---

# U.S.
SECURITIES AND EXCHANGE COMMISSION

# Washington, D.C. 20549

# FORM 10-KSB/A
AMENDMENT NO. 2

---

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

For the fiscal year ended December 31,
2001

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

Commission File Number 0-16423

# SAN Holdings, Inc.
(Name of Small Business Issuer in its Charter)

Colorado   
              
              
              
              
          
              
              
        84-0907969
              
              
              
    (State of incorporation)    
              
              
           
              
             
   (I.R.S. Employer Identification No.)

900 West
Castleton Road, Suite 210, Castle Rock, CO 80104
      
              
             
(303) 660-3933
(Address including zip code, area code and telephone number of Registrant's
principal executive offices.)

Securities
registered pursuant to Section 12(b) of the Act:     
None

Securities registered pursuant to Section 12(g) of the Act:
              
              
Title of Each Class
              
              
        
              
Name of Each Exchange on Which Registered
              
     Common stock, no par value
              
              
              
              
OTC Bulletin Board

Check whether the issuer
(1) filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act during the past 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes [X]  No [  ]

Check if disclosure of
delinquent filers in response to Item 405 of Regulation S-B is not contained in
this form, and no disclosure will be contained, to the best of Registrants
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB.
[  ]

Issuers revenues
for its most recent fiscal year: $21,156,000.

As of March 25, 2002,
38,438,318 shares of the Registrants common stock were outstanding.

On March 25, 2002, the
aggregate market value of the voting common equity held by non-affiliates of the
registrant was approximately $22,459,000. This amount was calculated by reducing
the total number of shares of the registrants common stock outstanding on
March 25, 2002 by the total number of shares of common stock held by officers
and directors, and stockholders owning in excess of 5% of the registrants
common stock, and multiplying the remainder by the closing price of the
registrants common stock on March 25, 2002, as reported on the
over-the-counter market.

Transitional Small
Business Disclosure Format (check one): Yes [  ] No
[X]

---

# SAN
HOLDINGS, INC.FORM 10-KSB

# TABLE OF
CONTENTS

`Item No.                                                                     Page
----                                                                         ----

                                     Part I

    1.     Description of Business............................................   1

    2.     Description of Property............................................   5

    3.     Legal Proceedings..................................................   6

    4.     Submission of Matters to a Vote of Security Holders................   7


                                     Part II


    5.     Market for Common Equity and Related Stockholder Matters...........   8

    6.     Management's Discussion and Analysis or Plan of Operation..........   9

    7.     Financial Statements...............................................  14

    8.     Changes in and Disagreements with Accountants on Accounting and
                Financial Disclosure..........................................  14


                                    Part III

    9.     Directors, Executive Officers, Promoters and Control Persons;
                Compliance With Section 16(a) of the Exchange Act ............  16

   10.     Executive Compensation ............................................  17

   11.     Security Ownership of Certain Beneficial Owners and Management
               and Related Stockholder Matters ...............................  18

   12.     Certain Relationships and Related Transactions ....................  20

   13.     Exhibits and Reports on Form 8-K...................................  21`

---

# PART I

## Item 1.
Description of Business

This
annual report on Form 10-KSB contains forward-looking statements
within the meaning of the Securities Act of 1933 and the Securities Exchange Act
of 1934. These forward-looking statements include statements regarding our
expectations, beliefs, or intentions about the future. The statements are based
on information available to us at this time, and we assume no obligation to
update any of these statements. Actual events and results could differ
materially from our expectations as a result of many factors, including those
identified in the section titled "Investment Considerations" under
Item 6, Management's Discussion and Analysis or Plan of Operation. We urge you
to review and consider those factors, and those identified from time to time in
our reports and filings with the SEC, for information about risks and
uncertainties that may affect our future results. All forward-looking statements
we make after the date of this filing are also qualified by this cautionary
statement and identified risks.

## Overview

SAN
Holdings, Inc., hereafter SANZ, provides sophisticated enterprise-level data
storage and management solutions to clients in the commercial and federal
markets. We focus exclusively on the design, delivery and management of data
storage systems, especially those that are built using a network architecture.
Because we design integrated solutions for our clients rather than merely
selling them hardware, we are known in the industry as a storage solution
provider.

In
the course of our business, we provide the following products and services:

°        Custom storage
solutions that we design and deliver as a project to meet a
clients specific needs.

°        Integrated
solution products for specific market segments.

°        Storage
system management outsourcing services.

Historically,
we have generated revenue from a mix of project, product re-sale, and
project-based services, as well as recurring revenues from storage management
outsourcing contracts. Recently we began developing integrated solution products
that provide data storage and management solutions tailored to deliver optimized
performance for particular market segments. Our new product offerings include
EarthWhereTM, designed for geospatial data storage and distribution,
and SANZStreamTM, designed for rich media data storage and
distribution. We expect to begin selling our integrated solution in 2002.

Growing
demand for data storage is the result of a proliferation of data intensive
applications, from areas as sophisticated as document imaging, digital video,
e-banking, e-education, scientific research, and archiving satellite imagery, to
those as basic as email. The common thread among these applications is that data
storage is an enabling element. In addition to fundamental issues of data
storage, data availability becomes critical. Today's businesses depend on rapid
response time, both internally and with vendors and customers via Internet,
making high availability essential for virtually all server applications.
Consolidating data storage in networks at centralized data centers lowers costs
through increased utilization and more efficient management.

