<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 6-K

          REPORT OF FOREIGN ISSUER PURSUANT TO SECTION 13a-16 OR 15d-16
                     OF THE SECURITIES EXCHANGE ACT OF 1934

         For the Month Ended                     Commission file number
         September 30, 2000                             0-14884

            Exact name of the registrant as specified in its charter

                              SAND TECHNOLOGY INC.
              (formerly Sand Technology Systems International Inc.)

                          Jurisdiction of Incorporation
                                     CANADA

                     Address of principal executive offices:

                     4141 SHERBROOKE STREET WEST, SUITE 410
                        WESTMOUNT, QUEBEC, CANADA H3Z 1B8

                            TELEPHONE (514) 939-3477

         Indicate by check mark whether the registrant files or will file annual
reports under cover Form 20-F or Form 40-F.

                  Form 20-F   X                       Form 40-F
                            -----                               -----

         Indicate by check mark whether the registrant by furnishing the
information contained in this Form is also thereby furnishing the information to
the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.

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

     If "Yes" is marked, indicated below the file number assigned to the
registrant in connection with Rule 12g3-2(b): 82-N/A.

                           Total number of pages is 64.
<PAGE>

                              SAND TECHNOLOGY INC.

                           4141 Sherbrooke Street West
                                    Suite 410
                        Westmount, Quebec, Canada H3Z 1B8

              NOTICE OF ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS

     NOTICE is hereby given that the Annual and Special Meeting of the
Shareholders of SAND TECHNOLOGY INC. (the "Corporation" or "Sand") will be held
at the offices of Lavery, de Billy, 40th Floor, 1 Place Ville Marie, Montreal,
Quebec, Canada, on Friday, October 20, 2000 at 10:00 o'clock (Montreal time) in
the morning (the "Meeting"), for the following purposes:

1.   to receive the Report of the Directors and the accompanying Consolidated
     Financial Statements of the Corporation for the fiscal year ended July 31,
     2000, together with the Report of the Auditors thereon;

2.   to elect five (5) directors;

3.   to appoint auditors and grant the directors the authority to fix the
     remuneration of the auditors;

4.   to consider, and if thought advisable, pass a special resolution to amend
     the Articles of the Corporation to create a new class of shares to be known
     as Class B Shares;

5.   to consider, and if thought advisable, pass a resolution authorizing the
     Corporation to issue 20% or more of its issued and outstanding Class A
     Common Shares in certain circumstances; and

6.   to transact such other business as may properly be brought before the
     Meeting or any adjournment thereof.

The specific details of the matters proposed to be put before the meeting are
set forth in the Management Proxy Circular which accompanies this Notice.

Dated at Westmount, Province of Quebec, Canada, this 11th day of September 2000.

                                           BY ORDER OF THE BOARD OF DIRECTORS,

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

SHAREHOLDERS WHO ARE UNABLE TO BE PRESENT IN PERSON AT THE MEETING ARE REQUESTED
TO FILL IN, DATE, SIGN AND RETURN THE FORM OF PROXY ACCOMPANYING THIS NOTICE. IN
ORDER TO BE VOTED, PROPERLY EXECUTED FORMS OF PROXY MUST BE DEPOSITED NO LATER
THAN FORTY-EIGHT (48) HOURS PRECEDING THE MEETING OR ANY ADJOURNMENT THEREOF,
WITH THE CORPORATION, C/O CONTINENTAL STOCK TRANSFER & TRUST COMPANY, 2
BROADWAY, NEW YORK, NEW YORK 10004, U.S.A.


<PAGE>




                           [INTENTIONALLY LEFT BLANK]


<PAGE>


                              SAND TECHNOLOGY INC.

                           4141 Sherbrooke Street West
                                    Suite 410
                        Westmount, Quebec, Canada H3Z 1B8
                            Telephone: (514) 939-3477


                           MANAGEMENT PROXY CIRCULAR*


                             SOLICITATION OF PROXIES

     THIS MANAGEMENT PROXY CIRCULAR IS FURNISHED IN CONNECTION WITH THE
SOLICITATION BY THE MANAGEMENT OF SAND TECHNOLOGY INC. (THE "CORPORATION" OR
"SAND") OF PROXIES FOR USE AT THE ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS OF
SAND TO BE HELD AT THE OFFICES OF LAVERY, DE BILLY, 40TH FLOOR, 1 PLACE VILLE
MARIE, MONTREAL, QUEBEC, CANADA, ON FRIDAY, OCTOBER 20, 2000 AT 10:00 O'CLOCK
(MONTREAL TIME) IN THE MORNING (THE "MEETING") FOR THE PURPOSES SET FORTH IN THE
ACCOMPANYING NOTICE OF ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS ("NOTICE OF
MEETING") OR AT ANY ADJOURNMENT THEREOF.

SOLICITATION OF PROXIES

     The solicitation of proxies by the Corporation will be primarily by mail
but proxies may be solicited by other means of delivery or in person or by
telephone by directors, officers, regular employees or agents of the Corporation
or its subsidiaries, or by Continental Stock Transfer & Trust Company, its
transfer agent. The solicitation of proxies from non-registered shareholders
will be carried out by intermediaries, or by the Corporation or its transfer
agent if the names and addresses of non-registered shareholders are provided by
such intermediaries (see "Non-Registered Holders"). THE SOLICITATION OF PROXIES
BY THIS CIRCULAR IS BEING MADE BY OR ON BEHALF OF MANAGEMENT OF THE CORPORATION.
The total cost of the solicitation will be borne by the Corporation.

APPOINTMENT OF PROXY

     The persons named in the enclosed form of proxy are Directors and Officers
of the Corporation. A SHAREHOLDER DESIRING TO APPOINT SOME OTHER PERSON (WHO
NEED NOT BE A SHAREHOLDER, DIRECTOR OR AN OFFICER) TO REPRESENT THE SHAREHOLDER
AT THE MEETING MAY DO SO BY INSERTING SUCH PERSON'S NAME IN THE BLANK SPACE
PROVIDED IN THE FORM OF PROXY. The shareholder may direct that the shares of the
shareholder be voted for, or against, or be withheld from voting on matters
specified in the proxy, by marking the form of proxy as appropriate.

     TO BE VALID, A PROXY MUST BE EXECUTED LEGIBLY BY A REGISTERED SHAREHOLDER
AND THE SIGNATURE ON THE PROXY SHOULD BE EXACTLY THE SAME AS ON THE SHARE
CERTIFICATE. A proxy executed by a registered shareholder which is a corporation
must be properly executed.


--------

*  This Management Proxy Circular has been prepared in accordance with Canadian
   requirements. Sand Technology Inc., as a Canadian corporation, became exempt
   in 1991 from compliance with the proxy rules of the United States Securities
   and Exchange Commission. The information herein is given as of September 11,
   2000 unless otherwise indicated. All dollar amounts stated herein are in
   Canadian dollars unless otherwise indicated.

                                       1
<PAGE>



Evidence of authority to sign, satisfactory to the Corporation, may be filed
with such proxy or may be requested by the Corporation or by Continental Stock
Transfer & Trust Company, prior to accepting such proxy for use at the Meeting.
Properly executed forms of proxy must be deposited no later than forty-eight
(48) hours preceding the Meeting or any adjournment thereof, with the
Corporation, c/o Continental Stock Transfer & Trust Company, 2 Broadway, New
York, New York 10004, U.S.A.

Non-Registered Holders

     Only registered holders of Class A Common Shares (the "Common Shares") of
the Corporation, or the persons they appoint as their proxies, are permitted to
attend and vote at the Meeting. However, in many cases, Common Shares of the
Corporation beneficially owned by a holder (a "Non-Registered Holder") are
registered either:

     -    in the name of an intermediary (an "Intermediary") that the
          Non-Registered Holder deals with in respect of the Common Shares, such
          as, among others, banks, trust companies, securities dealers or
          brokers and trustees or administrators of self-administered RRSPs,
          RRIFs, RESPs and similar plans; or

     -    in the name of a clearing agency of which the Intermediary is a
          participant. In accordance with the requirements of National Policy
          Statement No. 41 of the Canadian Securities Administrators, the
          Corporation has distributed copies of the Notice of Meeting, this
          Management Proxy Circular, the Form of Proxy, the 2000 Annual Report
          (which includes Management's Discussion and Analysis of Financial
          Condition and Results of Operations) (collectively, the "Meeting
          Materials") to the clearing agencies and Intermediaries for onward
          distribution to Non-Registered Holders.

     Intermediaries are required to forward Meeting Materials to Non-Registered
Holders unless a Non-Registered Holder has waived the right to receive them.
Very often, Intermediaries will use service companies to forward the Meeting
Materials to Non-Registered Holders. Generally, Non-Registered Holders who have
not waived the right to receive Meeting Materials will either:

     -    be given a proxy which has already been signed by the Intermediary
          (typically by a facsimile, stamped signature) which is restricted as
          to the number of shares beneficially owned by the Non-Registered
          Holder but which is otherwise uncompleted. This form of proxy need not
          be signed by the Non-Registered Holder. In this case, the
          Non-Registered Holder who wishes to submit a proxy should otherwise
          properly complete the Form of Proxy and deposit it with Continental
          Stock Transfer & Trust Company as described above; or

     -    more typically, be given a voting instruction form which must be
          completed and signed by the Non-Registered Holder in accordance with
          the directions on the voting instruction form which may in some cases
          permit the completion of the voting instruction form by telephone.

     The purpose of these procedures is to permit Non-Registered Holders to
direct the voting of the shares they beneficially own. Should a Non-Registered
Holder who receives either a form of proxy, a proxy or a voting instruction form
wish to attend and vote at the Meeting in person (or have another person attend
and vote on behalf of the Non-Registered Holder), the Non-



                                       2
<PAGE>

Registered Holder should strike out the names of the persons named in the proxy
and insert the name of the Non-Registered Holder (or the name of such other
person) in the blank space provided or, in the case of a voting instruction
form, follow the corresponding directions on the form. IN EITHER CASE,
NON-REGISTERED HOLDERS SHOULD CAREFULLY FOLLOW THE INSTRUCTIONS OF THEIR
INTERMEDIARIES, INCLUDING THOSE REGARDING WHEN AND WHERE THE PROXY OR THE PROXY
AUTHORIZATION FORM IS TO BE DELIVERED, AND THEIR SERVICE COMPANIES.

RIGHT OF REVOCATION

     A registered shareholder who has given a proxy may revoke the proxy by (a)
completing and signing a proxy bearing a later date and depositing it with
Continental Stock Transfer & Trust Company as described above; or (b) under
section 148(4) of the CANADA BUSINESS CORPORATIONS ACT by instrument in writing
properly executed by such shareholder or by his attorney authorized in writing,
or if the shareholder is a corporation, under its corporate seal, and deposited
at the registered office of the Corporation at any time up to and including the
last business day preceding the day of the Meeting at which the proxy is to be
used or any adjournments thereof, or depositing such an instrument with the
Chairman of the Meeting prior to the commencement of the Meeting on the day of
the Meeting or any adjournments thereof, or in any other manner permitted by
law.

     A non-registered shareholder may revoke a voting instruction form or a
waiver of the right to receive documents and to vote given to an Intermediary at
any time by written notice to the Intermediary, except that an Intermediary is
not required to act on a revocation of a voting instruction form or of a waiver
of the right to receive documents and to vote that is not received by the
Intermediary at least seven (7) days prior to the Meeting.

                                VOTING OF PROXIES

     The management representatives designated in the enclosed form of proxy
will vote or withhold from voting the shares in respect of which they are
appointed by proxy on any ballot that may be called for in accordance with the
instructions of the shareholder as indicated on the proxy and, if the
shareholder specified a choice with respect to any matter to be acted upon, the
shares will be voted accordingly. IN THE ABSENCE OF SUCH DIRECTION, SUCH SHARES
WILL BE VOTED BY THE MANAGEMENT REPRESENTATIVES FOR THE ELECTION OF DIRECTORS,
FOR THE APPOINTMENT OF AUDITORS AS INDICATED UNDER THOSE HEADINGS IN THIS
CIRCULAR, FOR THE RESOLUTION TO AMEND THE ARTICLES OF THE CORPORATION TO CREATE
A NEW CLASS OF SHARES TO BE KNOWN AS CLASS B SHARES AND FOR A RESOLUTION
AUTHORIZING THE CORPORATION TO COMPLETE PRIVATE PLACEMENTS PROVIDING FOR THE
ISSUANCE OF 20% OR MORE OF THE OUTSTANDING COMMON SHARES OF THE CORPORATION.

     PROXIES IN FAVOUR OF MANAGEMENT CONFER DISCRETIONARY AUTHORITY UPON THE
MANAGEMENT REPRESENTATIVES IN THE FORM OF PROXY WITH RESPECT TO AMENDMENTS TO
MATTERS IDENTIFIED IN THE NOTICE OF MEETING OR OTHER MATTERS THAT MAY PROPERLY
COME BEFORE THE MEETING AND WILL BE VOTED IN ACCORDANCE WITH THE BEST JUDGMENT
OF THE PERSON VOTING THE PROXY. MANAGEMENT KNOWS OF NO SUCH AMENDMENTS OR OTHER
MATTERS TO COME BEFORE THE MEETING.


                                       3
<PAGE>

                                  VOTING SHARES

     The Common Shares of the Corporation are the only shares entitled to vote
at the Meeting of Shareholders. Each Common Share carries one vote. On September
8, 2000, there were 9,627,145 Common Shares outstanding.

     THE BOARD OF DIRECTORS OF SAND (THE "BOARD OF DIRECTORS") HAS FIXED THE
CLOSE OF BUSINESS ON FRIDAY, SEPTEMBER 8, 2000 AS THE RECORD DATE (THE "RECORD
DATE") FOR THE PURPOSE OF DETERMINING SHAREHOLDERS ENTITLED TO RECEIVE NOTICE
OF, AND TO VOTE AT, THE MEETING, but the failure of any shareholder to receive a
Notice of Meeting does not deprive the shareholder of a vote at the Meeting. If
a person has acquired shares after the Record Date, that person is entitled to
vote those shares at the Meeting upon producing properly endorsed share
certificates, or otherwise establishing share ownership, and demanding the
inclusion of his or her name in the list of shareholders not later than ten (10)
days before the date of the Meeting.

