.                                          
|--------------------------------------------------------------
|Notes to Consolidated Financial Statements                    
|July 31, 2012 and 2011                                        
|(Expressed in Canadian Dollars, unless otherwise
      stated)

|c) | Share Awards                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | Under a Share Award Plan, the Company was eligible to
      grant class "A" common shares to its full-time employees up to a maximum
      of 1,000,000 class "A" common shares, at a value not to exceed the fair
      market value of the class "A" common shares at the time of grant and
      conditional upon a period of continued employment service with the Company
      by the employees.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | The Share Award Plan is intended to promote the interests
      of the Company by (i) aiding the retention of employees and facilitating
      the recruitment of personnel by providing incentive compensation
      opportunities; and (ii) matching employees financial interests with those
      of the Companys shareholders. The administrator of the Share Award Plan
      has the authority to determine the terms and conditions of each award
      granted. The Company granted 407,500 share awards on September 30, 2007
      upon the one condition that the recipient remain employed with the Company
      for a period of 3 years. As at July 31, 2010, as a result of terminations
      and resignations, there remained 302,500 shares that may be issued,
      subject to continued employment by the employees until September 30, 2010,
      under the Share Award Plan. At September 30, 2010, as a result of
      terminations and resignations, there remained 277,500 shares that may be
      issued under the Share Award Plan. On December 17, 2010, in lieu of
      issuing common shares for such share awards, the Board of Directors issued
      277,500 stock options from the 2010 Stock Incentive Plan.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | The share award compensation expense included in selling,
      general and administrative expenses for the years ended July 31, 2012 and
      2011 was nil and nil, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

|18 | EARNINGS PER
      SHARE
|-- | -------------------------

The following table shows the number of
  stock options, share awards, share warrants, shares issuable upon conversion of
  the convertible debentures and interest payable in kind for the years presented

| |                                   |  | July 31,  |  |  | July 31,  | 
| | --------------------------------- |  | --------- |  |  | --------- | 
| |                                   |  | 2012      |  |  | 2011      | 
| |                                   |  |           |  |  |           | 
| | Stock options                     |  | 2,134,083 |  |  | 3,473,583 | 
| | Share awards                      |  | -         |  |  | -         | 
| | Warrants                          |  | 2,357,147 |  |  | 1,857,147 | 
| | Convertible debentures, principal |  | 2,228,000 |  |  | 2,228,000 | 
| | Convertible debentures, interest  |  | 579,280   |  |  | 460,453   | 
| |                                   |  | 7,298,510 |  |  | 8,019,183 | 

32

---

|SAND Technology Inc.                                          
|--------------------------------------------------------------
|Notes to Consolidated Financial Statements                    
|July 31, 2012 and 2011                                        
|(Expressed in Canadian Dollars, unless otherwise
      stated)

BasicThe calculation of
  basic earnings per share at July 31, 2012 was based on the net income
  attributable to common shareholders of the Company of $ 2,803,697 (July 31, 2011
   loss of $ 2,206,992) and a weighted average number of common shares
  outstanding of 19,466,896 (July 31, 2011  17,048,978).

The basic earnings per share for years
  ended July 31, 2012 and 2011 are as follows:

|                                           |   | July 31,   |  |   | July 31,   |  
|------------------------------------------ | - | ---------- |  | - | ---------- | -
|                                           |   | 2012       |  |   | 2011       |  
|                                           |   |            |  |   |            |  
|Net income, (loss) for the year            | $ | 2,803,697  |  | $ | (2,206,992 | )
|Weighted average shares outstanding, basic |   | 19,466,896 |  |   | 17,048,978 |  
|Basic earnings per share                   | $ | 0.14       |  | $ | (0.13      | )

DilutedThe calculation of
  diluted earnings per share at July 31, 2012 was based on net income attributable
  to common shareholders of $2,803,697 (July 31, 2011  loss of $ 2,206,992), and
  a weighted average number of common shares outstanding adjusted to reflect the
  effects of all options. For the period ended July 31, 2012, 2,048,227 options,
  2,335,502 warrants, 2,228,000 shares from the potential conversion of the
  principal of the convertible debentures and 579,280 shares from the potential
  conversion of the interests of convertible debentures that may potentially
  dilute earnings per share in the future were not considered in the computation
  since the exercise price of these instruments was higher than the average market
  price. The diluted weighted average number of common share is calculated as
  follows:

| |                                            |  | July 31,   |  |  | July 31,   | 
| | ------------------------------------------ |  | ---------- |  |  | ---------- | 
| |                                            |  | 2012       |  |  | 2011       | 
| |                                            |  |            |  |  |            | 
| | Weighted average shares outstanding, basic |  | 19,466,896 |  |  | 17,048,978 | 
| | Options                                    |  | 85,856     |  |  | -          | 
| | Warrants                                   |  | 21,645     |  |  | -          | 
| | Convertible debentures, principal          |  | -          |  |  | -          | 
| | Convertible debentures, interests          |  | -          |  |  | -          | 
| |                                            |  | 19,574,397 |  |  | 17,048,978 | 

For the year ended July 31, 2011,
  1,857,147 warrants were not considered in the computation since the exercise
  price of these warrants was higher than the average market price. Because the
  Company experienced a loss in 2011, the impact of the options and the potential
  conversion of the principal and interest of the convertible debentures described
  above were not taken into account because to do so would have been anti-dilutive
  for the year ended July 31, 2011.