Because
we have attempted to grow rapidly, and simultaneously have incurred substantial
expenses in our efforts to develop our integrated solution products, we have
generated significant losses over our operating history. ITIS Services, Inc.,
which we acquired at the end of 2001, also generated significant losses as an
independent company prior to its acquisition by SANZ.

## Our Background

SANZ
was formed as a Colorado corporation in 1983. We commenced our current business
in 2000, when we acquired three companies with varying degrees of presence in
the storage products and solutions marketplace. These three companies, Storage
Area Networks, Inc., CoComp, Inc., and Value Technology, Inc., merged their
operations and currently operate as our wholly owned subsidiary, Storage Area
Networks, Inc. In October 2001 we acquired certain operating assets of
ECOSoftware Systems, Inc. a privately held storage networking consulting and
integration firm based in Boulder, Colorado.

---

In
December 2001, we acquired ITIS Services, Inc., a privately held data storage
consulting and storage solution provider firm with offices in Norwalk,
Connecticut and Boston, Massachusetts. ITIS's business model closely matched
ours, except that it had not yet developed its own integrated solution products.
ITIS historically served exclusively the commercial markets. Its client base
includes large, national financial services, healthcare and technology
companies. By acquiring ITIS, we have established a more significant market
presence in the eastern United States and in the commercial markets in general.
Certain officers of ITIS now are officers and directors of SANZ.

As
of March 14, 2002, SANZs executive officers are: John Jenkins, Chairman
and CEO; Fred T. Busk, Chief Operating Officer; Holly J. Burlage, Chief
Financial Officer, and Hugh O'Reilly, Senior Vice President - Legal and
Administration.

SANZ
principal executive offices are located at 900 West Castleton Road, Suite 100,
Castle Rock, CO 80104. Our telephone number is (303) 660-3933.

## Our Business

The
market for data storage solutions is generally robust and broad-based, though
not immune to the capital spending slump that began affecting the U.S. economy
in 2001. Industry analyst Gartner Dataquest opines that data
storage products have become the largest component of corporate IT
departments enterprise computing budgets. As a subset of the overall
storage market, networked storage (the segment of the storage market that is our
primary focus) is predicted by both Gartner Dataquest and by industry analyst
The Yankee Group to grow from approximately $7 billion in 2001 to in excess of
$14 billion in 2003, representing year-on-year growth exceeding 30% in 2002 and
50% in 2003.

We
design, deliver and manage sophisticated data storage solutions based on Storage
Area Networks ("SAN") and Network Attached Storage ("NAS").
These are secondary, high-speed computer networks dedicated to data storage and
backup functions. SAN and NAS have been increasingly recognized as the promising
new architecture that have the capability to solve many of the storage issues
arising in today's open systems networks. These issues include:

|° | Rising cost in server-based storage environments due to inefficient storage
utilization and high maintenance costs
|- | ------------------------------------------------------------------------------------------------------------------

|° | Increased isolation and resulting performance degradation of storage resulting
from restrictive server-to-storage connectivity and incompatible storage
protocols
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

|° | Increased complexity in upgrading server and storage capacities
|- | ---------------------------------------------------------------

|° | Requirements for comprehensive data security, protection and disaster recovery
capabilities.
|- | --------------------------------------------------------------------------------------------

By
centralizing data storage functions, storage networks create a reservoir of data
storage that can be shared by multiple servers and is accessible over long
distances. Networked storage solutions permit large amounts of data to be
shared, managed and accessed among diverse servers and storage systems running
different computer operating systems or software applications. This increased
manageability and superior performance are particularly important for
applications that depend on transfer of high volumes of data, such as found in
imaging, pharmaceutical development and complex financial analysis.

---

## Our Clients

While
we have always sought to serve both federal government and commercial markets,
until the recent acquisition of ITIS, our sales were highly concentrated in the
federal government sector. By acquiring ITIS, with its East-coast commercial
client base, we expect to achieve a more balanced mix of federal government and
commercial business.

Our
federal government clients include agencies involved in national defense, law
enforcement, and high performance government computing and government logistics.
Included in our federal government business are sales directly to government
end-users, as well as sales to prime contractors who provide various services to
government end-users. Of our total government billings during 2001, 47% were
directly to the federal government, and the remainder were to third parties
acting as prime contractors or to states.

While
we do not restrict our commercial business to specified industries, we have
developed a relatively greater number of clients in certain segments, including:

| | ° | computer services | ° | financial services
| | - | ----------------- | - | ------------------

| | ° | biotechnology
and pharmaceuticals | ° | health care
| | - | --------------------------------- | - | -----------

| | ° | telecommunication | ° | entertainment
| | - | ----------------- | - | -------------

These
segments are in various states of maturity in their use of data storage
technology.

We
have developed specific expertise in certain market segments and can provide
solutions that are tailored to the needs of particular business environments.
This approach led us to undertake the development and introduction of our
integrated solution products, known sometimes generally as "storage
appliances." These products address extraordinary data storage and
management requirements not readily addressed by technologies and products
available in conventional fashion. Our current development efforts include
storage appliances and solutions for geospatial data storage and management, and
for rich media data distribution and storage. We expect to continue our efforts
to develop efficient, integrated storage solutions for additional market
segments as we identify new opportunities.