     The following are the only persons who, to the knowledge of the directors
and officers of the Corporation, beneficially own or exercise control or
direction over shares carrying more than ten percent (10%) of the votes attached
to the shares of the Corporation:

<TABLE>
<CAPTION>
                         Number of Common Shares         Percentage of Common
                           Beneficially Owned,         Shares Beneficially Owned,
                          Controlled or Directed         Controlled or Directed
                       ---------------------------   ------------------------------
<S>                             <C>                               <C>
ARTHUR G. RITCHIE......         1,996,938                         20.74%

JEROME SHATTNER........         1,023,000                         10.63%
</TABLE>


                              ELECTION OF DIRECTORS

     Pursuant to the Articles and by-laws of the Corporation and the
requirements of the CANADA BUSINESS CORPORATIONS ACT under which the Corporation
is organized, the Board of Directors shall consist of not fewer than three (3)
and not more than eleven (11) directors. The Board of Directors has fixed the
number of directors at five (5). Proxies cannot be voted for a greater number of
persons than the number of nominees named.

     The following is a list of the nominees to serve as directors until the
close of the next annual meeting of shareholders or until their respective
successors are duly elected or appointed. All the nominees are currently
directors of the Corporation with the exception of Mr. Jerome Shattner. Mr.
Georges Dube, who is currently a director of the Corporation, is not a nominee
for election to the Board of Directors. Mr. Dube will serve as a director until
the close of the Meeting. IN THE ABSENCE OF A CONTRARY INSTRUCTION, THE PERSONS
NAMED IN THE ENCLOSED FORM OF PROXY INTEND TO VOTE FOR THE ELECTION OF THE
PERSONS NAMED BELOW, EACH OF WHOM IS PROPOSED AS NOMINEE FOR ELECTION AS A
DIRECTOR. IF, FOR ANY REASON PRIOR TO THE MEETING, IT IS DETERMINED THAT ANY OF
THE FIVE (5) NOMINEES FOR ELECTION WILL BE UNABLE TO SERVE AS A DIRECTOR, THE
PERSONS DESIGNATED IN THE PRINTED PORTION OF THE ACCOMPANYING FORM OF PROXY
INTEND TO VOTE FOR SUCH OTHER PROPERLY QUALIFIED NOMINEE, AS THEY, IN THEIR


                                       4
<PAGE>

DISCRETION, DETERMINE, UNLESS OTHERWISE INSTRUCTED BY THE SHAREHOLDER PURSUANT
TO THE PROXY.

     There is no contract, arrangement or understanding between any proposed
nominee and any other person pursuant to which the nominee is to be elected.

     The information as to shares beneficially owned or over which control or
direction is exercised, not being within the knowledge of the Corporation,
has been furnished by the respective nominees individually.Information as to
the five (5) nominees for election as directors is as follows:

<TABLE>
<CAPTION>
                                                                                         COMMON SHARES
                                                                                     BENEFICIALLY OWNED OR
                                                                                     OVER WHICH CONTROL OR
 NAME                    PRINCIPAL OCCUPATION                    DIRECTOR SINCE     DIRECTION IS EXERCISED
---------------------   -------------------------------------   ----------------   -------------------------
<S>                     <C>                                           <C>                   <C>
ARTHUR G. RITCHIE       Chairman of the Board, President              1983                  1,996,938(1)
                        and Chief Executive Officer
                        of Sand

JOSEPHINE MUNROE        Consultant                                    1990                      1,800

JEROME SHATTNER         President, Sand Technology Systems,           ---                   1,023,000
                        Inc.

MARTIN SHINDLER         Accountant and                                1987                      2,140
                        Business Consultant

GEORGE WICKER           Executive, Lockheed Martin                    1996                    273,550
                        Corporation
</TABLE>

1  In addition, 112,862 Common Shares are owned by two companies controlled by
   trusts of which Arthur G. Ritchie is a trustee.


     A majority of the Board of Directors and of every committee of directors
must be residents of Canada within the meaning given to such term in the CANADA
BUSINESS CORPORATIONS ACT.

     Messrs. Dube and Wicker and Ms. Munroe comprise the Audit Committee. The
Audit Committee has adopted a written Audit Committee Charter. Assuming the
shareholders approve the election of the persons named in the enclosed form of
proxy, the Board of Directors intends to reconstitute the Audit Committee.

     Ms. Munroe and Mr. Shindler comprise the Option Committee which administers
the Share Option Plan, the 1996 Stock Incentive Plan and the 1996 Stock Option
Plan which are described under the subsections entitled "Share Option Plan",
"1996 Stock Incentive Plan" and "1996 Stock Option Plan".

     All nominees for election as directors have held their present positions or
other executive positions with the same or associated firms during the past five
years with the exception of Mr. Jerome Shattner. Mr. Shattner was a founder of
the Corporation and was an executive with the Corporation in the early 1980s
until the Corporation formed a joint venture in Canada with National Advanced
Systems in 1987. Mr. Shattner was President of NAS Canada Inc. (which was
renamed Hitachi Data Systems Inc.) from 1987 to 1999. Mr. Shattner became
President of


                                       5
<PAGE>

Sand Technology Systems, Inc., a wholly-owned subsidiary of the Corporation, on
February 1, 2000.

                            REMUNERATION OF DIRECTORS

     For the fiscal year ended July 31, 2000, each director, other than those
directors who are salaried officers of Sand, was paid a basic annual retainer of
$5,000 for serving as a director and an additional amount of $1,500 per year for
serving as a member of a committee of the Board of Directors.

                             EXECUTIVE REMUNERATION

CASH REMUNERATION

     For the fiscal year ended July 31, 2000, the aggregate cash remuneration
including salaries and bonuses paid by Sand to eight (8) executive officers for
services rendered in all capacities to the Corporation and its subsidiaries
during all or part of the fiscal year as applicable, was $1,621,117.

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

EMPLOYEE COMPENSATION PLAN

     The Corporation 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 noted target income is earned or exceeded. The informal employee
compensation plan is not a mathematical formula with respect to management, but
is the subject of individual negotiation.

SHARE OPTION PLAN

     On November 1, 1989, the Board of Directors adopted a Share Option Plan
(the "Plan") pursuant to which beneficiaries selected by a committee of the
Board of Directors were granted the right to subscribe for Common Shares. The
Plan was administered by a committee (the "Committee") consisting of members of
the Board of Directors who were not eligible, or had waived the right, to
receive options under the Plan.

     The total number of shares which could be issued under the Plan was limited
to 10% of the outstanding Common Shares. The number of Common Shares subject to
options in favour of a single beneficiary could not exceed 5% of the outstanding
Common Shares. The term and number covered by each option as well as the
permitted frequency of exercise of such options were determined by the Committee
at the time the options were granted to the beneficiaries. The exercise price of
each option was the closing price of the Common Shares on The Nasdaq National
Market System on the trading day prior to the day the option was granted or, if
there was no transaction on that day, the average of the bid and ask prices on
that day, less any


                                       6
<PAGE>

discount as decided by the Board of Directors within the extent permitted by the
applicable regulatory provisions. Options granted under the Plan could not be
assigned or pledged. An optionee could obtain from the Corporation, upon
exercise of the option, a loan bearing no interest, within the limit established
by the Board of Directors, to pay for the shares subscribed for by him or her
under the Plan. The recipient of such a loan was required to pledge the shares
subscribed for by him or her under the Plan as security for the repayment of the
loan. The corporation reserved the right to terminate the Plan at any time
subject to vested rights.

     On May 17, 1990, the Board of Directors granted to each of Jerome Shattner
and Arthur G. Ritchie 440,000 stock options (as adjusted to reflect the share
subdivision on a two-for-one basis on December 31, 1996) entitling the holder of
each option to purchase one Common Share per stock option at an exercise price
of US$0.25 per Common Share. These options were exercisable at any time over a
ten-year period. Jerome Shattner exercised all his outstanding options on
October 23, 1996 and Arthur G. Ritchie exercised all his outstanding options on
November 11, 1999. The Board of Directors of the Corporation approved a demand
loan in the amount of US$110,000 in favour of Arthur G. Ritchie upon the
exercise of his options within the limits established by the Plan and Mr.
Ritchie pledged the shares subscribed for by him as security for repayment of
the loan. Mr. Ritchie subsequently repaid to the Corporation the full amount of
the loan. The Corporation has no options outstanding under the Plan.

The Corporation has terminated the Plan.

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 Corporation at the Annual and Special Meeting of the
shareholders held on December 17, 1996. Prior to November 9, 2000, the Incentive
Plan provided that a maximum of 800,000 Common Shares (as adjusted to reflect
the share subdivision on a two-for-one basis on December 31, 1996) were issuable
pursuant to options granted under the Incentive Plan. On November 9, 1999, by
resolution, the directors of the Corporation amended the Incentive Plan to
increase the maximum aggregate number of Common Shares which may be issued and
sold pursuant to options granted under the Incentive Plan by an additional
300,000 Common Shares. This resolution of the directors was confirmed, approved
and ratified by the shareholders of the Corporation at the Annual and Special
Meeting of the shareholders held on December 17, 1999. As at September 1, 2000,
287,500 options had been granted and remained outstanding under the Incentive
Plan and 812,500 options remained available for grant.

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

     The total number of Common Shares of the Corporation 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


                                       7
<PAGE>

Corporation. 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 Corporation.

     The term and number of Common Shares covered by each option as well as the
permitted frequency of exercise of such options are determined by the Committee
at the time the options are granted to the recipients. The number of Common
Shares which may be subject to option in favour of a single recipient may not
exceed 5% of the outstanding Common Shares of the Corporation. An option is to
be exercised within a period of ten (10) years after the date on which the
option is granted. The exercise price of each option for Common Shares is not
less than the closing price of the Common Shares on the The Nasdaq National
Market System on the trading day prior to the day the option is granted or, if
there was no transaction on that day, the average of the bid and ask prices on
that day, less any discount 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
Corporation may terminate the Incentive Plan at any time, subject to vested
rights.

     During the fiscal year ended July 31, 2000, the Committee granted options
to purchase an aggregate of 22,000 Common Shares to two officers and an
aggregate of 77,250 Common Shares to 15 employees at exercise prices which vary
from US$3.625 to US$8.625 per share which were not less than the respective
closing prices of the Common Shares on The Nasdaq National Market System on the
day prior to each grant and 426,750 options were cancelled. One officer
exercised options as to 14,000 Common Shares at US$5.00 per share and one
employee exercised options as to 2,000 Common Shares at US$3.75 per share.

1996 STOCK OPTION PLAN

     On July 8, 1996, the Board of Directors adopted the 1996 Stock Option Plan
(the "Option Plan") pursuant to which the beneficiaries selected by a committee
of the Board of Directors may be granted options to subscribe for Common Shares.
The Option Plan was confirmed, approved and ratified by the shareholders of the
Corporation at the Annual and Special Meeting of the shareholders held on
December 17, 1996. Prior to November 9, 2000, the Option Plan provided that a
maximum of 700,000 Common Shares (as adjusted to reflect the share subdivision
on a two-for-one basis on December 31, 1996) were issuable pursuant to options
granted under the Option Plan. On November 9, 1999, by resolution, the directors
of the Corporation amended the Option Plan to increase the maximum aggregate
number of Common Shares which may be issued and sold pursuant to options granted
under the Option Plan by an additional 200,000 Common Shares. This resolution of
the directors was confirmed, approved and ratified by the shareholders of the
Corporation at the Annual and Special Meeting of the shareholders held on
December 17, 1999. As at September 1, 2000, 674,500 options had been granted and
remained outstanding under the Option Plan and 225,500 remained available for
grant.

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

         The total number of Common Shares of the Corporation authorized for
grants of options is 900,000 (as adjusted to reflect the share subdivision on a
two-for-one basis on December 31,


                                       8
<PAGE>

1996) subject to adjustment to take into account changes in the capital
structure of the Corporation. 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 Corporation.

     The term and number of Common Shares covered by each option as well as the
permitted frequency of exercise of such options are determined by the Committee
at the time the options are granted to the recipients. An option is to be
exercised within a period of ten (10) years after the date on which the option
is granted. The exercise price of each option for Common Shares is not less than
the price of the Common Shares as determined by the Committee within the extent
permitted by the applicable regulatory provisions. Options granted under the
Option Plan may not be assigned or pledged. No financial assistance is available
to recipients in connection with the exercise of an option. Options which expire
or are terminated or surrendered or unexercised are thereafter available for the
granting of other options. Corporation may terminate the Option Plan at any time
subject to vested rights.

     During the fiscal year ended July 31, 2000, the Committee granted options
to purchase an aggregate of 10,000 Common Shares to one officer and an aggregate
of 162,000 Common Shares to 40 employees at exercise prices which vary from
US$5.00 to US$6.313 per share which were not less than the respective closing
prices of the Common Shares on The Nasdaq National Market System on the day
prior to each grant and 78,000 options were cancelled. One officer exercised
options as to 64,000 Common Shares at US$0.6562 per share.

EMPLOYMENT AGREEMENT

     Arthur G. Ritchie, Chairman of the Board, President and Chief Executive
Officer and a Director of the Corporation, entered into an employment agreement
("the Agreement") with the Corporation upon the expiry of his previous
employment agreement on December 31, 1993. The Agreement, effective January 1,
1994 was for an initial term of five (5) years and is automatically extended for
additional periods of twelve (12) months each unless the Corporation or Mr.
Ritchie shall have given the other a notice of termination of the Agreement not
less than three (3) months prior to the end of its term. In the event the
employment of Mr. Ritchie (i) is terminated by the Corporation for any reason
other than for Cause (as defined in the Agreement) or death or (ii) is
terminated by Mr. Ritchie for Good Reason (as defined in the Agreement), Mr.
Ritchie will be entitled to receive, among other things, a lump sum payment
equivalent to two (2) times the sum of his then current annual base salary and
the amount of the bonuses received by him in the immediate past year and Mr.
Ritchie shall continue for a period of two (2) years to participate in all plans
and programs of the Corporation to the extent such participation is possible,
and, if such continued participation is barred, to receive amounts equal to the
out-of-pocket costs of participation in plans and programs providing
substantially similar benefits. On January 1, 2000, the employment of Mr.
Ritchie with the Corporation was automatically extended to December 31, 2000 on
terms similar to those in the Agreement and it is expected that his employment
shall be extended beyond January 1, 2001 either on terms similar to those in the
Agreement or on terms to be agreed upon.