33

---

|SAND Technology Inc.                                          
|--------------------------------------------------------------
|Notes to Consolidated Financial Statements                    
|July 31, 2012 and 2011                                        
|(Expressed in Canadian Dollars, unless otherwise
      stated)

The diluted earnings per share for
  years ended July 31, 2012 and 2011 are as follows:

| |                                              |   | July 31,   |  |   | July 31,   |  
| | -------------------------------------------- | - | ---------- |  | - | ---------- | -
| |                                              |   | 2012       |  |   | 2011       |  
| |                                              |   |            |  |   |            |  
| | Net income, (loss) for the year              | $ | 2,803,697  |  | $ | (2,206,992 | )
| | Weighted average shares outstanding, diluted |   | 19,574,397 |  |   | 17,048,978 |  
| | Diluted earnings per share                   | $ | 0.14       |  | $ | (0.13      | )

|19 | -INCOME
      TAXES
|-- | -------------------

The reconciliation of the income tax
  recovery, based on reported taxable income (loss) and using Canadian statutory
  tax rates, with the reported income tax expense for the years ended July 31,
  2012, and 2011 is as follows: July 31, July 31,

| |                                                                 |   | 2012    |  |   | 2011     |  
| | --------------------------------------------------------------- | - | ------- |  | - | -------- | -
| | Income tax expense (recovery) at Canadian
      statutory rates | $ | 843,000 |  | $ | (605,000 | )
| | Non-recorded use (benefit) from losses carried forward          |   | 843,000 |  |   | (605,000 | )
| |                                                                 | $ | -       |  | $ | -        |  

The Corporation recognized no income
  taxes in the consolidated statements of comprehensive income as it has
  accumulated losses available to reduce income taxes that would otherwise have
  been payable for the current period. Furthermore, no deferred tax assets were
  recognized because Management does not believe that it is more probable than not
  that these would be realized.

Unrecognized deductible temporary
  differences for which no deferred tax assets have been recognized are presented
  in the following tables. Deferred tax assets have not been recognized in respect
  of these items because it is not probable that future taxable profits will be
  available against which the Company can utilize the benefits there from.

| |                                        |   | July
      31, 2012 |  |   | July
      31, 2011 |  |   | August 1, 2010 | 
| | -------------------------------------- | - | ------------------- |  | - | ------------------- |  | - | -------------- | 
| |                                        |   |                     |  |   |                     |  |   |                | 
| | Fixed Assets                           | $ | 789,221             |  | $ | 724,803             |  | $ | 693,814        | 
| | Intangible Assets                      |   | 152,000             |  |   | 152,000             |  |   | 152,000        | 
| | Research and development               |   | 16,704,378          |  |   | 15,410,853          |  |   | 14,495,853     | 
| | Unused Non-capital loss carry forwards |   | 41,427,505          |  |   | 49,997,940          |  |   | 43,532,790     | 
| | Unused Capital loss carry forwards     |   | 400                 |  |   | 400                 |  |   | 400            | 
| |                                        | $ | 59,073,504          |  | $ | 66,285,996          |  | $ | 58,874,857     | 

34

---

|SAND Technology Inc.                                          
|--------------------------------------------------------------
|Notes to Consolidated Financial Statements                    
|July 31, 2012 and 2011                                        
|(Expressed in Canadian Dollars, unless otherwise
      stated)

As at July 31, 2012, the Company has
  non-capital losses carried forward to reduce future taxable income expiring at
  various dates to 2030, as follows:

United States
      
      
      Canada$
      
      
      $2014
      
      
      
      
      3,276,8062015
      
      
      
      
      3,250,6512016
      
      58,5582017
      
      333,2982018
      
      1,247,4322019
      
      2,269,2142020
      
      2,283,4632021
      
      2,821,2572022
      
      3,795,7332023
      
      1,923,5732024
      
      2,392,3232025
      
      2,389,0312026
      
      1,872,957
      
      
      2,166,9102027
      
      986,590
      
      
      2,275,7072028
      
      810,404
      
      
      728,6152029
      
      557,5432030
      
      732,69524,474,071
      
      
      11,698,689


The Company's wholly owned subsidiary in Germany also has a loss carry-forward of $5,534,039 at July 31, 2012, available indefinatively to 
  reduce taxable income in future years.

In addition, the Company has unclaimed
  research and development expenditures carried forward of approximately
  $16,500,000, which can be used to reduce taxable income at any time in the
  future, and investment tax credits of approximately $4,500,000, which can be
  applied against future Canadian federal income taxes payable, expiring at
  various dates to 2020. The benefits from these unclaimed amounts have not been
  recognized in the consolidated financial statements.