We
employ a direct sales model, but rely heavily on cooperative selling with our
technology partners, all of whom have sales personnel who are tasked to support
channel partners such as SANZ. Our technology partners may provide opportunity
leads for us to execute directly, or include us as part of a large system
solution delivery project that they manage. In our own efforts, we often call
upon our technology partners for direct support in the sales process, in the
implementation process, or to provide lease financing for large projects.

We
operate from an engineering-centric business model. To support our ability to
deliver complex technical solutions, we operate testing laboratories at our
offices in Norwalk, CT and Castle Rock, CO. These are used to test proposed
solutions, and to demonstrate those solutions to prospective clients.

Significant
Customers. In 2001, three customers accounted for 29%, 13% and 11%, of our
total revenue; the largest two of these were both agencies of the U.S. federal
government. Two of those customers each accounted for 15% of total revenue in
2000.

## SANZ Products
and Services

Our
products can be broken into two distinct general categories, Custom Client
Solutions and Integrated Product Solutions. As noted above, we have only
recently begun to market our Integrated Product Solutions and have not yet
recorded any sales of these products.

We
also generate revenue from consulting and storage management services delivered
independently of our Custom Client Solutions and Integrated Product Solutions
(although sometimes to the same customers), and from installation and similar
services rendered as a part of the sale of a solution. In 2001, services
revenues of all types aggregated less than 5% of our total revenues, and are
therefore not separately reported.

---

## Custom
Client Solutions

We
design and deliver custom solutions by working with our clients to understand
both their current and their projected data storage needs, and the business
drivers that affect those needs. A critical element in our typical sales process
is that of providing detailed support of the financial justification of a
proposed solution using a conventional return on investment analysis and a
separate return on information management analysis developed by
ITIS.

Our
engineering staff designs a best of breed system to best meet the
clients business and technology needs, selects and acquires the hardware
and software components from our technology suppliers, performs interoperability
testing as required, and finally coordinates installation of the system at the
clients facility. We augment our own engineering resources by engaging our
vendors engineers to perform installations or other tasks on a
case-by-case basis. We have developed our product and service offerings
specifically to be able to engage a client at any point in the evolution of
their storage requirements, and to continue to provide solutions as the client's
needs change in scope.

## Integrated Product Solutions

As
a logical extension of our custom client solution business and vertical market
focus, we have invested in designing integrated solutions to address identified
niche market opportunities. As we work with many clients in a particular
industry and determine common requirements, our product development staff looks
for opportunities to address those common requirements with a standard design or
configuration. For some industries, a relatively simple storage appliance can
address these requirements. For others, the solution includes a more complex
package of services, such as our EarthWhereTM and
SANZstreamTM solutions, described below.During 2001, we
discontinued our efforts to develop a related product, SANZGuard, after we
reassessed the forecasted development cost versus the potential market interest.

| | EarthWhereTM
(formerly GEMS) is a system that allows geospatial data (digital images
of the earth's surface captured by satellite or aerial observation) to be stored
and managed from any location. Applications for this product range from defense
surveillance to the business community to city planning functions.
EarthWhereTM is designed to provide a broad range of potential users
with low cost easy access to the massive amounts of available digital mapping
information. With recent enhancements, we now can offer EarthWhereTM
in a wider variety of configurations, based on features rather than capacity.
Customers may purchase enhanced options, such as a disaster recovery and fault
tolerant disks or an integrated third party image processing application, as
part of the original system, or add these features later.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | SANZstreamTM
is a centralized storage and content distribution system designed to address the
particular needs of handling digital rich media content. Digital media files are
large and present particular content storage and distribution requirements in an
on-demand environment. Since the market for on-demand video products for
entertainment and other products utilizing centralized video distribution
generally are new and largely undeveloped, we expect only gradual growth over
the next 24 months, and have adjusted our marketing efforts accordingly.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

## Our Technology
Partners

SANZ
is an independent storage solution provider, not under common ownership with
manufacturers of products used in our networked storage solutions. We build and
manage our best of breed solutions by integrating product offerings from our
technology product suppliers. Current key suppliers include:

---

| | ° | StorageTek | ° | Hitachi Data
Systems | ° | Sun Microsystems
| | - | ---------- | - | -------------------- | - | ----------------

| | ° | Veritas | ° | LSI Logic | ° | Brocade
| | - | ------- | - | --------- | - | -------

We
believe we have strong relationships with these product suppliers. SANZ holds
federal government General Services Administration schedules for many of these
products, which gives us a distinct advantage in working with our government
clientele. In some cases, our technology partners engage us for the expertise we
bring to a technology team, in particular in heterogeneous technology
environments, where individual manufacturers lack the skills necessary to work
with the full range of software and hardware components presented in a
sophisticated solution.

## Competition

The
rapidly evolving and highly competitive market for data storage is served by
many manufacturers, value added resellers, storage solution providers, and
storage service providers.

Major
computer system firms all offer storage devices along with their server,
workstation and desktop computer systems. To some extent, our products compete
with those systems.