INTEREST OF INSIDERS IN MATERIAL TRANSACTIONS

     On July 15, 1994, Sand entered into a Purchase Agreement with Nucleus
International Corporation pursuant to which Sand acquired all of the rights in
the Nucleus System including software, hardware and intellectual property. On
July 31, 2000, Sand and Nucleus International Corporation entered into an
agreement to modify their existing agreement so as to enable Sand


                                       9
<PAGE>

to defer payment of a sum of US$350,038 to Nucleus International Corporation
from August 15, 2000 to November 15, 2000 and to convert future payments in the
amount of US$1,250,000 into the issue of Common Shares to Nucleus International
Corporation. 263,150 Common Shares were issued by Sand to Lakeside Financial
Services, a nominee of Nucleus International Corporation, on July 31, 2000 at a
price of US$4.75 per share. George Wicker, a director of Sand, is the Chief
Operating Officer and Secretary of Nucleus International Corporation and an
officer, director and shareholder of Lakeside Financial Services.


                                SPECIAL BUSINESS


                I - AMENDMENT TO THE ARTICLES OF THE CORPORATION

                         TO CREATE A NEW CLASS OF SHARES

     The board of directors has determined that it is in the best interests of
the Corporation to create a new class of shares to be designated as Class B
Shares in order to enable the Corporation to have the flexibility to respond in
a timely and effective manner to opportunities to obtain financing which may
arise from time to time. The Board believes that the creation of a new class of
shares issuable in series and ranking senior to the Common Shares will provide
such flexibility. The Corporation is in the process of identifying specific
financings, but to date no negotiations are currently being actively pursued.

Attributes of the Class B Shares

     The rights, privileges, conditions and restrictions attaching to the Class
B Shares are summarized below.

     The directors of the Corporation will be entitled at any time to issue the
Class B Shares in series and to fix the rights, privileges, conditions and
restrictions attaching to the Class B Shares of each series. The Class B Shares
of each series will, with respect to the payment of dividends and the
distribution of assets in the event of liquidation, dissolution or winding-up of
the Corporation or any other distribution of the assets of the Corporation among
its shareholders for the purpose of winding up its affairs, rank on a parity
with the Class B Shares of every other series and be entitled to priority over
the Common Shares. In the event of the liquidation, dissolution, winding-up or
other distribution of assets of the Corporation, the holders of the Class B
Shares will be entitled to receive the amount paid up thereon together with all
accrued and unpaid dividends, the whole before any amount shall be paid to
holders of the Common Shares.

Approval of the Holders of Common Shares Required

     As the creation of a class of shares ranking senior to the Common Shares of
the Corporation requires the approval of the shareholders of the Corporation,
the shareholders will be asked to consider and, if thought appropriate, pass a
special resolution approving the amendment of the articles of the Corporation
to, among other things, create a new class of shares to be designated as Class B
Shares issuable in series. The special resolution authorizes the Board of
Directors to revoke this special resolution without further approval of
shareholders of the Corporation at any time prior to the issuance of a
certificate of amendment.


                                       10
<PAGE>

     The full text of the proposed special resolution is set out in Schedule 1
to this Management Proxy Circular.

     To be effective, this special resolution must be passed by at least
two-thirds of the votes cast by shareholders present in person or represented by
proxy at the Meeting. The Board of Directors unanimously recommends that
shareholders vote in favour of passing this special resolution.

     IN THE ABSENCE OF A CONTRARY INSTRUCTION, THE PERSONS NAMED IN THE ENCLOSED
FORM OF PROXY INTEND TO VOTE IN FAVOUR OF PASSING THIS SPECIAL RESOLUTION.


     II - AUTHORIZATION FOR THE CORPORATION TO ISSUE 20% OR MORE OF ITS ISSUED
          AND OUTSTANDING COMMON SHARES IN CERTAIN CIRCUMSTANCES

     The primary source of capital presently available to the Corporation is
equity financing. In order for to finance its ongoing business activities, the
Corporation entered into a Common Share Purchase Agreement (the "Agreement")
with Sundowner Investments Limited ("Sundowner") on May 26, 2000 for the future
issuance and purchase of Common Shares of the Corporation. The Agreement
establishes what is sometimes called an equity line of credit. Sundowner has
committed to purchase up to US$30,000,000 of Common Shares to be issued over a
12-month period. Once every 22 trading days, the Corporation may request a
draw-down of up to US$3,000,000 of that money, subject to a formula based on the
volume-weighted average price and average trading volume of the Common Shares of
the Corporation. At the end of a 22-day trading period following the draw-down
request, the Corporation and Sundowner will calculate the amount of money that
Sundowner will provide to the Corporation and the number of shares the
Corporation will issue to Sundowner in return for that money, based upon the
formula set out in the Agreement.

     Sundowner will receive a ten percent (10%) discount to the volume-weighted
average market price for the 22-day period and the Corporation will receive the
amount of the draw-down less an escrow agent fee of US$1,500 and a six percent
(6%) cash placement fee to the placement agent, Ladenburg Thalmann & Co. Inc. As
an additional placement fee, the Corporation has issued to Ladenburg Thalmann &
Co. Inc. warrants to purchase 182,278 Common Shares at an exercise price of
US$5.6781 per share. The Corporation has also issued to Sundowner warrants to
purchase 182,278 Common Shares at an exercise price of US$5.6781 per share.

     The Corporation may make up to a maximum of twelve (12) draw-downs;
however, the aggregate total of all draw-downs cannot exceed US$30,000,000 and
no single draw-down can be less than US$250,000 or more than US$3, 000,000.
Based on a review of its trading volume and stock price history and the number
of draw-downs it estimates making, the Corporation registered 6,857,142 Common
Shares for possible issuance under the Agreement and 364,556 Common Shares
underlying the warrants delivered to Sundowner and Ladenburg Thalmann & Co. Inc.
The listing requirements of The Nasdaq National Market System prohibit the
Corporation from issuing 20% or more of its issued and outstanding Common Shares
in a single transaction if the shares may be issued for less than the greater of
market value or book value. Based on the number of Common Shares issued and
outstanding on the date of the closing of the Agreement, June 1, 2000, the
Corporation may not issue more than 1,867,999 Common Shares under the Agreement,
the Sundowner warrant and the Ladenburg Thalmann warrant,


                                       11
<PAGE>

without the approval of shareholders. Because 364,556 of these shares are
committed to the Sundowner warrant and the Ladenburg Thalmann warrant, if the
Corporation wishes to draw amounts which would cause an issuance of more than
1,503,443 Common Shares under the Agreement, the Corporation must receive
shareholder approval prior to any such draw-down.

     The Board of Directors is unanimously of the view that it is in the best
interests of the Corporation to obtain the approval of the shareholders of the
Corporation in order to allow the Corporation to issue and exercise the
draw-downs and to take advantage of the flexibility resulting from this
financing opportunity in a timely and effective manner. Approval will in
particular obviate the necessity of obtaining shareholder approval for each
specific draw-down in which the number of Common Shares to be issued would
require shareholder approval and enable the Corporation to reduce the costs
which it would otherwise have to incur to obtain such approval.

     At the Meeting, the text of the resolution set out in Schedule 2 will be
placed before the shareholders for approval.

     To be effective, this resolution must be passed by a majority of the votes
cast by shareholders present in person or represented by proxy at the Meeting.
The Board of Directors unanimously recommends that shareholders vote in favour
of passing this resolution. Under the requirements of The Nasdaq National Market
System, any votes cast by the holders of Common Shares issued under the Common
Share Purchase Agreement, the Sundowner Warrant or the Ladenburg Thalmann
warrant will not be counted in determining whether the requisite majority vote
has been obtained. However, no such Common Shares were outstanding on the Record
Date of the Meeting.

     IN THE ABSENCE OF A CONTRARY INSTRUCTION, THE PERSONS NAMED IN THE ENCLOSED
FORM OF PROXY INTEND TO VOTE IN FAVOUR OF PASSING THIS RESOLUTION.


                   DIRECTORS AND OFFICERS LIABILITY INSURANCE

     Sand maintains directors' and officers' liability insurance which, subject
to the provisions and exclusions contained in the policy, protects the directors
and officers, as such, against any claims made during the term of their office
against any of them for a wrongful act, provided they acted honestly and in good
faith with a view to the best interests of Sand. The policy provides coverage
with a limit of US$2,000,000 in each policy year, subject to a corporate
reimbursement deductible of US$100,000 per loss. The current annual premium is
paid entirely by the Corporation and amounts to US$48,275. To the extent
permitted by law, Sand has entered into an indemnification agreement with each
of its directors and senior officers.


                                    AUDITORS

     There will be submitted to the Meeting a resolution to reappoint Deloitte &
Touche, Chartered Accountants, to the office of auditors of Sand for a term
expiring at the close of the next annual meeting of shareholders and to
authorize the directors to fix their remuneration. Deloitte & Touche has acted
as the auditors of the Corporation for more than five (5) years.


                                       12
<PAGE>

Representatives of Deloitte & Touche will be present at the Meeting with the
opportunity to make a statement if they so desire and to respond to appropriate
questions.

     IN THE ABSENCE OF A CONTRARY INSTRUCTION, THE PERSONS NAMED IN THE ENCLOSED
FORM OF PROXY INTEND TO VOTE FOR THE RE-APPOINTMENT OF DELOITTE & TOUCHE,
CHARTERED ACCOUNTANTS, AS AUDITORS OF THE CORPORATION TO HOLD OFFICE UNTIL THE
CLOSE OF THE NEXT ANNUAL MEETING OF SHAREHOLDERS AND TO AUTHORIZE THE DIRECTORS
TO FIX THEIR REMUNERATION.

                            AVAILABILITY OF DOCUMENTS

     COPIES OF THE FOLLOWING DOCUMENTS ARE AVAILABLE ON THE WRITTEN REQUEST OF
THE VICE PRESIDENT, FINANCE AND ADMINISTRATION AT THE ADDRESS SHOWN FOR SAND
APPEARING ON PAGE 1 OF THIS MANAGEMENT PROXY CIRCULAR: THE FORM 20-F FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION; THE 2000 ANNUAL REPORT TO SHAREHOLDERS
CONTAINING THE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JULY 31, 2000
TOGETHER WITH THE AUDITORS' REPORT THEREON AND MANAGEMENT'S DISCUSSION AND
ANALYSIS IN RESPECT THEREOF; THE INTERIM FINANCIAL STATEMENTS FOR FISCAL PERIODS
SUBSEQUENT TO JULY 31, 2000 AND THIS MANAGEMENT PROXY CIRCULAR.

                              APPROVAL OF DIRECTORS

     THE CONTENTS AND THE SENDING OF THIS MANAGEMENT PROXY CIRCULAR HAVE BEEN
APPROVED BY THE BOARD OF DIRECTORS OF SAND.




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


Westmount, Quebec
September 11, 2000


                                       13
<PAGE>


                                   SCHEDULE 1
                                   ----------

                  AMENDMENT TO THE ARTICLES OF THE CORPORATION
                         TO CREATE A NEW CLASS OF SHARES
                  --------------------------------------------


BE IT RESOLVED AS A SPECIAL RESOLUTION THAT:

1.   AMENDMENT OF SHARE CAPITAL. The authorized and outstanding share capital of
     the Corporation is amended as follows:

     1.1  By the creation of an unlimited number of Class B Shares, issuable in
          series, all without par value;

     so that the authorized share capital of the Corporation shall consist of an
     unlimited number of Class B Shares, issuable in series, all without par
     value and an unlimited number of Class A Common Shares, all without par
     value.

2.   PROVISIONS ATTACHING TO THE CLASS B SHARES. The Class B Shares, as a class,
     shall have attached thereto the following rights, privileges, restrictions
     and conditions:

     2.1  DIRECTORS' AUTHORITY TO ISSUE IN ONE OR MORE SERIES. The Board of
          Directors of the Corporation 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
          Corporation shall fix the limited or unlimited number of shares in
          such series and shall 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), 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 Corporation shall send to the Director (as
          defined in the CANADA BUSINESS CORPORATIONS ACT) articles of amendment
          containing a description of such series including the designation,
          rights, privileges, restrictions and conditions determined by the
          Board of Directors of the Corporation.

     2.2  RANKING OF CLASS B SHARES. No rights, privileges, restrictions or
          conditions attached to a series of Class B Shares shall 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 shall be entitled to priority over the common shares of the
          Corporation and over any other shares of the Corporation


                                       14
<PAGE>

          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 Corporation, whether
          voluntary or involuntary, or any other distribution of the assets of
          the Corporation 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 shall 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 shall first be paid and satisfied
          and any assets remaining thereafter shall 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, not
          inconsistent with sections 2.1 to 2.4 hereof, 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.

     2.3  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
          shall not be entitled as such to receive notice of, to attend or to
          vote at any meeting of the shareholders of the Corporation.

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

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

3.   PROVISIONS ATTACHING TO THE CLASS A COMMON SHARES. The Class A Common
     Shares of the Corporation shall have attached thereto the following rights,
     privileges, restrictions and conditions:


                                       15
<PAGE>

     3.1  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 shall be entitled to receive
          dividends and the Corporation shall pay dividends thereon, as and when
          declared by the Board of Directors of the Corporation out of moneys
          properly applicable to the payment of dividends, in such amount and in
          such form as the Board of Directors of the Corporation may from time
          to time determine and all dividends which the Board of Directors of
          the Corporation may declare on the Class A Common Shares shall be
          declared and paid in equal amounts per share on all Class A Common
          Shares at the time outstanding.

     3.2  DISSOLUTION. In the event of the dissolution, liquidation or
          winding-up of the Corporation, whether voluntary or involuntary, or
          any other distribution of assets of the Corporation 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 shall be entitled to receive the
          remaining property and assets of the Corporation.

     3.3  VOTING RIGHTS. The holders of the Class A Common Shares shall be
          entitled to receive notice of and to attend all meetings of the
          shareholders of the Corporation and shall have one vote for each Class
          A Common Share held at all meetings of the shareholders of the
          Corporation, except meetings at which only holders of another
          specified class or series of shares of the Corporation are entitled to
          vote separately as a class or series.

4.   Any director or officer of the Corporation be and he/she is hereby
     authorized and directed to sign for and on behalf of the Corporation, the
     Articles of Amendment containing the provisions of the previous paragraphs
     and to do all things and sign all other documents necessary or desirable to
     effect the amendment of the Articles of the Corporation contemplated by
     this special resolution, and to obtain any regulatory approval in
     connection therewith.

5.   The directors of the Corporation may revoke the foregoing resolution
     without further approval of the shareholders of the Corporation at any time
     prior to the issue by the Director of a Certificate of Amendment relating
     to it.