35

---

|SAND Technology Inc.                                          
|--------------------------------------------------------------
|Notes to Consolidated Financial Statements                    
|July 31, 2012 and 2011                                        
|(Expressed in Canadian Dollars, unless otherwise
      stated)

|20 | LEASES, COMMITMENTS AND
      CONTINGENCIES
|-- | --------------------------------------------

The Company has various operating
  leases for office space and equipment. The lease terms are between one and five
  years. Office lease agreements are renewable at the end of the lease period at
  market rate.

The future aggregate minimum lease
  payments under non-cancellable operating leases are as follows:

| |                     |   | July 31,   | 
| | ------------------- | - | ---------- | 
| |                     |   | 2012       | 
| | 2013                |   | 2 $ 32,993 | 
| | 2014                |   | 200,704    | 
| | 2015                |   | 200,704    | 
| | 2016                |   | 200,704    | 
| | 2017 and thereafter |   | 1,038,464  | 
| |                     | $ | 1,873,569  | 

The amount of lease expense included in
  selling and administrative expense for the year ended July 31, 2012 is $337,578.

The Company is party to claims and
  lawsuits in the normal course of business, which are being contested. In the
  opinion of management, the outcome of such claims and lawsuits will not have a
  material effect on the Companys financial results and position, and
  accordingly, no amounts have been recorded as at July 31, 2012.

|21 | SEGMENTED
      INFORMATION
|-- | ----------------------------

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

36

---

|SAND Technology Inc.                                          
|--------------------------------------------------------------
|Notes to Consolidated Financial Statements                    
|July 31, 2012 and 2011                                        
|(Expressed in Canadian Dollars, unless otherwise
      stated)

| |                          |   |           |  |   | United  |  |   |           |  |   |           |  |  |            | 
| | ------------------------ | - | --------- |  | - | ------- |  | - | --------- |  | - | --------- |  |  | ---------- | 
| |                          |   | Canada    |  |   | States  |  |   | Europe    |  |   | Australia |  |  | Total      | 
| |                          |   |           |  |   |         |  |   |           |  |   |           |  |  |            | 
| | Year ended July 31, 2012 |   |           |  |   |         |  |   |           |  |   |           |  |  |            | 
| | Revenue (1)              | $ | 444,587   |  | $ | 282,425 |  | $ | 1,773,216 |  | $ | -         |  |  | 2,500,228$ | 
| | Current
      assets     |   | 919,865   |  |   | 174,577 |  |   | 723,670   |  |   | 42,929    |  |  | 1,861,041  | 
| | Net capital assets       |   | 220,391   |  |   | 3,562   |  |   | 21,615    |  |   | 783       |  |  | 246,351    | 
| |                          |   |           |  |   |         |  |   |           |  |   |           |  |  |            | 
| | Year ended July 31, 2011 |   |           |  |   |         |  |   |           |  |   |           |  |  |            | 
| | Revenue (1)              |   | 434,209   |  |   | 359,976 |  |   | 3,839,508 |  |   | -         |  |  | 4,633,693  | 
| | Current assets           |   | 1,131,628 |  |   | 316,678 |  |   | 685,560   |  |   | -         |  |  | 2,133,866  | 
| | Net
      capital assets |   | 47,727    |  |   | 5,567   |  |   | 26,863    |  |   | 1,204     |  |  | 81,361     | 

| | (1) | Excluding revenues related to the discontinued
      operations.
| | --- | ----------------------------------------------------------------

|22 |  CAPITAL MANAGEMENT
|-- | --------------------

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

| |                             |   | July 31,    |   |   | July 31,    |   |   | July 31,    |  
| | --------------------------- | - | ----------- | - | - | ----------- | - | - | ----------- | -
| |                             |   | 2012        |   |   | 2011        |   |   | 2010        |  
| |                             |   |             |   |   |             |   |   |             |  
| | Due to shareholders         | $ | -           |   | $ | 1,914,837   |   | $ | 1,874,153   |  
| | Convertible debentures      |   | 834,368     |   |   | 696,961     |   |   | 647,321     |  
| | Other financial liabilities |   | 154,264     |   |   | 315,213     |   |   | 342,927     |  
| | Total Debt                  |   | 988,632     |   |   | 2,927,011   |   |   | 2,864,401   |  
| |                             |   |             |   |   |             |   |   |             |  
| | Less Cash                   |   | 811,655     |   |   | 810,745     |   |   | 579,270     |  
| | Net Debt                    |   | 176,977     |   |   | 2,116,266   |   |   | 2,285,131   |  
| |                             |   |             |   |   |             |   |   |             |  
| | Shareholders' equity        |   |             |   |   |             |   |   |             |  
| | Share
      capital         |   | 39,710,565  |   |   | 39,706,665  |   |   | 38,976,108  |  
| | Contributed surplus         |   | 2,483,774   |   |   | 1,863,006   |   |   | 758,302     |  
| | Deficit                     |   | (42,130,308 | ) |   | (44,934,005 | ) |   | (42,727,013 | )
| |                             |   | 64,031      |   |   | (3,364,334  | ) |   | (2,992,603  | )
| | Adjusted Capital            | $ | 241,008     |   | $ | (1,248,068  | ) | $ | (707,472    | )