We
face more direct competition from manufacturers specializing in storage
technology products. These include Dothill, EMC, Exabyte, Hitachi Data Systems,
LSI Logic, MTI Technology, nStor, OnStream, Spectralogic, StorageTek, Storcase,
Ultera and Veritas. Some product companies address the market with a direct
sales model, some employ a channel partner-only strategy, and some use a hybrid
strategy that includes both.

A
number of these competitors also are key technology suppliers of SANZ. Those
that are not provide competition in our accounts and markets. In some cases, in
large legacy accounts of our technology partners, we will face competition
directly from those suppliers. A large number of private company value added
resellers serve as sales and distribution outlets for the manufacturers listed
above, while many of these offer only component sales and distribution. We
sometimes compete with these companies at the user client level. At times, we
face competition from other resellers offering the same or similar equipment
from the same technology partners. In general, these competitors are regional.

We
compete with Companies that characterize themselves as storage solution
providers, such as Bell Microsystems, Cranel, Datalink, Stornet and Alanco. Some
of these, such as Bell Microsystems, are large component resellers who are just
moving into the market for complete solution delivery. Others, such as Datalink,
have applied the solution sale model for a longer time.

## Employees

As
of December 31, 2001, we employed 61 people (including those employed by ITIS,
which was acquired as of that date), all but one in full-time positions. None of
our employees are subject to collective bargaining agreements. We believe that
our relations with our employees are good.

## Item 2.
Description of Property

SANZ
occupies 6,725 square feet of office and lab space in Castle Rock, Colorado. The
lease for the Castle Rock facility expires on May 31, 2004. The monthly rent
under this lease is $9,578 plus the costs of utilities, property taxes,
insurance, repair and maintenance expenses and common area utilities.

---

We
also lease office space for the following regional offices:

Office Location
                
        Lease Expiration        
        Monthly Rent
        
        Square Footage
        Boston, MA
                
                
May 30, 2003                
        $1,526        
                
          787
        Colorado Springs, CO
                 
May 31, 2002                
        $   724        
                
        1250
        Norwalk, CT
                
                
June 30, 2002                 
        $5,833        
                
        5000
        Phoenix, AZ
                
                
October 15, 2005            
       $3,148        
                
        1757

We
acquired our Norwalk and Boston offices through the December 2001 acquisition of
ITIS. During 2001, we closed our regional offices in Englewood, Colorado,
Boulder, Colorado and Austin, Texas. We will continue to pay rent for the
Boulder and Austin offices through July 2003, and have accrued the obligation
for the life of the lease. The lease for a previously closed ITIS office in
Orlando, FL continues until January 2006, and we have accrued the obligation for
the time estimated to sublease this office. Unless these three offices are
subleased or the lease terminated, we will remain obligated to make lease
payments, currently totaling $11,388 per month.

We
believe that our properties, equipment, fixtures and other assets are adequately
insured against loss, that suitable alternative facilities are readily available
if the lease agreements described above are not renewed, and that our existing
facilities are adequate to meet current requirements.

## Item 3 Legal
Proceedings

As
described below, we recently concluded two legal matters for which we previously
had recorded reserves.

3Si.In May
1999, we filed a lawsuit against 3Si Holdings, Inc. (3Si), seeking
payment of unpaid invoices in the approximate amount of $2,000,000. 3Si
initially agreed to settle the lawsuit and pledged certain shares of 3Si common
stock to secure that settlement. 3Si subsequently filed a new lawsuit seeking to
set aside the original settlement and, in addition, seeking substantial
additional damages against SANZ, our operating subsidiary Storage Area Networks,
Inc., the founders of Storage Area Networks, and certain other individuals not
associated with SANZ.

Over
time, we determined that our prospects for recovery were declining. The 3Si
shares pledged to us as security were decreasing in price, and we continued to
write down their value on our books. In December 2001 SANZ, 3Si and most of the
other parties to the lawsuit entered into a global settlement agreement,
providing for (among other things) mutual releases, without payment, between
SANZ and 3Si, SANZs forgiveness of the account receivable from 3Si and the
associated release of the pledge on the shares of 3Si common stock securing the
original settlement, and the surrender to SANZ of a total of 170,000 shares of
SANZ common stock by L.W. Buxton and Warren Smith, the founders of Storage Area
Networks, Inc.

XS Data.SANZ
initiated legal action against XS Data Solutions, Inc. in April 2001 in an
attempt to collect a $2,000,000 account receivable generated in 2000. At the
time the legal action was initiated, XS Data Solutions had no remaining cash
resources, and had not been successful in several attempts to arrange additional
financing. During the course of litigation, we determined that XS Datas
limited resources made full recovery unlikely. Late in the year, XS Data located
a buyer for its business. A condition to the purchase was settlement of our
lawsuit. We agreed to settle, and have been paid $50,000 in cash and a $250,000
non interest-bearing note, payable quarterly over three years and secured by the
equipment we initially sold to XS Data.

---

## Item 4.
Submission of Matters to a Vote of Security Holders

## 2001 Annual
Meeting

At
our Annual Meeting of Shareholders, held on October 29, 2001, all of the
proposals submitted by the Board of Directors were approved.

99%
of the votes cast voted in favor of electing managements nominees for
directors, Robert K. Brooks, William R. Hipp, and John Jenkins, and ratifying
the appointment of Grant Thornton LLP as our auditors.