                                       16
<PAGE>


                                   SCHEDULE 2
                                   ----------

                   AUTHORIZATION FOR THE CORPORATION TO ISSUE
             20% OR MORE OF ITS ISSUED AND OUTSTANDING COMMON SHARES
                            IN CERTAIN CIRCUMSTANCES
             -------------------------------------------------------


WHEREAS the listing requirements of The Nasdaq National Market System prohibit
the Corporation from issuing 20% or more of its issued and outstanding Common
Shares in a single transaction if the shares may be issued for less than the
greater of market value or book value;

WHEREAS the Corporation entered into a Common Share Purchase Agreement with
Sundowner Investments Limited on May 26, 2000 whereby Sundowner Investments
Limited committed to purchase Common Shares in an amount up to US$30,000,000 to
be issued over a twelve-month period pursuant to draw-downs initiated by the
Corporation;

BE IT RESOLVED AS AN ORDINARY RESOLUTION THAT

1.   the Corporation be and it is hereby authorized to issue up to 6,857,142
     Common Shares under a Common Share Purchase Agreement entered into with
     Sundowner Investments Limited on May 26, 2000 and up to 364,556 Common
     Shares underlying the warrants delivered to Sundowner Investments Limited
     and Ladenburg Thalmann & Co., Inc. pursuant to the said Common Share
     Purchase Agreement; and

2.   any officer or director of the Corporation be and he/she is hereby
     authorized and directed to execute and to deliver all documents and to do
     all things as such person may, in his/her discretion, consider necessary or
     desirable to give full effect to the foregoing resolution.


                                       17
<PAGE>
                              SAND TECHNOLOGY INC.

                              INSTRUMENT OF PROXY

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS AND MANAGEMENT OF
SAND TECHNOLOGY INC. (HEREINAFTER CALLED THE "CORPORATION") AND WILL BE USED AT
THE ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS (HEREINAFTER CALLED THE
"MEETING") OF THE CORPORATION TO BE HELD ON FRIDAY, OCTOBER 20, 2000 AND AT
EVERY ADJOURNMENT THEREOF.

The undersigned shareholder of Sand Technology Inc. hereby appoints Arthur G.
Ritchie, Chairman of the Board of the Corporation or failing him, George Wicker,
a director of the Corporation, or instead of any of
them, ________________________________________________________ , as the proxy of
the undersigned to attend, act and vote in respect of all Class A Common Shares
held by the undersigned, at the Annual and Special Meeting of the Shareholders
of the Corporation, to be held on Friday, October 20, 2000 at 10:00 o'clock
(Montreal time) in the morning at the offices of Lavery, de Billy, 40th Floor,
1 Place Ville Marie, Montreal, Quebec, Canada, and at every adjournment thereof
and on every ballot that may take place in consequence thereof. Without limiting
the general powers hereby conferred, the undersigned hereby instructs the said
proxy to vote in the following manner on the following matters:

<TABLE>
<CAPTION>

<S> <C>                                                                  <C>                        <C>
1.  Election as directors: Josephine Munroe, Arthur G. Ritchie,          VOTE FOR / /               WITHHOLD FROM VOTING / /
    Jerome Shattner, Martin Shindler and George Wicker
2.  Appointment of Deloitte & Touche, as auditors of the                 VOTE FOR / /               WITHHOLD FROM VOTING / /
    Corporation and authorization for the directors of the
    Corporation to fix their remuneration
3.  On the special resolution to amend the Articles of the               VOTE FOR / /               VOTE AGAINST / /
    Corporation to create a new class of shares to be known as
    Class B shares
4.  On the resolution to authorize the Corporation to issue 20%          VOTE FOR / /               VOTE AGAINST / /
    or more of its issued and outstanding Class A Common Shares
    in certain circumstances
5.  At the discretion of the said proxy, upon any amendment to the matters identified above or other matters that may properly
    come before the Meeting, or any adjournment thereof.
</TABLE>

THIS PROXY CONFERS DISCRETIONARY AUTHORITY UPON THE PERSONS NAMED HEREIN WITH
RESPECT TO AMENDMENTS TO THE MATTERS IDENTIFIED ABOVE AND WITH RESPECT TO SUCH
OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING. AT THE TIME OF THE
PRINTING OF THIS INSTRUMENT OF PROXY, THE MANAGEMENT OF THE CORPORATION KNOWS OF
NO SUCH AMENDMENTS OR OTHER MATTERS OTHER THAN THE MATTERS REFERRED TO IN THE
NOTICE OF THE MEETING. THE SHARES REPRESENTED BY THIS PROXY SHALL BE VOTED,
WHERE DESIGNATED, IN THE MANNER SO DESIGNATED. IF NO DESIGNATION IS MADE, THIS
PROXY WILL BE VOTED IN FAVOUR OF EACH PROPOSAL.

THE UNDERSIGNED HEREBY REVOKES ANY PROXIES HERETOFORE GIVEN.

DATED this                                                day
of                                                2000.

_____________________________________________________________________________

                    NAME OF
                         SHAREHOLDER
                      (print name)

_____________________________________________________________________________

                    SIGNATURE OF
                         SHAREHOLDER
<PAGE>
THE PERSONS DESIGNATED IN THIS INSTRUMENT OF PROXY ARE DIRECTORS OF THE
CORPORATION. A SHAREHOLDER HAS THE RIGHT TO APPOINT A PERSON (WHO NEED NOT BE A
SHAREHOLDER) OTHER THAN A PERSON DESIGNATED IN THIS INSTRUMENT OF PROXY TO
ATTEND AND ACT FOR HIM/HER AND ON HIS/HER BEHALF AT THE MEETING. SUCH RIGHT MAY
BE EXERCISED BY INSERTING THE NAME OF THE DESIRED REPRESENTATIVE IN THE BLANK
SPACE PROVIDED AND STRIKING OUT THE NAMES OF THE NOMINEES OF THE BOARD OF
DIRECTORS AND MANAGEMENT. ANOTHER APPROPRIATE FORM OF PROXY MAY BE SUBMITTED.

The Instrument of Proxy must be signed by the shareholder or his/her attorney
authorized in writing or, if such shareholder is a corporation, under its
corporate seal or by an officer or attorney thereof duly authorized. Persons
signing as executors, administrators, trustees, etc., should so indicate and
give their full title as such. A partnership should sign in the partnership name
by an authorized person(s).

IN ORDER TO BE VALID AND ACTED UPON OR VOTED, PROPERLY EXECUTED FORMS OF PROXY
MUST BE DEPOSITED NO LATER THAN FORTY-EIGHT (48) HOURS PRECEEDING THE MEETING OR
ANY ADJOURNMENT THEREOF WITH THE CORPORATION, C/O CONTINENTAL STOCK TRANSFER &
TRUST COMPANY, 2 BROADWAY, NEW YORK, N.Y. 10004, U.S.A.

THIS PROXY SHOULD BE DATED AND THE SIGNATURE ON THE PROXY SHOULD BE EXACTLY THE
SAME IN WHICH THE SHARES ARE REGISTERED. IF THIS PROXY IS NOT DATED, IT SHALL BE
DEEMED TO BEAR THE DATE ON WHICH IT WAS DEPOSITED WITH THE CORPORATION.
<PAGE>

                                     [LOGO]





                               2000 ANNUAL REPORT

                              SAND TECHNOLOGY INC.


<PAGE>

                                    CONTENTS

                              SAND TECHNOLOGY INC.

<TABLE>
<S>                                                                          <C>
Letter to Shareholders.........................................................1

Financial Highlights...........................................................3

Management's Discussion and Analysis of Financial Condition....................5

Auditors' Report..............................................................21

Consolidated Balance Sheets...................................................22

Consolidated Statements of Operations.........................................23

Consolidated Statements of Shareholders' Equity...............................24

Consolidated Statements of Cash Flows.........................................25

Notes to the Consolidated Financial Statements................................26

Directors and Officers........................................................37

Shareholders' Information.....................................................38
</TABLE>


NUCLEUS, NUCLEUS SERVER, N:VECTOR AND MPSO ARE REGISTERED TRADEMARKS AND NUCLEUS
EXPLORATION MART, NUCLEUS EXPLORATION WAREHOUSE, NUCLEUS VIRTUAL DATABASE (VDB),
NUCLEUS POWERED!, AND NUCLEUS E! ARE TRADEMARKS OF SAND TECHNOLOGY INC. OTHER
TRADEMARKS ARE THE PROPERTY OF THEIR RESPECTIVE OWNERS.




     THIS ANNUAL REPORT CONTAINS STATEMENTS WHICH, TO THE EXTENT THAT THEY
ARE NOT RECITATIONS OF HISTORICAL FACT, CONSTITUTE "FORWARD LOOKING STATEMENTS"
WITHIN THE MEANING OF THE SECURITIES ACT OF 1993 AND OF THE SECURITIES EXCHANGE
ACT OF 1934. ALL FORWARD LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES. THE
FORWARD LOOKING STATEMENTS IN THIS DOCUMENT ARE INTENDED TO BE SUBJECT TO THE
SAFE HARBOR PROTECTION PROVIDED BY THE ABOVE-NAMED ACTS. FOR A DISCUSSION
IDENTIFYING SOME IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE ANTICIPATED IN THE FORWARD LOOKING STATEMENTS, SEE THE
CORPORATION'S SECURITIES AND EXCHANGE COMMISSION FILINGS, INCLUDING BUT NOT
LIMITED TO ITS ANNUAL REPORT ON FORM 20-F FOR THE FISCAL YEAR ENDED JULY 31,
2000 AND "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" FOUND IN THIS ANNUAL REPORT.


<PAGE>

LETTER TO SHAREHOLDERS
--------------------------------------------------------------------------------

Fellow Shareholders,


     This year marks a real milestone in the market acceptance of our Nucleus
products. Sand more than tripled its sales revenues over those of last year.
Especially encouraging is the excellent feedback we receive from our existing
customers and their identification of new applications for Nucleus. We have been
acquiring new customers every quarter.

     The results of the past financial year confirm our marketing strategy of
having our Nucleus product suite adopted by a wide range of organizations. Our
sales approach in North America and Europe has been restructured and
demonstrates the commitment of Sand to its customers and partners. Sand is
augmenting every Nucleus software implementation with Sand consulting services,
thus providing an enhanced revenue stream, quick and effective adoption of the
Nucleus product, and total customer satisfaction.

     The Company suffered a net loss for its fiscal year ended July 31, 2000 of
$(2,866,907) or $(0.321) per share on sales of $6,895,016, as compared to a net
loss of $(4,960,964) or $(0.582) per share on sales of $2,091,067 for the fiscal
year ended July 31, 1999. These improved results are gratifying and reflect the
ongoing evolution of Sand into an enterprise which designs, develops, markets
and supports software products, and in particular its Nucleus Exploration
product suite.

     Sand recently obtained what is known as an equity line credit which will
enable the Company to raise up to $30 million from a private investment group
over the next year. Sand will draw funds only at its discretion, and is under no
obligation to sell shares. This facility will allow us to aggressively pursue
our Nucleus B2B, B2C and B2E opportunities, increase our marketing to key
industries, and maintain our research and development efforts.

     We are excited about the expansion of our product line in fiscal 2001 with
the introduction of Nucleus-E!(TM), the latest addition to our Nucleus
Exploration product suite line. Nucleus-E! is a critical development which is
expected to be our springboard into the burgeoning Internet electronic commerce
market. Nucleus-E!'s engine has already been validated in customer trials and
large-scale benchmarks with major server manufacturers.


                                       1
<PAGE>

     Nucleus-E! provides the high availability, complex query and update
capabilities required for the next wave of e-commerce applications. Until now,
the problem with Internet-based buying systems has been the difficulty in
enabling customers to select product details with a wide search criteria, while
also ensuring that the results they obtain enable the completion of the sale.
Nucleus-E! solves the problem by providing applications that are driven by user
buying criteria, rather than by static online product catalogues.

     Already Sand has entered into an initial contract with a leading European
travel service provider -- valued at over CDN$3 million in product and services
-- to power an exciting new approach allowing travellers to design and reserve
customized tour itineraries using functionality designed into Nucleus-E!.

     I am sure you join me in commending our employees for their hard work,
dedication and accomplishments. We thank all those with whom we do business, be
they customers, distributors, suppliers, end-users or advisors.



September 11, 2000



                                /s/ Arthur G. Ritchie
                                ------------------------------------------------
                                Arthur G. Ritchie
                                Chairman, President and Chief Executive Officer


                                       2
<PAGE>

FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------

     The audited consolidated financial statements of the Corporation for fiscal
year 2000 and the notes relating to them (the "Financial Statements") are
presented in accordance with Canadian generally accepted accounting principles
("Canadian GAAP"). The monetary figures throughout this Annual Report are
presented consistent with Canadian GAAP except where otherwise indicated.

     The following data expressed in Canadian dollars are derived from the
Financial Statements that have been audited by Deloitte & Touche, auditors of
the Corporation. The information set forth below is not necessarily indicative
of the results of future operations and should be read in conjunction with, and
is qualified in its entirety by, the Financial Statements appearing elsewhere in
this Annual Report.