37

---

|SAND Technology Inc.                                          
|--------------------------------------------------------------
|Notes to Consolidated Financial Statements                    
|July 31, 2012 and 2011                                        
|(Expressed in Canadian Dollars, unless otherwise
      stated)

|23 |  FINANCIAL RISKS
|-- | -----------------

Financial Risk Management

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

a) Interest rate risk

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

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

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

| |                   |   | July 31,  |  |   | July 31,   | 
| | ----------------- | - | --------- |  | - | ---------- | 
| |                   |   | 2012      |  |   | 2011       | 
| |                   |   |           |  |   |            | 
| | Cash              | $ | 811,655   |  | $ | 810,745    | 
| | Trade receivables |   | 307,937   |  |   | 541,959    | 
| | Other receivables |   | 975,285   |  |   | -          | 
| |                   |   | 2,094,877 |  | $ | 1,352,704$ | 

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

The credit risk exposure of the
  Companys accounts receivable is mitigated by issuing invoices for software
  licenses, maintenance and consulting services with short credit terms which are
  generally net 30 days. Software maintenance contracts are generally fully paid
  at the inception of the service period. In the normal course of operations, the
  Company evaluates the financial condition of its customers. Since most of the
  Companys customers are relatively large companies in various industries and
  with a strong history of payment, the allowance for doubtful accounts is
  nominal. For the year ended July 31, 2012, the Company generated approximately
  49% of its revenues from three customers and $84,032 (€68,147) were outstanding
  from those customers as at July 31, 2012 (for the year ended July 31, 2011,
  three customers represented 42% of the revenues and $54,104 (€39,429) was
  outstanding from those three customers as at July 31, 2011). Management assesses
  the Companys credit risk to be low.

38

---

|SAND Technology Inc.                                          
|--------------------------------------------------------------
|Notes to Consolidated Financial Statements                    
|July 31, 2012 and 2011                                        
|(Expressed in Canadian Dollars, unless otherwise
      stated)

c)Currency risk

Currency risk is the risk that the
  value of a financial instrument will fluctuate due to changes in foreign
  exchange rates. The Company operates internationally and is exposed to risk from
  changes in foreign currency rates. The Company does not hold any financial
  instruments that mitigate this risk. Management minimizes this risk by paying
  expenditures in the currency of the local operation through which funds are
  generated as a result of local revenue invoicing. However, the Company is still
  highly exposed to risks from fluctuations in foreign currency rates with respect
  to the financial statement translation of foreign operations denominated in the
  U.S. dollar, the Pound Sterling, the Euro and the Australian Dollar. The
  following table details the Companys sensitivity to a 10% strengthening of the
  U.S. dollar, the Pound Sterling, the Euro and the Australian Dollar (2011  30%
  strengthening of the U.S. dollar and the Pound Sterling and a 21% strengthening
  of the Euro) against the Canadian dollar on the net income (loss) of the
  Company. The sensitivity analysis includes adjustments to foreign currency
  denominated monetary assets and liabilities and revenues and expenses for the
  changes described above. For a weakening of the U.S. dollar, the Pound Sterling,
  the Euro and the Australian Dollar by the same percentages against the Canadian
  dollar, there would be an equal and opposite impact on the net income (loss) of
  the Company. For this reason, management assesses the Companys currency risk to
  be high.

| |                                         |   | Year ended July 31, 2012 | 
| | --------------------------------------- | - | ------------------------ | 
| |                                         |   | U.S. Dollar              | 
| |                                         |   | Impact                   | 
| |                                         |   |                          | 
| | Net income (loss) - in Canadian dollars | $ | 137,403                  | 

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

As at July 31, 2012 and July 31, 2011,
  the Company had the following monetary assets and liabilities denominated in
  foreign currencies included in its consolidated financial statements:

| |                   |  | July 31, 2012 |  |  | July 31, 2011 | 
| | ----------------- |  | ------------- |  |  | ------------- | 
| |                   |  | Current       |  |  | Current       | 
| |                   |  | Assets        |  |  | Liabilities   | 
| |                   |  |               |  |  |               | 
| | U.S. Dollars      |  | 174,072       |  |  | 188,058       | 
| | Pounds Sterling   |  | 276,342       |  |  | 41,383        | 
| | Euros             |  | 269,421       |  |  | 107,695       | 
| | Australian Dollar |  | 46,444        |  |  | 4,003         | 