A
proposal to amend our Articles of Incorporation to reduce the vote necessary for
shareholder approval of certain transactions and of future Amendments to the
Articles of Incorporation from two-thirds to a majority of outstanding shares
was approved by 71% of our outstanding shares.

Shareholders
approved increasing our authorized common stock from 25,000,000 shares to
75,000,000 shares, with 84% of the outstanding shares voting in favor.

Holders
of 84% of the outstanding shares approved amending our Articles of Incorporation
to limit the monetary liability of directors in certain circumstances, and to
require the company to indemnify its directors, officers, employees and agents
to the fullest extent permitted by law.

## Date Change
for 2002 Annual Meeting - Submission of Shareholder Proposals

The
date for our 2002 annual meeting of shareholders, previously scheduled for
October 2002, has been changed to June 5, 2002. Shareholder proposals must be
received no later May 6, 2002 to be presented at the meeting, and must be
received no later than April 16, 2002 to be considered for inclusion in our
proxy statement. Shareholder proposals must be submitted to us in writing at:
SAN Holdings, Inc., Attention - Corporate Secretary, 900 W. Castleton Road,
Suite 100, Castle Rock, Colorado 80104.

---

# PART II

## Item 5. Market
for Common Equity and Related Stockholder Matters

Our
common stock is quoted on the Over-the-Counter Bulletin Board under the symbol
SANZ. The following table shows the high and low bid quotations for
our common stock in 2001 and 2000. These over-the-counter market quotations
reflect inter-dealer prices, without retail mark-up, markdown or commission and
may not represent actual transactions. The trading market in our securities may
at times be moderately illiquid due to low volume.

`Common Stock     
                                     $ High             $ Low


          2001
          First Quarter               1.50               0.80
          Second Quarter              1.62               0.80
          Third Quarter               1.19               0.77
          Fourth Quarter              1.14               0.78

          2000
          First Quarter              19.75              18.75
          Second Quarter             10.00              10.00
          Third Quarter              4.625              4.625
          Fourth Quarter             1.375              1.125`

On
March 14, 2002, the last reported sale price for our common stock was $0.84.

## Holders

As
of March 14, 2002, there were 37,022,624 SANZ shares outstanding, held of record
by 364 registered holders. Registered holders include brokerage firms and
clearinghouses holding our shares for their clientele, with each brokerage firm
and clearinghouse considered as one holder.

## Dividend Policy

We
have never declared or paid any cash dividends on our common stock. We currently
intend to retain future earnings, if any, for the operation and development of
our business, and do not intend to pay any dividends in the foreseeable future.

## Recent Sales
of Unregistered Securities

On December 19, 2001, we issued
securities to the shareholders of ITIS Services, Inc. in exchange for all of the
outstanding ITIS shares. We issued a total of 18,511,262 shares of common stock,
valued at $14 million, and options to acquire 3,315,050 shares of SANZ common
stock, valued at $2 million. We offered and sold these securities to the ITIS
shareholders, in a private transaction, in reliance on the exemptions from
registration provided under Section 4(2) and under Rule 506 of Regulation D of
the Securities Act. All of the ITIS shareholders were provided with extensive
information concerning the transaction, and had the opportunity to ask questions
and receive additional information concerning the transaction, sufficient for us
to reasonably believe that all of the ITIS shareholders were capable of
evaluating the merits and risks of the transaction.

---

## Item 6.
Managements Discussion and Analysis or Plan of Operation

## Critical
Accounting Policies and Estimates

The preparation of our
financial statements in conformity with accounting principles generally accepted
in the United States requires us to make estimates and assumptions that affect
the reported amounts of assets and liabilities, disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amount
of revenues and expenses during the reporting period. In applying our accounting
principles, we must often make individual estimates and assumptions regarding
expected outcomes or uncertainties . As you might expect, the actual results or
outcomes are generally different than the estimated or assumed amounts. These
differences are usually minor and are included in our consolidated financial
statements as soon as they are known. Our estimates, judgments and assumptions
are continually evaluated based on available information and experience. Because
of the use of estimates inherent in the financial reporting process, actual
results could differ from those estimates.

We periodically review the
carrying value of our goodwill and other intangible assets when events and
circumstances warrant such a review. One of the methods used for this review is
performed using estimates of future cash flows. If the carrying value of our
goodwill or other intangible assets is considered impaired, an impairment charge
is recorded for the amount by which the carrying value of the goodwill or other
intangible assets exceeds its fair value. We believe that the estimates of
future cash flows and fair value are reasonable. Changes in estimates of such
cash flows and fair value, however, could affect the calculation. It is at least
reasonably possible that the estimates we use to evaluate the realizability of
goodwill will be materially different from actual amounts or results.

Based on an assessment of
our accounting policies and the underlying judgments and uncertainties affecting
the application of those policies, we believe that our consolidated financial
statements provide a meaningful and fair perspective of our company. We do not
suggest that other general risk factors, such as those discussed elsewhere in
this report, could not adversely impact our consolidated financial position,
results of operations or cash flows.