                   (Dollars in Thousands (000's) except for
                     Per Share Data and Rates of Exchange)

<TABLE>
<CAPTION>
                                                                        FISCAL YEAR ENDED
                                                  -------------------------------------------------------------
                                                     7/31/98               7/31/99              7/31/00
                                                  -------------------------------------------------------------
                                                        CA                   CA                    CA
<S>                                                  <C>                   <C>                  <C>

Rates of exchange
   At period end -- US$...................             $1.52                 $1.51                $1.49
   Average for the period.................             $1.43                 $1.51                $1.47

Results of Operations
   Net Sales..............................            $3,088                $2,091               $6,895
   Research and Development Costs...                 $(2,080)              $(3,872)             $(3,790)
   Selling, General and Administrative
     Expenses.............................           $(2,923)              $(4,458)             $(7,837)
   Cost of Sales and Product Support......             $(662)                $(345)             $(2,343)

Net Income (Loss).........................             $(907)              $(4,961)             $(2,867)

Financial Position
   Working Capital........................            $6,000                $1,427               $4,475
   Total Assets...........................           $10,908                $8,273               $9,071
   Total Liabilities......................              $262                $2,532               $2,522
   Shareholders' Equity...................           $10,647                $5,741               $6,549

Earnings (Loss) per Share.................            $(0.11)               $(0.58)              $(0.32)
Weighted Average Numbers of Shares
   outstanding during each period (000's)              8,520                 8,523                8,919
</TABLE>


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


                                       3
<PAGE>

                   (Dollars in Thousands (000's) except for
                     Per Share Data and Rates of Exchange)

<TABLE>
<CAPTION>

                                                                        FISCAL YEAR ENDED
                                                  -------------------------------------------------------------
                                                     7/31/98               7/31/99              7/31/00
                                                  -------------------------------------------------------------
                                                        CA                   CA                    CA
<S>                                                  <C>                  <C>                  <C>

Rates of exchange
   At period end -- US$....................            $1.52                $1.51                $1.49
   Average for the period..................            $1.43                $1.51                $1.47

Results of Operations
   Net Sales...............................           $3,088               $2,091               $6,895
   Research and Developments Costs.........          $(2,080)             $(3,872)             $(3,790)
   Selling, General and Administrative
     Expenses..............................          $(2,923)             $(4,458)             $(7,837)
   Cost of Sales and Product Support.......            $(662)               $(345)             $(2,343)

Net Income (Loss).........................             $(907)             $(4,961)             $(2,867)

Financial Position
   Working Capital........................            $6,000               $1,427               $4,475
   Total Assets...........................           $10,908               $8,273               $9,071
   Total Liabilities......................              $262               $2,532               $2,522
   Shareholders' Equity...................           $10,647               $5,741               $6,549

Earnings (Loss) per Share.................            $(0.11)              $(0.58)              $(0.32)
Weighted Average Numbers of Shares
   outstanding during each period (000's)              8,520                8,523                8,919
</TABLE>


                                       4
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
--------------------------------------------------------------------------------

     THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH
THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES TO THEM AND THE
OTHER INFORMATION INCLUDED ELSEWHERE IN THIS ANNUAL REPORT. CERTAIN STATEMENTS
CONTAINED IN THIS DISCUSSION ARE FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS
AND UNCERTAINTIES INCLUDING, WITHOUT LIMITATION, STATEMENTS REGARDING THE
COMPANY'S EXPECTATIONS, BELIEFS, INTENTIONS OR STRATEGIES REGARDING THE FUTURE.
ALL FORWARD-LOOKING STATEMENTS INCLUDED IN THIS DISCUSSION ARE BASED ON CURRENT
EXPECTATIONS AND ON INFORMATION AVAILABLE TO THE COMPANY ON THE DATE OF THIS
ANNUAL REPORT. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF VARIOUS RISKS AND
UNCERTAINTIES, INCLUDING THOSE SET FORTH UNDER "FACTORS THAT MAY AFFECT FUTURE
OPERATING RESULTS" BELOW AND ELSEWHERE IN THIS ANNUAL REPORT. THE COMPANY
ASSUMES NO OBLIGATION TO UPDATE THESE FORWARD-LOOKING STATEMENTS.

     ALL FIGURES GIVEN IN THIS DISCUSSION ARE IN CANADIAN DOLLARS AND ARE
PRESENTED IN CONFORMITY WITH CANADIAN GAAP. AS NOTED IN NOTE 15 TO THE FINANCIAL
STATEMENTS, THERE ARE NO MATERIAL DIFFERENCES WHICH WOULD RESULT IN THE REPORTED
AMOUNTS OF NET CONSOLIDATED EARNINGS FROM THE APPLICATION OF US GAAP. "FISCAL
1998", "FISCAL 1999" AND "FISCAL 2000" MEAN THE FISCAL YEARS OF THE COMPANY
ENDED JULY 31, 1998, JULY 31, 1999 AND JULY 31, 2000 RESPECTIVELY.

OVERVIEW

     Until recently, 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"), a 40% owned affiliate of Sand. In
August 1999, we sold our 40% interest in HDS Canada to Hitachi Data Systems
Corporation of Santa Clara, California, U.S.A.

     We have now fully shifted our focus to the design, development, marketing
and support of a unique data storage and manipulation architecture known as the
Nucleus Exploration series of products, which allow ad hoc queries on enormous
amounts of data to be performed efficiently and cost-effectively. The Nucleus
Exploration Mart/Warehouse and the Nucleus Prototype Mart/Warehouse are products
which turn operational data and warehoused data into business intelligence
rapidly and simply.

     As a result of this shift in focus, we should now be viewed as a company
which has refocused its development in a rapidly evolving market. 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 require us to devote
substantial financial resources to grow our work force, improve our
infrastructure, continue the



                                       5
<PAGE>

development and the marketing and distribution of our products and generally
support our expanding operations.

RESULTS OF OPERATIONS

FISCAL 2000 COMPARED WITH FISCAL 1999

     Sales in fiscal 2000 were $6,895,016, an increase of 230% from sales of
$2,091,067 in fiscal 1999. A net loss of $2,866,907 was incurred in fiscal 2000
as compared to a net loss of $4,960,964 in fiscal 1999, a decrease of 42%.

     The increase in sales is due to an increase in software license revenue, an
increase in customer service contracts and a growing support and maintenance
base. We believe that the increase during fiscal 2000 is due to the expansion of
our direct sales and marketing capabilities in North America and Europe which
has helped bring about broader acceptance of our Nucleus product suite. We have
an order backlog of approximately $3,000,000 as at September 1, 2000.

     We recognize revenues from software licenses in accordance with the
provisions of the American Institute of Certified Public Accountants Statement
of Position which requires companies to defer revenue and profit recognition if
four criteria of a sale are not met. In addition, we are required to allocate
revenue to multiple element arrangements. We typically contract professional
services on a time-and-materials basis and such revenues are recognized as
services when they are performed. Revenues from support and maintenance are
recognized rateably over the term of the applicable support and maintenance
agreement.

     Certain expenditures which were part of selling, general and administrative
expenses in prior years were reclassified in fiscal 1998 to reflect the shift in
the nature of our operations from the mainframe peripheral hardware market to
the design, development, marketing and support of software products.

     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
Nucleus products. Selling, general and administrative expenses increased by 76%
to $7,836,833 for the fiscal year ended July 31, 2000 from $4,458,200 for the
fiscal year ended July 31, 1999. The increase is primarily due to increased
costs associated with building our direct sales force and increased marketing
efforts to address international and specific markets.

     Research and development expenses consist primarily of salaries and other
personnel-related costs of technical and engineering personnel associated with
our research and product development activities, including the enhancement and
localization of existing products, quality assurance and testing. Research and
development expenses decreased by 2% to $3,790,025 for the fiscal year ended
July 31, 2000 from $3,871,534 for the fiscal year ended July 31, 1999. As a
percentage of total revenues, research and development expenses decreased to 55%
for the fiscal


                                       6
<PAGE>

year 2000 from 185% for the fiscal year 1999. The stable dollar amount devoted
to research and development expenses reflects the current stage of development
of the Nucleus product suite. We believe that significant investment for
research and development is essential to product and technical leadership and
expect that we will continue to commit substantial resources to research and
development in the future. We expect that research and development expenditures
will increase in absolute dollars, although such expenses may vary as a
percentage of total revenues.

     Cost of sales consists primarily of the costs related to the sale of
third-party software, including certain license fees and royalties, and costs
related to providing support services. Cost of sales increased by 579% to
$2,343,191 for the fiscal year ended July 31, 2000 from $345,265 for the fiscal
year ended July 31, 1999. This increase is primarily due to increased costs
associated with software licenses and salaries and other personnel-related
expenses incurred in providing professional services, including consulting and
customer support.

     Losses from operations were higher for the fiscal year ended July 31, 2000,
reaching an amount of $6,990,465, an increase of 14%, as compared to a loss of
$6,147,819 for the fiscal year ended July 31, 1999. Substantial expenditures
were incurred to bring our Nucleus products to market and to establish the
infrastructure associated with our direct sales force and to support our
products. There can be no assurance that we will be profitable on a quarterly or
annual basis in the future. Further operating results will depend on many
factors, including the demand for our products, the level of product and price
competition, our success in selling our Nucleus products and establishing our
direct sales force and distribution channels, the state of the market for our
products and general economic conditions.

FISCAL 1999 COMPARED WITH FISCAL 1998

     Sales in fiscal 1999 were $2,091,067, a decrease of $996,974 or 32% from
sales of $3,088,041 in fiscal 1998. A net loss of $4,960,964 was incurred in
fiscal 1999 as compared to a net loss of $906,722 in fiscal 1998, an increase of
447%.

     We derived sales of approximately $2,000,000 in fiscal 1999 from software
products targeting the data mart and the data warehouse markets compared to
sales of approximately $3,000,000 to the same markets in fiscal 1998, a decline
of 33%. We believe that the decrease during fiscal 1999 related to then current
market conditions, length of sales cycles, average revenue per transaction and
other factors such as Y2K concerns and funding priorities. We expanded our
direct sales and marketing capabilities in North America and Europe to ensure
broad acceptance of the Nucleus product suite as a precursor to indirect sales
activities by our channel partners.

     Certain expenditures which were part of selling, general and administrative
expenses in prior years were reclassified in fiscal 1998 to reflect the shift in
the nature of our operations from the mainframe peripheral hardware market to
the design, development, marketing and support of software products.


                                       7
<PAGE>

     Selling, general and administrative expenses ("SG&A") consist primarily of
salaries and other personnel costs, travel, marketing programs such as the cost
of participating in trade shows and seminars, promotion costs and general and
administrative expenses which cover primarily personnel costs for general
management, professional fees and unallocated overhead expenses. SG&A increased
by 53% from $2,923,221 in fiscal 1998 to $4,458,200 in fiscal 1999.
Substantially all of the increase was due to increased personnel and related
costs necessary to continue and further the marketing of the Nucleus product
suite, and in particular the Nucleus Exploration Mart/Warehouse and the Nucleus
Prototype Mart/Warehouse. We expect that our SG&A will increase in absolute
dollars as we incur additional expenses to support expanded operations. We
expect that such expenses will vary as a percentage of total revenues.

     Research and development expenses consist primarily of personnel and
related costs associated with the development of new products, the enhancement
and localization of existing products, quality assurance and testing. Research
and development expenses increased by 86% from $2,079,738 in fiscal 1998 to
$3,871,534 million in fiscal 1999. The increase from year to year was primarily
due to increased personnel and related costs required to continue to develop and
enhance the Nucleus product suite while developing new products. We believe that
significant investment for product research and development is essential to
product and technical leadership and expect that we will continue to commit
substantial resources to research and development in the future. We expect that
research and development expenditures will continue to increase in absolute
dollars, although such expenses may vary as a percentage of total revenues.

     Net interest income for fiscal 1999 was $436,113 down from $597,726 or 27%
in fiscal 1998, and reflects a lower level of funds available for investment by
us.

     Losses from operations were considerably higher in fiscal 1999, reaching an
amount of $6,147,819, an increase of 211%, as compared to a loss of $1,978,926
in fiscal 1998. Substantial expenditures were incurred to bring the Nucleus
Exploration Mart/Warehouse and the Nucleus Prototype Mart/Warehouse to market
and to establish the infrastructure to support these software products. There
can be no assurance that we will be profitable on a quarterly or annual basis in
the future. Future operating results will depend on many factors, including the
demand for our products, the level of product and price competition, our success
in selling our products and in establishing distribution channels, the state of
the data warehouse market, and general economic conditions.

YEAR 2000 COMPLIANCE

     Many currently installed computer systems and software products were coded
to accept only two-digit entries in date code fields. These date code fields
need to accept four-digit entries to enable the computer systems and software
products to distinguish 21st Century dates from 20th Century dates. Any of our
computer programs or hardware that have date-sensitive software or embedded
computer chips which have not been upgraded to be compliant with the
requirements of the Year 2000 changeover may recognize a date using "00" as the
year 1900 rather than the year 2000. This could


                                       8
<PAGE>

result in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to properly process
transactions internally or in conjunction with external computer systems on
which we depend to provide our customers with our product and services. Although
we have not suffered from any of these types of events following the change to
calendar year 2000, we may do so in the future.

     Substantially all of our software was developed after awareness of these
issues became widespread in the software industry, such that our software was
designed with reference to preventing Year 2000-related difficulties from
arising. There can be no assurances, however, that our current products do not
contain undetected errors or defects associated with Year 2000 date functions
that may result in material costs to the Company.

     To the best of our knowledge, none of our internal systems or equipment
which are necessary for the conduct of our business has any defects, errors or
deficiencies relating to the Year 2000 which are not capable of being remedied,
and all expenses associated with this remedial work have been fully provided for
in our business plans. Based on our current assessment, we believe that all
reasonable and necessary steps were taken to prevent the Year 2000 issue from
having a material adverse impact on our results of operations or financial
condition, but there can be no assurance that this is in fact the case.

FACTORS THAT MAY AFFECT FUTURE RESULTS

     In August 1999, the Company sold its 40% interest in HDS Canada and
withdrew from the mainframe computer market and the peripheral hardware market
in which the Company competed through its affiliate HDS Canada.

     Our prospects in the design, development, marketing and support of software
products, and in particular the Nucleus product suite, must be considered in
light of the risks, expenses and difficulties frequently encountered by
companies in their early stage of development, particularly companies in rapidly
evolving markets. In general, our business is subject to the inherent risks and
uncertainties characteristic of high-technology industries. Many factors may
adversely affect our earnings. Such factors include, among others, the general
economic and business conditions; the success of operating initiatives;
development and operating costs; the acceptance of new products; changes in
business strategy or development plans; the quality of management; the
availability, terms, and deployment of capital; and changes in government
regulation. All in all, there are risk factors associated with our financial
results and with our business and operations and risk factors which may affect
the market price of our Class A common shares.

RISK ASSOCIATED WITH OUR FINANCIAL RESULTS

     Because we have not been profitable in the past three years, we have had to
fund our losses through a combination of sales of our liquid investments and
non-core assets. We incurred losses of $906,722 in fiscal 1998, $4,960,964 in
fiscal 1999 and

                                       9
<PAGE>

$2,866,907 in fiscal 2000. We expect to continue to incur losses in the near
future and possibly longer. If we are not successful in increasing net revenues,
or if there is a material increase in our expenses, we may be unable to achieve
profitability in the future. If we do not achieve profitability in the future,
we would have to obtain additional financing to fund our operations.