39

---

|SAND Technology Inc.                                          
|--------------------------------------------------------------
|Notes to Consolidated Financial Statements                    
|July 31, 2012 and 2011                                        
|(Expressed in Canadian Dollars, unless otherwise
      stated)

d)Liquidity risk

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

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

The table below summarizes the
  Companys financial liabilities and their due dates as at July 31, 2012 and July
  31, 2011:

| |                             |  |           |  |  | July 31, 2012 |  |  |             | 
| | --------------------------- |  | --------- |  |  | ------------- |  |  | ----------- | 
| |                             |  | Carrying  |  |  | Due           |  |  | Due         | 
| |                             |  | Amount of |  |  | within        |  |  | within      | 
| |                             |  | Liability |  |  | 1 year        |  |  | 2 - 5 years | 
| |                             |  |           |  |  |               |  |  |             | 
| | Trade and other payables    |  | 677,098   |  |  | 677,099       |  |  | -           | 
| | Convertible debentures      |  | 1,798,000 |  |  | -             |  |  | 1,798,000   | 
| | Other financial liabilities |  | 154,264   |  |  | -             |  |  | 154,264     | 

| |                              |  |           |  |  | July 31, 2011 |  |  |             | 
| | ---------------------------- |  | --------- |  |  | ------------- |  |  | ----------- | 
| |                              |  | Carrying  |  |  | Due           |  |  | Due         | 
| |                              |  | Amount of |  |  | within        |  |  | within      | 
| |                              |  | Liability |  |  | 1 year        |  |  | 2 - 5 years | 
| |                              |  |           |  |  |               |  |  |             | 
| | Trade and other payables (a) |  | 765,234   |  |  | 765,234       |  |  | -           | 
| | Due to shareholders (b)      |  | 1,914,837 |  |  | 1,425,945     |  |  | 488,892     | 
| | Convertible debentures       |  | 1,713,000 |  |  | -             |  |  | -           | 
| | Other financial liabilities  |  | 315,213   |  |  | -             |  |  | -           | 

| | (a) | Excludes sales taxes payable                          
| | --- | ------------------------------------------------------
| | (b) | Includes contractual interest expense to be
      paid

As at July 31, 2012, with the exception
  of the amount due to shareholders, there has been no significant change to the
  maturities of financial liabilities as compared to the previous year. As such,
  management assesses the Companys liquidity risk to be high.

40

---

|SAND Technology Inc.                                          
|--------------------------------------------------------------
|Notes to Consolidated Financial Statements                    
|July 31, 2012 and 2011                                        
|(Expressed in Canadian Dollars, unless otherwise
      stated)

|24 |  FINANCIAL INSTRUMENTS
|-- | -----------------------

Fair value

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

The fair value, as at July 31, 2012 and
  2011, of cash, trade and other receivables excluding sales tax receivable, trade
  and other payables excluding sales tax payable, approximates their respective
  carrying value given their short-term maturities.

The Company utilizes various types of
  financing to fund its business needs including convertible notes with warrants
  attached. The Company reviews these transactions of securities issued, including
  its warrants and conversion features, to properly determine their proper
  classification between the debt and equity components and whether they are
  classified as a liability at each reporting period until the amount is settled
  and reclassified into equity with changes, if applicable, in fair value
  recognized in current earnings

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

As at July 31, 2012 and July 31, 2011,
  the classification of financial instruments, as well as their carrying values
  and the fair values, is as follows:

| |                                       |   |             |  |   | July 31, 2012 |  |   |          | 
| | ------------------------------------- | - | ----------- |  | - | ------------- |  | - | -------- | 
| |                                       |   |             |  |   | Other         |  |   | Total    | 
| |                                       |   | Loans and   |  |   | Financial     |  |   | Carrying | 
| |                                       |   | Receivables |  |   | Liabilities   |  |   | Value    | 
| | Financial Assets                      |   |             |  |   |               |  |   |          | 
| | Cash                                  | $ | 811,655     |  | $ | -             |  | $ | 811,655  | 
| | Trade
      receivables               |   | 307,937     |  |   | -             |  |   | 307,937  | 
| | Other receivables                     |   | 975,285     |  |   | -             |  |   | 975,285  | 
| |                                       |   |             |  |   |               |  |   |          | 
| | Financial Liabilities                 |   |             |  |   |               |  |   |          | 
| | Trade and other
      payables        |   |             |  |   | 677,099       |  |   | 677,099  | 
| | Convertible debentures                |   |             |  |   | 834,368       |  |   | 834,368  | 
| | Other
      financial liabilities (1) |   |             |  |   | 154,264       |  |   | 154,264  | 

41

---

|SAND Technology Inc.                                          
|--------------------------------------------------------------
|Notes to Consolidated Financial Statements                    
|July 31, 2012 and 2011                                        
|(Expressed in Canadian Dollars, unless otherwise
      stated)

| |                                       |   |             |  |   | July 31, 2011 |  |   |           | 
| | ------------------------------------- | - | ----------- |  | - | ------------- |  | - | --------- | 
| |                                       |   |             |  |   | Other         |  |   | Total     | 
| |                                       |   | Loans and   |  |   | Financial     |  |   | Carrying  | 
| |                                       |   | Receivables |  |   | Liabilities   |  |   | Value     | 
| | Financial Assets                      |   |             |  |   |               |  |   |           | 
| | Cash                                  | $ | 810,745     |  | $ | -             |  | $ | 810,745   | 
| | Trade
      receivables               |   | 541,959     |  |   | -             |  |   | 541,959   | 
| |                                       |   |             |  |   |               |  |   |           | 
| | Financial Liabilities                 |   |             |  |   |               |  |   |           | 
| | Trade and other payables              |   |             |  |   | 776,623       |  |   | 776,623   | 
| | Due to
      shareholders             |   |             |  |   | 1,914,837     |  |   | 1,914,837 | 
| | Convertible debentures                |   |             |  |   | 696,961       |  |   | 696,961   | 
| | Other
      financial liabilities (1) |   |             |  |   | 315,213       |  |   | 315,213   | 

| | (1) | Consists of a Level 2 fair value
      hierarchy.
| | --- | -------------------------------------------------

|25 | - TRANSITION TO INTERNATIONAL FINANCIAL REPORTING
      STANDARDS
|-- | -----------------------------------------------------------------