## General

SANZ current business
operations commenced in 2000 through the combination of three private companies,
CoComp, ValueTech and Storage Area Networks, with a public company, Citadel
Environmental Group, Inc. In October 2001, we acquired operating assets of
ECOSoftware Systems, Inc., and effective December 31, 2001, we acquired ITIS
Services, Inc., a data storage company operating out of Norwalk, CT.

The consolidated financial
statements discussed below include the accounts of Storage Area Networks, Inc.
for all periods presented, plus subsidiaries from the dates of their acquisition
by SANZ. All significant intercompany balances have been eliminated.

ITIS Services was acquired
as of December 31, 2001, and while its assets and liabilities as of that date
are included in the December 31, 2001 balance sheet, its results of operations
are not reflected for periods ending on or prior to December 31,
2001.

## Results of
Operations

## Year Ended
December 31, 2001 Compared to Year Ended December 31, 2000

ITIS Services was acquired
as of December 31, 2001. Its results of operations are not reflected in our
audited financial statements or in the discussion below.

Sales.
SANZs sales increased by $2.8 million, or 16%, during the year ended December
31, 2001, from $18.3 million for the year ended December 31, 2000. The increased
sales were primarily in the federal sector, due to heightened demand for data
storage, and back-up/restore functionality.

---

Gross
Margin. Gross margin for the year ended December 31,
2001 was 15%, compared to a gross margin of 25% for the year ended December
31,2000. The gross margin for 2000 included a credit related to the settlement
of a disputed payable. Excluding this credit, the gross margin would have been
22%. The decrease in margin was caused by a change in the revenue mix from a
more balanced mix of commercial and governmental sales in 2000, to a
concentration of governmental sales in 2001. During 2002, we anticipate that
revenue contribution from federal markets will be reduced on a percentage basis
due to increased sales into the commercial markets as economic conditions
improve and as we reflect the addition of commercial revenue generated from the
ITIS acquisition.

Selling, General
and Administrative. Selling, general and
administrative expenses increased by $1.2 million during 2001. Selling expenses
increased by $1 million due to a staffing increase from six to twelve sales
people to support growth of our commercial business and costs associated with
the marketing of our new integrated solution products, EarthWhereTM
and SANZstreamTM. Engineering costs increased significantly as a
result of the development effort associated with those integrated solutions and
the need to expand technical resources to support new vendor technologies
critical to our growth efforts. During 2000, SANZ recorded $500,000 compensation
expense in conjunction with the termination of an executive employment contract.
During 2001, no comparable cost was incurred.

During 2000 and 2001, we
filed litigation to collect accounts receivable from two customers, 3Si and XS
Data. In December 2001, we entered into binding settlements of these disputes
due to the declining value of these assets and the increasing demands on
managements time. In the 3Si settlement, we forgave the account receivable
from 3Si and released the associated pledge on the shares of 3Si common stock
securing the original settlement. In the XS Data settlement, we were paid
$50,000 in cash and a $250,000 non interest-bearing note, payable quarterly over
three years and secured by the equipment we initially sold to XS Data. In
connection with these settlements, during the year ended December 31, 2001, we
recorded an additional charge of $480,000 in receivable write-offs, and $900,000
to write-off investment securities.

Interest
Expense. During 2001, interest expense decreased by $43,000. This
decrease is primarily due to the reduction in interest associated with the
decrease in outstanding debt.

## Liquidity and
Capital Resources

ITIS Services was acquired
as of December 31, 2001. Its assets and liabilities as of that date are included
in our balance sheet as of December 31, 2001, but not at December 31,
2000.

SANZs cash position
increased by $5 million during 2001. At December 31, 2001, the Company had $5.3
million in cash and cash equivalents compared to $300,000 at December 31,
2000.

For the year ended
December 31, 2001, our continuing operating activities generated $1.2 million of
cash compared to $5 million of cash used during the prior year. This increase
primarily is due to an increase in accounts payable offset by the increase in
net loss, as well as our receipt of a $3 million receivable ahead of the
scheduled payment of the associated payable of $2.4 million. Accounts payable,
accrued expenses, accounts receivable and deferred revenue were higher than at
December 31, 2000 due to our increased level of business, and the addition of
ITIS accounts to our balance sheet, effective December 31, 2001.

Cash used in investing
decreased from $3.3 million in the prior year to $106,000 in the current year.
This decrease primarily is the result of acquisitions in the prior year.

Cash provided by
financing was $5.8 million in 2000, compared to $3.9 million in 2001, due to a
decrease in debt payments and decreased proceeds from the sale of
equity partially offset by a reduction in debt payments.

During May 2001, SANZ
finalized a $2.5 million line of credit agreement with Wells Fargo Business
Credit, Inc. As of December 31, 2001, we had not drawn any funds against this
line of credit. As of March 14, 2002, we had drawn $720, 600 against this line
of credit for working capital needs. Following year-end, we closed a private
offering of units, at $6,800 per unit, that raised $798,456, net of fees. Each
unit consisted of 10,000 shares and a five- year warrant to purchase 2,000
shares at $.85 per share. A total of 1,415,694 shares and 600,196 warrants,
including those issued as placement agent compensation, were issued in this
offering. Current working capital, coupled with this recent private placement
and the line of credit, should finance operations for 2002. However, we may need
to raise additional funds due to current economic conditions and the
unpredictable nature of the market.