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

     On July 31, 2000, we had cash reserves of $2,387,112. If we do not have
sufficient capital to fund our operations, we may be forced to discontinue
product development, reduce our sales and marketing efforts or forego attractive
businesses opportunities. Any of these outcomes could adversely impact our
ability to respond to competitive pressures or prevent us from conducting all or
a portion of our planned operations. If our available cash and existing sources
of revenue are insufficient to fund our operations, we may need to raise
additional funds, and additional financing may not be available on acceptable
terms, if at all. If we issue additional equity securities to raise funds, the
ownership percentage of shareholders will be reduced.

     We may not be able to draw down all $30 million under the Common Share
Purchase Agreement with Sundowner Investments Limited if our stock price and
trading volumes do not reach certain levels. In addition, business and economic
conditions may not make it feasible to draw down under that agreement at every
opportunity, and draw-downs are available only every 22 trading days.

     Our placement agreement with Ladenburg Thalmann & Co. Inc. restricts us
from raising investment capital until March 15, 2001 except through Ladenburg
Thalmann & Co. Inc., with limited exceptions. Our Common Share Purchase
Agreement with Sundowner Investments Limited also limits our ability to sell our
securities for cash at a discount to market price until August 2001. If we need
capital but are unable to draw down under the Common Share Purchase Agreement
for any reason, we may need to separately negotiate with Ladenburg Thalmann &
Co. Inc. and Sundowner Investments Limited to lift those restrictions so we can
obtain capital from other sources.

     Our operating results have varied on a quarterly basis in the past and may
fluctuate significantly in the future as a result of a variety of factors
outside of our control. As a result, we may not be able to accurately predict
our necessary cash expenditures during each quarter or obtain timely financing
to cover any shortfalls. We also believe that period-to-period comparisons of
our operating results may not be meaningful and one should not rely on any such
comparisons as an indication of our future performance. In


                                       10
<PAGE>

addition, it is likely that in one or more future quarters, our operating
results will fall below the expectations of securities analysts and investors.
In such event, the trading price of our Class A common shares could be
materially harmed.

     Stock markets have recently experienced extreme price and volume
fluctuations, particularly for the shares of technology companies. These
fluctuations are often unrelated to the operating performance of particular
companies. The broad market fluctuations may adversely affect the market price
of our Class A common shares. When the market price of a company's stock drops
significantly, shareholders sometimes institute securities class actions
lawsuits against that company. A lawsuit against us could cause us to incur
substantial costs and could divert the time and attention of our management and
other resources.

RISKS ASSOCIATED WITH OUR BUSINESS AND OPERATIONS

     An evaluation of our business is more difficult because of our limited
operating history as a developer and marketer of software. Our prospects are
difficult to predict and may change rapidly. Consideration should be given to
the risks, expenses and difficulties that we may encounter or incur as a company
now operating in a new and rapidly evolving market, including our substantial
dependence on a single line of products and our need to manage expanding
operations. Our business strategy may not be successful, and we may not
successfully address these risks.

     We have historically sold our products primarily through a distribution
network of value-added resellers, resellers and distributors located in the
United States, Canada and the United Kingdom. Direct sales have not played a
large role in the past. We have increased our direct sales force and intend to
continue to do so. This increase in direct sales will require additional
personnel which will increase our expenses. Competition for sales personnel
qualified for these positions is intense. Many of our competitors have
substantially greater resources than we do or have dedicated greater resources
to hiring qualified sales personnel. In addition, we may experience a
significant turnover of our sales force. Turnover tends to slow sales efforts
until replacement personnel are recruited and trained. We cannot assure you that
we will be able to attract and retain adequate sales and marketing personnel,
even after spending significant resources to do so, and the failure to do so
could have a material adverse effect on our business, operating results and
financial condition.

     Our success depends to a significant degree upon the continued
contributions of our key management, engineering, sales and marketing personnel,
many of whom would be difficult to replace. We have an employment contract with
and maintain "key person" life insurance on only one employee, Arthur G.
Ritchie, our Chairman of the Board, President and Chief Executive Officer. We do
not believe the proceeds of Mr. Ritchie's life insurance would adequately
compensate us for his loss. We believe our future success will also depend in
large part upon our ability to attract and retain highly skilled managerial,
engineering, sales and marketing, and finance personnel. Competition for such
personnel is intense, and there can be no assurance that we will be successful
in attracting and retaining such personnel. We have in the past experienced
difficulties in


                                       11
<PAGE>

hiring highly qualified sales and engineering personnel, and we believe that we
may have difficulty in attracting such personnel with equity incentives given
that we are a public company. For example, as a result of market forces,
companies in the enterprise software industry have historically experienced
significant fluctuations in the market price of their shares. To the extent that
our Class A common shares trade at a premium relative to historical industry
averages or to other companies in the enterprise software industry, we may
experience difficulty in attracting qualified personnel. The loss of the
services of any of our key personnel, the inability to attract or retain
qualified personnel in the future or delays in either hiring required personnel
or the rate at which new people become productive, particularly sales personnel
and engineers, could have a material adverse effect on our business, operating
results and financial conditions.

     The purchase of our products often requires significant, executive-level
investment and system design decisions by our customers. Sales take a long time
to conclude because we must provide a significant level of education about the
use and benefits of our products. We believe that most companies currently are
not yet aware of the benefits of enterprise-wide business intelligence solutions
or of our products and capabilities, nor have such companies deployed business
intelligence solutions on an enterprise-wide basis. Accordingly, the sales cycle
associated with the purchase of our enterprise business intelligence products is
typically three to nine months in length. During this period, a potential sale
is subject to a number of significant risks over which we have little or no
control, including customers' budgeting constraints and internal acceptance
review procedures. Additionally, the sales cycle for our products in the United
Kingdom has historically been, and is expected to continue to be shorter than
the sales cycle in the United States and Canada. However, as we expand into
Europe, we expect that the sales cycle will be longer than it has been in the
United Kingdom. Based in part upon, among other things, our lengthy sales cycle,
we believe that our quarterly revenues and operating results could vary
significantly in the future, and that excessive delay in product sales could
have a material adverse effect on our business, operating results and financial
condition.

     Although we plan to expand our direct sales force, our success in
maintaining our indirect channels, value-added resellers, resellers and
distributors will determine our ability to achieve revenue growth and improved
operating margins on product sales, as well as increased worldwide sales, in the
future. Despite the fact that we continue to invest significant resources to
develop our indirect channels, no assurance can be given that we will be able to
continue to attract and retain additional companies in our indirect channels
that will be able to market our products effectively and that we will be able to
provide timely and cost-effective customer support and services. Also, no
assurance can be given that we will be able to manage conflicts within our
indirect channels or that increasing sales through our indirect channels will
not divert management resources and attention from direct sales. In addition,
our agreements with companies in our indirect channels do not restrict such
companies from distributing competing products, and in many cases may be
terminated by either party without cause. No assurance can be given that we will
be able to successfully expand our indirect channels or that any such expansion
will result in an increase in revenues, and failure to do so could have a
material adverse effect on our business, operating results and financial
condition.


                                       12
<PAGE>

     Our market is developing and intensely competitive. It is highly fragmented
and characterized by rapidly changing technology and evolving standards. Our
current and potential competitors offer a variety of software solutions and
generally fall within four categories: vendors of business intelligence
software; vendors offering alternative approaches to delivering analysis
capabilities to users; database vendors that offer products which operate
specifically with their proprietary database; and other companies that may in
the future announce offerings of enterprise business intelligence solutions.

     Our competitive position in our market is uncertain, due principally to the
variety of current and potential competitors and the emerging nature of the
market. We have experienced and we expect to experience increased competition
from current and potential competitors, many of whom have significantly greater
financial, technical, marketing and other resources than we do. Our competitors
may be able to respond more quickly to new or emerging technologies and changes
in customer requirements or devote greater resources to the development,
promotion and sales of products than we can. We expect additional competition as
other established and emerging companies enter into the business intelligence
software market and new products and technologies are introduced. Increased
competition could result in price reductions, fewer customer orders, reduced
gross margins, longer sales cycles and loss of market share, any of which could
have a material adverse effect on our business, operating results and financial
condition.

     Current and potential competitors may make strategic acquisitions or
establish cooperative relationships among themselves or with third parties,
thereby increasing the ability of their products to address the needs of our
prospective customers. Our current or future indirect channel partners may
establish cooperative relationships with our current or potential competitors
and limit our ability to sell products through particular distribution channels.
Accordingly, it is possible that new competitors or alliances among current and
new competitors may emerge and rapidly gain significant market share. Such
competition could have a material adverse effect on our ability to enter into
new licenses and maintenance and support renewals for existing licenses of our
products on favourable terms. Competitive pressures may also require us to
reduce the price of our products, which could have a material adverse effect on
our business, operating results and financial condition.

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

     No assurance can be given that we will be able to compete successfully
against current and future competitors, and the failure to do so could have a
material adverse effect on our business, operating results and financial
condition.

     Sales to customers outside of the United States and Canada, including sales
generated by our U.K. subsidiary, represented 0%, 6% and 67% of our total
revenue for

                                       13
<PAGE>

fiscal 1998, 1999 and 2000, respectively. We have a direct sales office in the
United Kingdom.

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

     There are also additional risks in doing business on an international
level, such as increased difficulty in controlling operating expenses,
unexpected changes in regulatory requirements, tariffs and other trade barriers,
difficulties in staffing and managing foreign operations, longer payment cycles,
problems in collecting accounts receivable, political instability, fluctuations
in currency exchange rates, seasonal reductions in business activity, and
potentially adverse tax consequences. These risks could adversely impact the
success of our international operations. It is important to realize that our
international sales are generally denominated and collected in foreign
currencies, and we have not historically undertaken foreign exchange hedging
transactions to cover the potential foreign currency exposure. In fiscal 2000,
we incurred a gain on foreign currency translations from our foreign
subsidiaries in an amount of $47,753. No assurance can be given that one or more
of these factors will not have a material adverse effect on our future
international operations and, consequently, on our business, operating results
and financial condition.

     We expect the sale of our Nucleus products to constitute most of our
revenue for the foreseeable future. If customers do not purchase these products,
we do not currently offer any other products or services that would enable us to
become profitable.

     The market for our products is characterized by rapidly changing
technology, evolving industry standards and customer requirements, emerging
competition and frequent new product introductions. Our products incorporate a
number of advanced technologies, including a proprietary data analysis engine, a
distributed architecture, as well as Web access and delivery technology. We may
be required to change and improve our products in response to changes in
operating systems, applications, networking and connectivity software, computer
and communications hardware, programming tools and computer language technology.
As a result, the life cycle of our products is difficult to estimate. Our
ability to make such changes and improvements will be affected by our ability to
hire and retain highly qualified engineering personnel. In addition, we attempt
to establish and maintain partner alliances with influential companies in a
variety of core technology areas. Our failure to establish such alliances with
leading companies in particular technology areas could have a material adverse
effect on our business, operating results and financial condition. No assurance
can be given that we can successfully respond to changing technology, identify
new product

                                       14
<PAGE>

opportunities or develop and bring new products to market in a timely and
cost-effective manner.

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

     In addition, we or our competitors may announce enhancements to existing
products, or new products embodying new technologies, industry standards or
customer requirements that have the potential to supplant or provide lower cost
alternatives to our existing products. The introduction of such enhancements or
new products could render our existing products obsolete and unmarketable. No
assurance can be given that the announcement or introduction of new products by
us or our competitors or any change in industry standards will not cause
customers to defer or cancel purchases of existing products, which could have a
material adverse effect on our business, operating results and financial
condition. Furthermore, introduction by us of products with reliability, quality
or compatibility problems could result in reduced orders, delays in collecting
accounts receivable and additional service costs. The failure to introduce a new
product or product enhancement on a timely basis could delay or hinder market
acceptance. Research and development efforts may require us to expend
significant capital and other resources. Any such event could have a material
adverse effect on our business, operating results and financial condition.

     We are focusing our selling efforts increasingly on larger, enterprise-wide
implementations of our products, and we expect such sales to constitute an
increasing portion of our future revenue growth, if any. To date, our selling
efforts have resulted in limited enterprise-wide implementations of the our
products. We believe that most companies currently are not yet aware of the
benefits of enterprise-wide business intelligence solutions or of our products
and capabilities, nor have such companies deployed business intelligence
solutions on an enterprise-wide basis. While we have devoted resources to
promoting market awareness of our products and the needs our products address
(including training our sales personnel and demonstrating our products at
industry conferences and trade shows), no assurance can be given that these
efforts will be sufficient to build market awareness of the need for enterprise
business intelligence or acceptance of our products. Failure of a significant
market for enterprise business intelligence products to develop, or failure of
enterprise-wide implementations of our products to achieve broad market
acceptance, would have a material adverse effect on our business, operating
results and financial condition.


                                       15
<PAGE>

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

     We currently rely primarily on a combination of copyright and trademark
laws, trade secrets, confidentiality procedures and contractual provisions to
protect our proprietary rights. We also believe that factors such as the
technological and creative skills of our personnel, new product developments,
frequent product enhancements, name recognition and reliable product maintenance
are essential to establishing and maintaining a technology leadership position.
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 five United States patents and one patent application. No
assurance can be given that our patent application will result in the issuance
of a patent, or that our patents or our patents applications, if granted, will
not be invalidated, circumvented or challenged, or that the rights granted
thereunder will provide competitive advantages to us or that any of our future
patent applications, if any, will be issued with the scope of the claims sought
by us, if at all. Furthermore, no assurance can be given that others will not
develop technologies that are similar or superior to our technology or design
around any patent that may come to be owned by us. Despite our efforts to
protect our proprietary rights, unauthorized parties may attempt to copy aspects
of our products or to obtain and use information that we regard as proprietary.
Policing unauthorized use of our products is difficult, and while we are unable
to determine the extent to which piracy of our software products exists, we can
expect software piracy to be a persistent problem.

     In addition, the laws of some foreign countries do not protect our
proprietary rights as fully as do the laws of the United States and Canada.
There can be no assurance that our means of protecting our proprietary rights in
North America or abroad will be adequate or that competitors will not
independently develop similar technology. We have entered into source code
escrow agreements with a number of our customers and indirect channel partners
requiring release of source code under certain conditions. Such agreements
provide that such parties will have a limited, non-exclusive right to use


                                       16
<PAGE>

such code in the event that there is a bankruptcy proceeding by or against us,
if we cease to do business or, in some cases, if we fail to meet our contractual
obligations. The provision of source code escrows may increase the likelihood of
misappropriation by third parties.