As stated in Note 3a), this is the
  Companys first year of consolidated financial statements being prepared in
  accordance with IFRS. The Company has adopted IFRS in accordance with IFRS 1,
  First-time Adoption of International Financial Reporting Standards (IFRS
  1)with a transition date of August 1, 2010. The Companys audited
  annual consolidated financial statements for the year ending July 31, 2012 are
  the first audited annual consolidated financial statements that are prepared in
  accordance with the requirements of IFRS including the application of IFRS 1.
  Prior to the adoption of IFRS, the Company prepared its consolidated financial
  statements in accordance with Canadian GAAP.

The significant accounting policies
  described in Note 3 have been applied in preparing the consolidated financial
  statements for the year ended July 31, 2012 as well as for the comparative
  information presented for the years ended July 31, 2011 and in the preparation
  of an opening IFRS consolidated balance sheet as at August 1, 2010.

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

42

---

|SAND Technology Inc.                                          
|--------------------------------------------------------------
|Notes to Consolidated Financial Statements                    
|July 31, 2012 and 2011                                        
|(Expressed in Canadian Dollars, unless otherwise
      stated)

IFRS 1 - FIRST-TIME ADOPTION OF
  IFRS

IFRS 1 requires retroactive application
  for all IFRS standards effective at the reporting date except for certain
  mandatory exceptions from retrospective application that are relevant to the
  Company, or optional exemptions from retrospective application that were elected
  by the Company. Accordingly, these consolidated financial statements have been
  prepared based on the accounting policies described in Note 3. The applicable
  mandatory exceptions and optional exemptions from retrospective application are
  described in this section. The impact of these exceptions and exemptions and all
  other adjustments arising from IFRS policy choices and other requirements are
  described further below in section e), along with explanatory notes to the
  reconciliations of equity and comprehensive income and balance sheet items in
  section f) below.

a)Mandatory
  Exceptions

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

| | i)  | Estimates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | Estimates made in accordance with IFRS at transition
      date, and in the comparative period of the first audited annual IFRS
      financial statements, shall remain consistent with those determined under
      Canadian GAAP with adjustments made only to reflect any differences in
      accounting policies. Under IFRS 1, the use of hindsight is not permitted
      to adjust estimates made in the past under Canadian GAAP that were based
      on the information that was available at the time the estimate was
      determined. Any additional estimates that are required under IFRS, that
      were not required under Canadian GAAP, are based on the information and
      conditions that exist at the transition date and in the comparative period
      of the first audited annual IFRS financial statements.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | ii) | De-recognition of Financial Assets and Financial
      Liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | Financial assets and liabilities that were de-recognized
      before August 1, 2010 pursuant to Canadian GAAP were not recognized under
      IFRS.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

b)Optional Exemptions

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

i)IFRS 3 - Business Combinations

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

43

---

|SAND Technology Inc.                                          
|--------------------------------------------------------------
|Notes to Consolidated Financial Statements                    
|July 31, 2012 and 2011                                        
|(Expressed in Canadian Dollars, unless otherwise
      stated)

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

| | c) | Changes in Presentation
| | -- | -----------------------
| |    |                        
| |    | i)                     
| |    |                        
| |    |                        

d)Reconciliations between Canadian GAAP and IFRS

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

i)Shareholders deficiency

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

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

44

---

|SAND Technology Inc.                                          
|--------------------------------------------------------------
|Notes to Consolidated Financial Statements                    
|July 31, 2012 and 2011                                        
|(Expressed in Canadian Dollars, unless otherwise
      stated)

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

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

45

---

|SAND Technology Inc.                                          
|--------------------------------------------------------------
|Notes to Consolidated Financial Statements                    
|July 31, 2012 and 2011                                        
|(Expressed in Canadian Dollars, unless otherwise
      stated)