---

## Capital
Expenditures

During the year ended
December 31, 2001, we purchased $417,000 of property and equipment for cash. We
anticipate a comparable level of spending on capital expenditures during 2002.

## Seasonality

Historically, we have not
experienced seasonality in our business, although our revenue is subject to
fluctuation due to government and commercial purchasing cycles. See
Investment Considerations, below.

## Effect of New
Accounting Pronouncements

In 2001, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 141 (SFAS 141), Business Combinations. This standard eliminates the
pooling method of accounting for business combination initiated after June 30,
2001. In addition, SFAS 141 addresses the accounting for intangible assets and
goodwill acquired in a business combination. This portion of SFAS 141 is
effective for business combinations completed after June 30, 2001. The Company
does not expect SFAS 141 to have a material effect on the Companys
financial position or results of operations.

In 2001, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 142 (SFAS 142), Goodwill and Intangible Assets,which clarifies the
accounting for impairments to purchased goodwill and intangible assets. Under
SFAS 142, goodwill and intangible assets with indefinite lives will no longer be
amortized, but will be tested for impairment annually and also in the event of
an impairment indicator. SFAS 142 is effective for fiscal years beginning after
December 15, 2001. The Company expects that the adoption of SFAS 142 will
decrease annual operating expenses by approximately $300,000. The Company
adopted SFAS 142 on January 1, 2002.

In 2001, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 144 (SFAS 144), Accounting for the Impairment or Disposal of Long-Lived
Assets.This standard addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. SFAS 144 is effective for fiscal
years beginning after December 15, 2001. The Company does not expect SFAS 144 to
have a material effect on the Companys financial position or results of
operations.

## Investment
Considerations

In addition to the other
information in this Annual Report, the following factors should be considered in
evaluating our business and financial condition. We believe the risks and
uncertainties described below may materially affect SANZ. There also could be
additional risks and uncertainties, that we are currently unaware of or that we
currently deem immaterial, which may in the future become important factors that
affect our financial condition or results.

---

We may not be successful
in growing our business quickly enough to support the investment we are making
in infrastructure and technical resources. Without an increase in gross profit
sufficient to cover this overhead (or a reduction in that overhead), we may not
become profitable.

We continue to expand our
engineering staff and sales force and improve our infrastructure, both through
internal growth and through our recent acquisitions, to support both expanded
selling and project execution elements necessary for our growth objectives. If
we fail to achieve revenue and gross margin growth to cover this increased
overhead, our progress to breakeven and profitable operations will be delayed.

Our ability to grow our
business depends on relationships with others. If we were to lose those
relationships, we could lose our ability to sell certain of our products.

Most of our revenue and a
majority of our gross profit come from reselling hardware and software products
produced by others. While our relationships change from time to time, some of
our most significant technology partners at this time are Storage Technology
Corporation (StorageTek), Hitachi Data Systems, Sun Microsystems and Veritas
Software. If a given technology partner changes its marketing strategy and
de-emphasizes its use of marketing partners such as SANZ, our ability to
generate revenue and profit from reselling its products would
diminish.

We must effectively
integrate ITIS with SANZ and recognize expected synergies in order to achieve
the benefits sought through that acquisition.

Acquisitions entail a
number of risks, including: problems integrating the acquired operations
technologies or products with our existing business and products; diversion of
management's time and attention from our core business; and difficulties in
retaining business relationships with suppliers and customers of the acquired
company. Achieving the anticipated benefits of the ITIS acquisition will depend
in part upon whether we are able to effectively integrate the businesses. Even
if we are able to integrate ITISs operations and economic conditions
remain stable, there can be no assurance that the anticipated synergies will be
achieved. If we are unable to integrate the ITIS operations and personnel in a
timely way, those problems may result in lost revenue and a failure to eliminate
duplicate expenses.

There will be risks
associated with introducing new products. If we are not successful with those
product introductions, we will not realize on our investment in developing those
products.

We have recently completed
development of two new products, EarthWhereTM and
SANZstreamTM. Both have been introduced but neither has yet generated
any sales. We will continue to evaluate opportunities to develop other
integrated product solutions. Market acceptance of new products may be slow or
less than we expect; SANZstreamTM in particular addresses an as-yet
undeveloped market segment. The products also may not perform in a manner that
is required by the market, or our competitors may be more effective in reaching
the market segments we are targeting with these products. Slow market acceptance
of these products will delay or eliminate our ability to recover our investment
in these products. During any period that we unsuccessfully seek to market these
products, will also incur marketing costs without corresponding revenue.

Due to our limited
operating history and the uncertain acceptance of our new products, we may have
difficulty accurately predicting revenue for future periods and appropriately
budgeting for expenses, resulting in expense levels unjustified by actual
revenues.

The Companys limited
operating experience, our recent and significant increase in size through the
acquisition of ITIS, and other factors beyond our control reduce our ability to
accurately forecast our quarterly and annual revenue. If our revenue does not
increase as anticipated, significant losses could result due to expense levels
that were established in anticipation of that revenue growth.

We have experienced and
expect to continue to experience significant period-to-period fluctuations in
our revenue and operating results. As a consequence, financial results from any
one period may not be indicative of results that will be realized in future
periods.