     Although we are not currently aware of any claims asserted by third parties
that we infringe on their intellectual property, in the future, we expect that
software product developers will increasingly be subject to infringement claims
as the number of products and competitors in our industry segment grows and the
functionality of products in different industry segments overlaps. Any such
claims, with or without merit, could be time consuming to defend, result in
costly litigation, divert management's attention and resources, cause product
shipment delays or require us to enter into royalty or licensing agreements.
Such royalty or licensing agreements, if required, may not be available on terms
acceptable to us, if at all. In the event of a successful claim of product
infringement against us and our failure or inability to license the infringed or
similar technology, our business, operating results and financial condition
would be materially adversely affected.

     Finally, in the future, we may rely upon certain software that we may
license from third parties, including software that may be integrated with our
internally developed software and used in our products to perform key functions.
No assurance can be given that these third-party software licenses will be
available to us on commercially reasonable terms or indeed that their suppliers
will remain in business. Our inability to obtain or maintain any such software
licenses could result in shipment delays or reductions until equivalent software
could be developed, identified, licensed and integrated, which could have a
material adverse effect on our business, operating results and financial
condition.

RISKS WHICH MAY AFFECT THE CLASS A COMMON SHARES

     The trading price of our Class A common shares on The Nasdaq National
Market System has been and continues to be volatile. During the past twelve
months, our stock price has ranged from a high of $12 to a low of $2 19/32. The
market price may be affected by, among other things, announcements of new
products by our competitors, fluctuations in our operating results and changes
in our financial position.

     The exercise of existing outstanding warrants and options and the number of
shares available for future issuance to Sundowner Investments Limited under our
equity line of credit may substantially dilute the equity interest of our
existing shareholders and could result in a significant decrease to the market
price of our Class A common shares. Although it is impossible to predict market
influences and prospective values for securities, it is possible that, in and of
itself, the increase in the number of shares available for public sale could
have a depressive effect on the market and the price of our Class A common
shares.

     Our Class A common shares are currently listed on The Nasdaq National
Market System. To maintain our listing, we must meet the minimum US$4,000,000
net tangible


                                       17
<PAGE>

asset requirement for continued listing on The Nasdaq National Market System.
The delisting of our shares from the National Market would result in a
significantly less active market for our Class A common shares. There is no
assurance that we would be able to satisfy the criteria for listing our Class A
common shares on the Nasdaq SmallCap Market in the event our shares were
delisted from the National Market.

     While we cannot predict what effect these various factors may have on our
financial results, the aggregate result of any one of these factors in itself or
in combination with any one or more of these factors or any other factors could
have a material adverse effect on our business and on our operating results and
financial condition.


                                       18
<PAGE>

CONSOLIDATED FINANCIAL STATEMENTS OF

SAND TECHNOLOGY INC.

JULY 31, 2000, 1999 AND 1998


                                       19

<PAGE>


                           [INTENTIONALLY LEFT BLANK]


                                       20
<PAGE>

[LOGO]
                         -------------------------------------------------------

                         DELOITTE & TOUCHE LLP
                         CHARTERED ACCOUNTANTS
                         1 Place Ville-Marie           Telephone: (514) 393-7115
                         Suite 3000                    Facsimile: (514) 390-4113
                         Montreal QC H3B 4T9


AUDITORS' REPORT


To the Shareholders of
Sand Technology Inc.

We have audited the consolidated balance sheets of Sand Technology Inc. as at
July 31, 2000 and 1999 and the consolidated statements of operations,
shareholders' equity and cash flows for each of the three years ended July 31,
2000, 1999 and 1998. These financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Corporation as at July 31, 2000
and 1999 and the results of its operations and its cash flows for each of the
three years ended July 31, 2000, 1999 and 1998 in accordance with Canadian
generally accepted accounting principles.


/s/ Deloitte & Touche LLP
------------------------------
Chartered Accountants

September 8, 2000


[LOGO]


                                       21
<PAGE>

SAND TECHNOLOGY INC.
CONSOLIDATED BALANCE SHEETS
AS AT JULY 31, 2000 AND 1999
(IN CANADIAN DOLLARS)

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------
                                                                       2000                 1999
------------------------------------------------------------------------------------------------------
                                                                         $                    $
<S>                                                                  <C>                  <C>
ASSETS
Current assets
    Cash                                                                664,918              124,078
    Investments                                                       1,722,194              885,440
    Accounts receivable                                               4,351,788              815,695
    Due from affiliated company                                               -                4,537
    Inventories                                                          43,100               47,142
    Prepaid expenses                                                    114,543               12,147
    Loan bearing interest at 8%                                         100,000              100,000
------------------------------------------------------------------------------------------------------
                                                                      6,996,543            1,989,039

Prepaid royalties                                                     1,608,744            2,413,117
Investment in affiliated company (Note 2)                                     -            3,219,670
Equipment (Note 3)                                                      140,104              181,456
Other assets (Note 4)                                                   325,370              469,978
------------------------------------------------------------------------------------------------------
                                                                      9,070,761            8,273,260
------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------

LIABILITIES
Current liabilities
    Accounts payable and accrued liabilities                          1,622,739              262,080
    Deferred revenue                                                    382,036                    -
    Current portion of balance of purchase price (Note 5)               517,300              300,000
------------------------------------------------------------------------------------------------------
                                                                      2,522,075              562,080
------------------------------------------------------------------------------------------------------

Balance of purchase price (Note 5)                                            -            1,970,000
------------------------------------------------------------------------------------------------------

Commitments (Note 8)

SHAREHOLDERS' EQUITY
    Common stock (Note 6)
        Authorized
           An unlimited number of Class "A" common shares,
               without par value
        Issued and outstanding
           9,627,145 common shares (8,528,206 in 1999)               12,455,748            8,781,335
    Deficit                                                          (5,907,062)          (3,040,155)
------------------------------------------------------------------------------------------------------
                                                                      6,548,686            5,741,180
------------------------------------------------------------------------------------------------------
                                                                      9,070,761            8,273,260
------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------
</TABLE>


               See notes to the consolidated financial statements.


                                       22
<PAGE>

SAND TECHNOLOGY INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JULY 31, 2000, 1999 AND 1998
(IN CANADIAN DOLLARS)

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
                                                         2000                1999                 1998
------------------------------------------------------------------------------------------------------------
                                                           $                   $                    $
<S>                                                   <C>                  <C>                  <C>
NET SALES                                              6,895,016            2,091,067            3,088,041
Cost of sales and product support                     (2,343,191)            (345,265)            (661,734)
Research and development costs                        (3,790,025)          (3,871,534)          (2,079,738)
Selling, general and
    administrative expenses                           (7,836,833)          (4,458,200)          (2,923,221)
Net interest and profits on sale of
    investments                                           84,568              436,113              597,726
------------------------------------------------------------------------------------------------------------
Loss from operations                                  (6,990,465)          (6,147,819)          (1,978,926)

Profit on sale of affiliated company (Note 2)          3,792,296                    -                    -
Equity earnings of affiliated company (Note 2)           283,510            1,170,499            1,166,230
Foreign exchange gain (loss)                              47,753               16,356              (94,026)
------------------------------------------------------------------------------------------------------------

Loss before income taxes                              (2,866,907)          (4,960,964)            (906,722)

Income taxes (Note 7)                                          -                    -                    -
------------------------------------------------------------------------------------------------------------
NET LOSS                                              (2,866,907)          (4,960,964)            (906,722)
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------

Loss per share                                           (0.321)              (0.582)             (0.106)
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------

Weighted average number of
    shares outstanding                                 8,919,211            8,522,873            8,520,206
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
</TABLE>


APPROVED BY THE BOARD OF DIRECTORS

/s/ Arthur G. Ritchie                    /s/ Georges Dube
-----------------------------------      -----------------------------------
ARTHUR G. RITCHIE, DIRECTOR              GEORGES DUBE, DIRECTOR


               See notes to the consolidated financial statements.


                                       23
<PAGE>

SAND TECHNOLOGY INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED JULY 31, 2000, 1999 AND 1998
(IN CANADIAN DOLLARS)

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
                                                                     Common Stock                       Retained
                                       Exchange               ------------------------------            earnings
                                         rate                   Shares              Amount              (deficit)
-------------------------------------------------------------------------------------------------------------------
                                          US$                                          $                     $
<S>                                      <C>                  <C>                 <C>                   <C>
-------------------------------------------------------------------------------------------------------------------
BALANCE, JULY 31, 1997                   0.72                 8,520,206            8,725,920             2,827,531

Net loss                                 0.73                         -                    -              (906,722)
-------------------------------------------------------------------------------------------------------------------
BALANCE, JULY 31, 1998                   0.66                 8,520,206            8,725,920             1,920,809


Net loss                                                              -                    -            (4,960,964)

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

Net loss                                                              -                    -            (2,866,907)

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

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

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


               See notes to the consolidated financial statements.


                                       24
<PAGE>

SAND TECHNOLOGY INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JULY 31, 2000, 1999 AND 1998
(IN CANADIAN DOLLARS)

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
                                                                2000                1999                 1998
-------------------------------------------------------------------------------------------------------------------
                                                                  $                   $                    $
<S>                                                          <C>                  <C>                  <C>
OPERATING ACTIVITIES
    Net loss                                                 (2,866,907)          (4,960,964)            (906,722)
    Items not affecting cash
        Depreciation of equipment                                94,704              109,814               32,744
        Depreciation of other assets                            144,608              144,608              108,456
        Decrease in prepaid royalties                           804,373               29,590            1,091,657
        Decrease in deferred revenue                                  -                    -             (518,400)
        Equity earnings of affiliated company (Note 2)         (283,510)          (1,170,499)          (1,166,230)
        Profit on sale of affiliated company                 (3,792,296)                   -                    -
    Changes in non-cash operating
        working capital items (Note 12)                      (2,269,251)             516,351           (2,236,667)
-------------------------------------------------------------------------------------------------------------------
                                                             (7,786,243)          (5,331,100)          (3,595,162)
-------------------------------------------------------------------------------------------------------------------

INVESTING ACTIVITIES
    Net (increase) decrease in short-term investments          (836,754)           3,634,391            1,937,577
    Proceeds on sale of affiliated company                    7,295,476                    -                    -
    Dividend from affiliated company (Note 2)                         -            1,600,000            2,400,000
    Purchase of equipment                                       (53,352)             (81,283)            (220,615)
    Decrease in other assets                                          -                    -             (723,042)
-------------------------------------------------------------------------------------------------------------------
                                                              6,405,370            5,153,108            3,393,920
-------------------------------------------------------------------------------------------------------------------

FINANCING ACTIVITIES
    Issue of common shares                                    2,220,853               55,415                    -
    Deferred revenue                                            382,036                    -                    -
    Repayment of balance of purchase price                     (299,140)                   -                    -
-------------------------------------------------------------------------------------------------------------------
                                                              2,303,749               55,415                    -
-------------------------------------------------------------------------------------------------------------------

Net cash inflow (outflow)                                       540,840             (122,577)            (201,242)
Cash, beginning of year                                         124,078              246,655              447,897
-------------------------------------------------------------------------------------------------------------------
CASH, END OF YEAR                                               664,918              124,078              246,655
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
</TABLE>

There were no interest or income taxes paid during the three-year period ended
July 31 2000.


               See notes to the consolidated financial statements.


                                       25

<PAGE>

SAND TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2000, 1999 AND 1998
(IN CANADIAN DOLLARS)
--------------------------------------------------------------------------------


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


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     SIGNIFICANT ACCOUNTING POLICIES

     The Corporation follows Canadian generally accepted accounting principles
     in the preparation of its financial statements. This requires management to
     make estimates and assumptions that affect the reported amounts of assets
     and liabilities and the disclosure of contingent assets and liabilities at
     the date of the financial statements, and the reported amounts of revenue
     and expenses during the reporting period. Actual results could differ from
     those estimates.

     BASIS OF CONSOLIDATION

     The consolidated financial statements include the accounts of the
     Corporation and its wholly-owned subsidiaries, Sand Technology Corp., Sand
     Technology (U.K.) Ltd. and STSI Licensing, LLC. All significant
     intercompany transactions and balances have been eliminated.

     REVENUE RECOGNITION

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

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

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


                                       26
<PAGE>

SAND TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2000, 1999 AND 1998
(IN CANADIAN DOLLARS)
--------------------------------------------------------------------------------


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     SHORT-TERM INVESTMENTS

     Short-term investments are recorded at the lower of cost and market value.
     Market value at July 31, 2000 is $1,739,015 (1999 - $885,440).

     INVENTORIES

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

     PREPAID ROYALTIES

     The Corporation entered into a three-year agreement which provided for
     initial cash payments. These cash payments are reflected on the balance
     sheets as prepaid royalties and are being amortized at the higher of i) the
     amount calculated on a straight-line basis or ii) as royalties become due.

     INVESTMENT

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

     EQUIPMENT AND OTHER ASSETS

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

     DEFERRED REVENUE

     Revenue related to maintenance contracts covering periods subsequent to the
     balance sheet date is deferred.


                                       27
<PAGE>

SAND TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2000, 1999 AND 1998
(IN CANADIAN DOLLARS)
--------------------------------------------------------------------------------


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     FOREIGN EXCHANGE TRANSLATION

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

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

     EARNINGS PER SHARE

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

     RESEARCH AND DEVELOPMENT COSTS

     Research and development costs are charged to operations in the period in
     which they are incurred. Related tax credits are recorded as a reduction of
     research and development expenses in the period the funds are received.


2.   INVESTMENT IN AFFILIATED COMPANY

     HITACHI DATA SYSTEMS INC.

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

     The Corporation's equity in Hitachi Data Systems Inc. for fiscal 1999 and
     1998 is based on the March 31, 1999 and 1998 audited financial statements,
     adjusted for the results of operations for the four-month periods ended
     July 31, 1999 and 1998.