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

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

46

---

|SAND Technology Inc.                                          
|--------------------------------------------------------------
|Notes to Consolidated Financial Statements                    
|July 31, 2012 and 2011                                        
|(Expressed in Canadian Dollars, unless otherwise
      stated)

| | iv) | Reconciliation of the Statement of Comprehensive
      Income under Canadian GAAP to IFRS for the year ended July 31,
      2011
| | --- | --------------------------------------------------------------------------------------------------------------------------------

| |                                                      |  |       |  |   | **Previous** |   |   | Effect of     |   |   |            |  
| | ---------------------------------------------------- |  | ----- |  | - | ------------ | - | - | ------------- | - | - | ---------- | -
| |                                                      |  |       |  |   | **Canadian** |   |   | transition to |   |   |            |  
| |                                                      |  | Note  |  |   | GAAP         |   |   | IFRS          |   |   | IFRS       |  
| |                                                      |  |       |  |   |              |   |   |               |   |   |            |  
| | Revenue                                              |  |       |  | $ | 4,633,693    |   | $ | -             |   | $ | 4,633,693  |  
| |                                                      |  |       |  |   |              |   |   |               |   |   |            |  
| | Cost of sales and product support                    |  |       |  |   | 1,092,995    |   |   | -             |   |   | 1,092,995  |  
| | Gross profit                                         |  |       |  |   | 3,540,698    |   |   | -             |   |   | 3,540,698  |  
| |                                                      |  |       |  |   |              |   |   |               |   |   |            |  
| | Operating expenses                                   |  |       |  |   |              |   |   |               |   |   |            |  
| | Research and development
      costs, net            |  |       |  |   | 1,223,963    |   |   | -             |   |   | 1,223,963  |  
| | Selling, general and administrative                  |  | 15 f) |  |   | 5,440,109    |   |   | 166,959       |   |   | 5,607,068  |  
| |                                                      |  |       |  |   | 6,664,072    |   |   | 166,959       |   |   | 6,831,031  |  
| | Operating loss                                       |  |       |  |   | (3,123,374   | ) |   | (166,959      | ) |   | (3,290,333 | )
| | Net finance expense                                  |  | 15 g) |  |   | 442,459      |   |   | (72,436       | ) |   | 370,023    |  
| | Loss from continuing operations                      |  |       |  |   | (3,565,833   | ) |   | (94,523       | ) |   | (3,660,356 | )
| | Gain on sale of discontinued operations              |  |       |  |   | -            |   |   | -             |   |   | -          |  
| | Earnings from discontinued operations                |  |       |  |   | 1,453,364    |   |   | -             |   |   | 1,453,364  |  
| | Net loss and comprehensive loss                      |  |       |  | $ | (2,112,469   | ) | $ | (94,523       | ) | $ | (2,206,992 | )
| |                                                      |  |       |  |   |              |   |   |               |   |   |            |  
| | Basic and diluted loss per share                     |  |       |  | $ | (0.12        | ) | $ | (0.01         | ) | $ | (0.13      | )
| | From continuing operations                           |  |       |  | $ | (0.21        | ) | $ | (0.01         | ) | $ | (0.21      | )
| | From discontinued operations                         |  |       |  | $ | 0.09         |   | $ | -             |   | $ | 0.08       |  
| |                                                      |  |       |  |   |              |   |   |               |   |   |            |  
| | Basic weighted average number of common
      shares |  |       |  |   | 17,048,978   |   |   | 17,048,978    |   |   | 17,048,978 |  

47

---

|SAND Technology Inc.                                          
|--------------------------------------------------------------
|Notes to Consolidated Financial Statements                    
|July 31, 2012 and 2011                                        
|(Expressed in Canadian Dollars, unless otherwise
      stated)

|e) | Explanatory Notes  Share-based
      compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | Under Canadian GAAP, the entity can consider the entire
      award as a group, determine the fair value using the average term of the
      instruments and then recognize the compensation expense on a straight-
      line basis over the vesting period. Additionally, under Canadian GAAP,
      forfeitures must be recognized as they occur.                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | Pursuant to IFRS 2, each portion of an award with graded
      vesting options must be considered as a separate award with its own
      vesting date and fair value and must be recognized on that basis.
      Additionally, under IFRS, entities are required to estimate awards that
      are expected to vest and to revise that estimate if subsequent information
      indicates that actual forfeitures are likely to differ from initial
      estimates.                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | The impact on the Companys transition to IFRS is to
      increase contributed surplus by $10,005 and increase the accumulated
      deficit by the same amount as at August 1, 2010 and increase Selling,
      general and administrative expenses by $166,959 for the year ended July
      31, 2011 and increase contributed surplus by the same amount.                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|f) | Explanatory Notes  Convertible
      debentures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | Under Canadian GAAP, the component parts of compound
      financial instruments (convertible debenture) issued by the Company were
      classified separately as financial liabilities and equity in accordance
      with the substance of the contractual arrangements and the definitions of
      a financial liability and an equity instrument. The conversion option that
      was to be settled by the exchange of a fixed amount of cash for a fixed
      number of the Companys own equity instruments was classified as an equity
      instrument.                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | Under IFRS, the conversion option that will be settled by
      the exchange of a fixed amount of cash for a fixed number of the Companys
      own equity instruments is classified as a financial liability since the
      instrument does not meet the fixed for fixed test.                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | As a result, the equity component in the amount of
      $446,027 and the value of the warrants credited to contributed surplus in
      the amount of $305,600 that were previously recognized under Canadian GAAP
      were written off. At conversion date, the liability portion of the
      financial instrument was adjusted to $647,321 and the derivative
      components were classified as other financial liabilities in the amount of
      $342,927. An adjustment of $209,688 was charged to deficit. For the year
      ended July 31, 2011, accretion expense was increased by
      $72,436.