     The audited financial statements of Hitachi Data Systems Inc., the
     results of operations for the 20 day period ended August 20, 1999 and
     the four-month periods ended July 31, 1999 and 1998, and the carrying
     value of the related investment, accounted for under the equity method,
     are summarized below:


                                       28
<PAGE>

SAND TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2000, 1999 AND 1998
(IN CANADIAN DOLLARS)
--------------------------------------------------------------------------------


2.   INVESTMENT IN AFFILIATED COMPANY (CONTINUED)

<TABLE>
<CAPTION>
                                                       March 31             March 31
                                                         1999                 1998
     -----------------------------------------------------------------------------------
     <S>                                               <C>                  <C>
                                                           $                    $
     Financial position
       Current assets                                  17,309,867           14,893,436
       Current liabilities                             12,120,456           10,044,576
     -----------------------------------------------------------------------------------

     Working capital                                    5,189,411            4,848,860
     Other assets                                       6,476,403            6,311,611
     -----------------------------------------------------------------------------------
                                                       11,665,814           11,160,471
     Other liabilities                                  4,291,312            2,409,511
     -----------------------------------------------------------------------------------
     Equity                                             7,374,502            8,750,960
     -----------------------------------------------------------------------------------
     -----------------------------------------------------------------------------------

     Results of operations
       Revenue                                         51,130,495           49,093,974
       Operating expenses and
           income taxes                                48,506,953           46,883,789
     -----------------------------------------------------------------------------------
     Net earnings                                       2,623,542            2,210,185
     -----------------------------------------------------------------------------------
     -----------------------------------------------------------------------------------


     Dividends paid                                     4,000,000            6,000,000
</TABLE>

<TABLE>
<CAPTION>
                                              20 day period
                                                  ended                 4-month period ended
                                                August 20            July 31              July 31
                                                  1999                1999                 1998
                                          -----------------------------------------------------------
                                                    $                   $                    $
     <S>                                        <C>                 <C>                  <C>
     Results of operations
       Revenue                                  4,372,657           14,619,371           12,898,950
       Operating expenses and
           income taxes                         3,663,882           13,944,698           12,526,983
     ------------------------------------------------------------------------------------------------
     Net earnings (loss)                          708,775              674,673              371,967
     ------------------------------------------------------------------------------------------------
     ------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
                                                  July 31            July 31              July 31
                                                   2000               1999                 1998
                                          -----------------------------------------------------------
                                                    $                   $                    $
     <S>                                          <C>               <C>                  <C>
     Equity earnings for the year                 283,510            1,170,499            1,166,230
     ------------------------------------------------------------------------------------------------
     ------------------------------------------------------------------------------------------------

     Carrying value of
       investment as at July 31                         -            3,219,670            3,649,171
     ------------------------------------------------------------------------------------------------
     ------------------------------------------------------------------------------------------------
</TABLE>


                                       29
<PAGE>

SAND TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2000, 1999 AND 1998
(IN CANADIAN DOLLARS)
--------------------------------------------------------------------------------


3.   EQUIPMENT
<TABLE>
<CAPTION>
                                                  2000                 1999
                                            ----------------------------------
                                                    $                    $
     <S>                                        <C>                  <C>

     Office equipment                           344,603              291,251
     Accumulated depreciation                   204,499              109,795
     -------------------------------------------------------------------------
                                                140,104              181,456
     -------------------------------------------------------------------------
     -------------------------------------------------------------------------
</TABLE>


4.   OTHER ASSETS

<TABLE>
<CAPTION>

                                                           2000                                       1999
                                        ---------------------------------------------------    -----------------
                                                        Accumulated            Net Book             Net Book
                                         Cost          Depreciation              Value                Value
                                        -------    ----------------------    ---------------    -----------------
                                           $                 $                     $                    $
<S>                                     <C>                  <C>                  <C>                  <C>

     Product source codes               723,042              397,672              325,370              469,978
     -----------------------------------------------------------------------------------------------------------
     -----------------------------------------------------------------------------------------------------------
</TABLE>


5.   BALANCE OF PURCHASE PRICE

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

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

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

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


                                       30
<PAGE>

SAND TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2000, 1999 AND 1998
(IN CANADIAN DOLLARS)
--------------------------------------------------------------------------------


6.   COMMON STOCK

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

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

     On June 1, 2000, the Corporation completed a private placement involving
     the issuance of 315,789 common shares for net cash proceeds of $1,885,723.
     Under the terms of the agreement, the shares were sold for a purchase price
     of US$4.75 per share; however the purchase price may be adjusted at the
     option of the purchaser during the period ending on November 28, 2000 in
     the event that the average of the bid prices for 20 consecutive trading
     days is lower than US$5.938 per share. The Corporation also issued 65,217
     warrants which may be exercised from time to time during the period
     beginning June 1, 2000 and ending on May 31, 2003 at an exercise price of
     US$10.00 per share.

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

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


                                       31
<PAGE>

SAND TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2000, 1999 AND 1998
(IN CANADIAN DOLLARS)
--------------------------------------------------------------------------------


     Under the Corporation's Share Option Plan, 1996 Stock Incentive Plan and
     1996 Stock Option Plan, exercise of the options granted is generally
     restricted to a maximum of 20% of the options granted per annum beginning
     one year after each grant date and expiring 10 years after. A maximum of
     1,896,000 common shares is reserved for issuance under each of these plans.
     The Corporation has the following outstanding options as at July 31, 2000
     and 1999:

<TABLE>
<CAPTION>
     ----------------------------------------------------------------------------------------------------
                                                                      Price
                                                                      range             Outstanding
                                                     Options        per share         2000       1999
     Granted  Plan                                   Granted           US$
     ----------------------------------------------------------------------------------------------------
     <S>      <C>                                    <C>          <C>               <C>        <C>
        1990  Share Option Plan                      880,000           0.25               0    440,000
        1996  1996 Stock Option Plan                 440,000      0.69 to 3.38      296,000    360,000
        1996  1996 Stock Incentive Plan              400,000           5.00          36,000    400,000
        1997  1996 Stock Option Plan                  80,000           5.56          80,000     80,000
        1998  1996 Stock Option Plan                  62,500      4.00 to 5.50       52,500     62,500
        1998  1996 Stock Incentive Plan              187,500      3.75 to 8.38       66,500    125,000
        1999  1996 Stock Option Plan                 142,000      5.75 to 7.00       79,500    142,000
        1999  1996 Stock Incentive Plan              107,000      5.00 to 7.56       92,250    106,000
        2000  1996 Stock Option Plan                 172,000      5.00 to 6.313     166,500          0
        2000  1996 Stock Incentive Plan               99,250      3.63 to 8.63       92,750          0
     ----------------------------------------------------------------------------------------------------
</TABLE>

     At July 31, 2000, there were 402,750 exercisable options outstanding to
     purchase common shares at prices ranging from US$0.69 to $8.38 per share.


                                       32
<PAGE>

SAND TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2000, 1999 AND 1998
(IN CANADIAN DOLLARS)
--------------------------------------------------------------------------------


7.   INCOME TAXES

     The Corporation and its subsidiaries have non-capital losses carried
     forward for income tax purposes amounting to approximately $9,489,000 which
     may be utilized to reduce taxable income of future years and which expire
     as follows:

<TABLE>
<CAPTION>
                                             $
              <S>                        <C>
              2005                          12,000
              2006                         210,000
              2011                          87,000
              2012                         496,000
              2013                       1,856,000
              2014                       3,377,000
              2015                       3,451,000
</TABLE>

     The Corporation has research and experimental development expenses
     estimated at $4,443,000 for federal tax purposes and $4,858,000 for
     provincial tax purposes which can be carried forward indefinitely against
     its taxable income.

     The Corporation also has non-refundable investment tax credits amounting to
     $1,163,000 which it can apply against its future federal income tax
     payable. This can be carried forward over the next ten years.

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


8.   COMMITMENTS

     LEASE COMMITMENTS

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

<TABLE>
<CAPTION>
                                                $
              <S>                            <C>
              2001                           489,926
              2002                           226,971
              2003                           188,706
              2004                            42,390
              2005                               NIL
              ---------------------------------------
                                             947,993
              ---------------------------------------
              ---------------------------------------
</TABLE>


                                       33
<PAGE>

SAND TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2000, 1999 AND 1998
(IN CANADIAN DOLLARS)
--------------------------------------------------------------------------------


9.   RELATED PARTY TRANSACTIONS

     In 1999 and 1998, sales to Hitachi Data Systems Inc. under supply
     agreements accounted for approximately 9% and 27%, respectively of the
     Corporation's total sales.

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

     The Corporation believes that each of the related party transactions
     described above were on terms as fair to the Corporation as could have been
     obtained from unaffiliated third parties.


10.  SEGMENTED INFORMATION

     The Corporation is considered to have only one business segment.

     The Corporation has two geographic reportable segments commencing with the
     1999 fiscal year. Both the North American and European segments distribute
     a full range of Nucleus Exploration series of products, including the
     Nucleus Exploration Mart/Warehouse and the Nucleus Prototype
     Mart/Warehouse. The accounting policies of the segments are the same as
     described in the summary of significant accounting policies. The Company
     evaluates segment performance based on income before taxes. Sales for each
     segment are based on the location of the third party customer. All
     intercompany transactions between segments have been eliminated.

<TABLE>
<CAPTION>

      -------------------------------------------------------------------------
                                          North America             Europe
      -------------------------------------------------------------------------
      <S>                                 <C>                      <C>
      2000
      Net sales                             2,265,340              4,629,676
      Income (loss) before taxes           (3,352,230)               485,323
      Identifiable assets                   5,639,068              3,431,693
      -------------------------------------------------------------------------
      1999
      Net sales                             1,979,103                111,964
      Income before taxes                  (4,950,672)               (10,292)
      Identifiable assets                   8,114,124                159,136
      -------------------------------------------------------------------------
</TABLE>


     For the year ended July 31, 1998 Hitachi Data Systems Inc. was the only
     customer which accounted for more than 10% of the total sales of the
     Corporation.


                                       34
<PAGE>

SAND TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2000, 1999 AND 1998
(IN CANADIAN DOLLARS)
--------------------------------------------------------------------------------


11.  FINANCIAL INSTRUMENTS

     FAIR VALUE

     At July 31, 2000, the estimated fair market value of cash, accounts
     receivable, loan and accounts payable and accrued liabilities is equal to
     the book value given the short-term nature of these items.

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

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

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

     CREDIT RISK

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


12.  CHANGES IN NON-CASH OPERATING WORKING CAPITAL ITEMS
<TABLE>
<CAPTION>

                                                       2000              1999             1998
                                                ---------------------------------------------------
                                                         $                 $               $
     <S>                                             <C>                <C>           <C>
     Accounts receivable                             (3,536,093)         31,532         (721,277)
     Due from affiliated company                          4,537         182,574         (187,111)
     Inventories                                          4,042         181,046          165,237
     Prepaid expenses                                  (102,396)        120,823          (52,977)
     Accounts payable and
       accrued liabilities                            1,360,659             376          (58,139)
     Notes payable to affiliated company                      -               -       (1,382,400)
     ----------------------------------------------------------------------------------------------
     Changes in non-cash operating
       working capital items                         (2,269,251)        516,351       (2,236,667)
     ----------------------------------------------------------------------------------------------
     ----------------------------------------------------------------------------------------------
</TABLE>



13.  SUBSEQUENT EVENT

     On August 1, 2000, the Corporation entered into an agreement with a
     consultant whereby the Corporation may be required to issue up to 25,000
     common shares on November 29, 2000. The Corporation also committed to issue
     up to 100,000 share purchase warrants to the consultant during the period
     November 29, 2000 to July 31, 2001, provided that the share price exceeds
     certain established thresholds. Issued warrants are exercisable up to July
     31, 2003.



                                       35
<PAGE>

SAND TECHNOLOGY INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2000, 1999 AND 1998
(IN CANADIAN DOLLARS)
--------------------------------------------------------------------------------


14. COMPARATIVE FIGURES

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


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

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


                                       36
<PAGE>

DIRECTORS AND OFFICERS
--------------------------------------------------------------------------------

DIRECTORS                                  OFFICERS

ARTHUR G. RITCHIE                          ARTHUR G. RITCHIE
Chairman of the Board, President and       Chairman of the Board, President and
Chief Executive Officer of Sand            Chief Executive Officer of Sand

GEORGES DUBE                               SUSAN WAXMAN
Partner, Lavery, de Billy                  Vice President,
Barristers and Solicitors                  Administration

JOSEPHINE MUNROE                           GEORGES DUBE
Consultant                                 Secretary

MARTIN SHINDLER                            JEROME SHATTNER
Accountant and Business Consultant         President
                                           Sand Technology Systems, Inc.

GEORGE WICKER                              DUNCAN PAINTER
Executive, Lockheed Martin Corporation     Managing Director
                                           Sand Technology (U.K.) Limited

                                           PETER A. SAMPSON
                                           Chief Financial Officer

AUDIT COMMITTEE

GEORGES DUBE
JOSEPHINE MUNROE
GEORGE WICKER


OPTION COMMITTEE

JOSEPHINE MUNROE
MARTIN SHINDLER


                                       37
<PAGE>

SHAREHOLDERS' INFORMATION
--------------------------------------------------------------------------------


EXECUTIVE OFFICE                           AUDITORS
Sand Technology Inc.                       Deloitte & Touche
4141 Sherbrooke Street West                Montreal, Quebec
Suite 410
Westmount, Quebec
CANADA  H3Z 1B8

UNITED STATES OFFICE                       TRANSFER AGENTS
Sand Technology Systems Inc.               Continental Stock Transfer
555 Woodbridge Towers                      & Trust Corporation
Route 1 South                              2 Broadway
Iselin, New Jersey 08830                   New York, New York 10004
U.S.A.                                     U.S.A.

UNITED KINGDOM OFFICE                      INVESTOR RELATIONS
Sand Technology (U.K.) Limited             Inquiries may be directed to
Maple House                                Susan Waxman, Vice President,
High Street                                Administration at the Company's
Potters Bar                                Executive Office.
Hertfordshire
EN6 5BS




STOCK TRADING INFORMATION                  FORM 20-F
The Company's Class A Common Shares        The Company's Annual Report on
are traded on The Nasdaq National          Form 20-F as filed with the
Market System under the trading            Securities and Exchange Commission,
symbol SNDT.                               is available without charge, upon
                                           written request addressed to the
                                           Vice President Administration at the
                                           Company's Executive Office.


ANNUAL MEETING

The annual meeting of shareholders
will be held at 10:00 a.m. on
Friday, October 20, 2000, at the
offices of Lavery, de Billy,
1 Place Ville Marie, 40th Floor,
Montreal, Quebec.


                                       38
<PAGE>

                                     [LOGO]
<PAGE>

                              SAND TECHNOLOGY INC.

                                   SIGNATURES

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

                                            SAND TECHNOLOGY INC.

                                            /s/ ARTHUR G. RICHIE
September 18, 2000                          Arthur G. Ritchie
                                            Chairman of the Board, President
                                            and Chief Executive Officer