48

---

|SAND Technology Inc.                                          
|--------------------------------------------------------------
|Notes to Consolidated Financial Statements                    
|July 31, 2012 and 2011                                        
|(Expressed in Canadian Dollars, unless otherwise
      stated)

|26 |  SUBSEQUENT EVENTS
|-- | -------------------

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

The Company was then advised by the
  Autorité des Marchés Financiers (the AMF) that, in accordance with the
  guidelines set out in Policy Statement 12-203 respecting Cease Trade Orders for
  Continuous Disclosure Defaults, it had issued a cease trade order that prohibits
  all trading of the securities of the Company. The cease trade order was lifted
  by the AMF in October 2012.

49

---

|ITEM 19. | EXHIBITS
|-------- | --------

EXHIBIT INDEX

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

- 72 -

---

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

Notes to Exhibit Index:

|(A) | Previously filed as an exhibit to SANDs Annual Report on
      Form 20-F for the year ended July 31, 1996 and incorporated herein by
      reference.                            
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                   
|(B) | Previously filed as an exhibit to Amendment No. 1 to
      SANDs Form F-2 Registration Statement (333-12216) filed on August 18,
      2000 and incorporated herein by reference.
|    |                                                                                                                                                                                   
|(C) | Previously filed as exhibit 3.3 to SANDs Annual Report
      on Form 20-F for the year ended July 31, 2002 and incorporated herein by
      reference.                           
|    |                                                                                                                                                                                   
|(D) | Previously filed as exhibit 4.1 to SANDs Annual Report
      on Form 20-F for the year ended July 31, 2005 and incorporated herein by
      reference.                           
|    |                                                                                                                                                                                   
|(E) | Previously filed as exhibit 4.2 to SANDs Annual Report
      on Form 20-F for the year ended July 31, 1996 and incorporated herein by
      reference.                           
|    |                                                                                                                                                                                   
|(F) | Previously filed as exhibit 4.6 to SANDs Annual Report
      on Form 20-F for the year ended July 31, 2007 and incorporated herein by
      reference.                           
|    |                                                                                                                                                                                   
|(G) | Previously filed as exhibit 11.1 to SANDs Annual Report
      on Form 20-F for the year ended July 31, 2005 and incorporated herein by
      reference.                          
|    |                                                                                                                                                                                   
|(H) | Previously filed as exhibit 15.1 to SANDs Annual Report
      on Form 20-F for the year ended July 31, 2005 and incorporated herein by
      reference.                          
|    |                                                                                                                                                                                   
|(I) | Previously filed as exhibit 15.2 to SANDs Annual Report
      on Form 20-F for the year ended July 31, 1996 and incorporated herein by
      reference.                          
|    |                                                                                                                                                                                   
|(J) | Previously filed as exhibit 14.3 to SANDs Annual Report
      on Form 20-F for the year ended July 31, 2003 and incorporated herein by
      reference.                          
|    |                                                                                                                                                                                   
|(K) | Previously filed as exhibit 4.5 to SANDs Annual Report
      on Form 20-F for the year ended July 31, 2008 and incorporated by
      reference.                                  

- 73 -

---

|(L) | Previously filed as exhibit 4.6 to SANDs Annual Report
      on Form 20-F for the year ended July 31, 2008 and incorporated herein by
      reference. 
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                         
|(M) | Previously filed as exhibit 4.7 to SANDs Annual Report
      on Form 20-F for the year ended July 31, 2008 and incorporated herein by
      reference. 
|    |                                                                                                                                                         
|(O) | Previously filed as exhibit 4.12 to SANDs Annual Report
      on Form 20-F for the year ended July 31, 2010 and incorporated herein by
      reference.
|    |                                                                                                                                                         
|(P) | Previously filed as exhibit 4.13 to SANDs Annual Report
      on Form 20-F for the year ended July 31, 2010 and incorporated herein by
      reference.
|    |                                                                                                                                                         
|(Q) | Previously filed as exhibit 4.14 to SANDs Annual Report
      on Form 20-F for the year ended July 31, 2010 and incorporated herein by
      reference.
|    |                                                                                                                                                         
|(R) | Previously filed as exhibit 4.15 to SANDs Annual Report
      on Form 20-F for the year ended July 31, 2011 and incorporated herein by
      reference.
|    |                                                                                                                                                         
|(S) | Previously filed as exhibit 99.1 to SANDs Report on Form
      6-K filed on October 19, 2011 and incorporated herein by
  reference.                   
|    |                                                                                                                                                         
|(T) | Previously filed as exhibit 99.2 to SANDs Report on Form
      6-K filed on October 19, 2011 and incorporated herein by
  reference.                   

- 73 -

---

SIGNATURES

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

|                      | SAND TECHNOLOGY INC.            
|--------------------- | --------------------------------
|                      |                                 
|Dated: March 29, 2013 | By:
      /s/ P. WAYNE MUSSELMAN
|                      | Wayne Musselman                 
|                      | Director                        

- 100 -

---