A number of factors may
particularly contribute to fluctuations in our revenue and operating results,
including: the timing of orders from, and product integration by, our customers,
and the tendency of these customers to change their order requirements
frequently with little or no advance notice to us; deferrals of customer orders
in anticipation of new products, services, or product enhancements from us or
our competitors or from other providers of storage networking products; and the
rate at which new markets emerge for products we are currently developing.

---

Our business is
dependent on a market that is new, and therefore unpredictable.

Storage area networks, or
SANs, were introduced in 1997. As a result, the market for SANs and related
products has only recently begun to develop and is rapidly evolving. Because
this market is new, it is difficult to predict its potential size or future
growth rate. If this market does not develop and expand as we anticipate, our
revenues may not grow as projected, resulting in continued operating losses.

A significant portion of
our sales have historically been to the U.S. Federal Government, and if we lost
the ability to sell to the government our sales would decline
significantly.

As discussed further under
the heading SANZ and Its Business - Our Clients at page 3, our sales
have historically been concentrated in the federal government sector. While the
acquisition of ITIS Services has reduced this dependency on government clients,
in 2001 two federal government agencies alone accounted for an aggregate of over
40% of our revenues. While it is not legally necessary to be an approved vendor
in order to sell to the government, we have established certain vehicles
approved by the U.S. General Services Administration that greatly facilitate our
sales to government end-users. If we were to lose the ability to sell under
these vehicles, we could lose much of our government revenue base.

28.8 million, or 75%, of
our total outstanding shares are restricted from immediate resale but may be
sold into the market in the near future. This could cause the market price of
our common stock to drop significantly, even if our business is doing well.

These restricted shares
were issued to acquire ITIS, and sold to raise capital. If they are not sooner
included in a registration statement for public sale, 8.8 million of these
shares would become available for resale in the public market, pursuant to Rule
144, on June 30, 2002. We also are registering shares underlying outstanding
warrants that become exercisable on April 30, 2002. The warrants were issued in
private placements. There are 3,240,021 shares underlying warrants exercisable
at $.625 per share, and 2,199,637 shares underlying warrants exercisable at
$1.25 per share.

As a condition of the
acquisition, we agreed to register the shares we issued to ITIS shareholders for
public sale as soon as possible following our filing of this Form 10-KSB. We
also agreed to include the other privately issued shares in any registration
statement that we file, and will include them in the ITIS shareholder
registration statement. These restricted shares could be sold publicly on the
date the registration statement becomes effective, even if that date is earlier
than the Rule 144 sale date shown below. As a condition to the ITIS acquisition,
however, holders of approximately 4,068,507 shares issued in the acquisition
agreed not to sell those shares until various dates in the third and fourth
quarters of 2002, except under limited exceptions, even if the registration
statement becomes effective prior to those dates. As restrictions on resale end,
the market price for our common stock could drop significantly if the holders of
these restricted shares sell them or are perceived by the market as intending to
sell them.

We may require additional
capital to fund our business, which may not be available when needed, and which
may dilute the ownership of existing shareholders.

We executed a $2.5 million
bank line of credit on May 31, 2001, and began drawing on this line early in
2002. We also recently raised approximately $1.0 million of additional equity
capital in a private placement. Our current working capital, coupled with the
recent private placement and the line of credit, should finance operations for
2002. However, we may need to raise additional funds due to current economic
conditions and the unpredictable nature of the market. There is no assurance
funding will be available on favorable terms or in an amount sufficient to fund
our expanded business plan as quickly as we have projected. If equity capital
were raised, the issuance of those shares would also be dilutive to the
ownership interests of all other stockholders.

---

We are a relatively
small company with limited resources compared to some of our current and
potential competitors, which may hinder our ability to compete effectively.

Some of our current and
potential competitors have longer operating histories, significantly greater
resources, broader name recognition and a larger installed base of customers
than we have. As a result, these competitors may have greater credibility with
our existing and potential customers. They also may be able to adopt more
aggressive pricing policies and devote greater resources to the development,
promotion and sale of their products than we can to ours, which would allow them
to respond more quickly than us to new or emerging technologies or changes in
customer requirements. In addition, some of our current and potential
competitors have already established supplier or joint development relationships
with decision makers at our current or potential customers.

## Item 5.
Financial Statements.

Required financial
statements immediately follow this page, and are listed below.

`Report  of Independent Certified Public Accountants                     F-1

     Report  of Independent Certified Public Accountants                     F-2

     Consolidated Balance Sheets, December 31, 2000 and 2001                 F-3

     Consolidated Statements of Operations for the Years Ended
               December 31, 2000 and 2001                                    F-5

     Consolidated Statements of Stockholders' Equity for the Years Ended
          Ended December 31, 2000 and 2001                                   F-6

     Consolidated Statements of Cash Flows for the Years Ended               F-7
          December 31, 2000 and 2001

     Notes to Consolidated Financial Statements                              F-9`

## Item 8.
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure

There
are no changes or disagreements required to be reported under this Item 8.

---

# REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

The Board of Directors
and Stockholders
SAN Holdings, Inc.

We have audited the
accompanying consolidated balance sheet of SAN Holdings, Inc. and subsidiaries
as of December 31, 2000, and the related consolidated statements of operations,
changes in stockholders equity and cash flows for the year then ended.
These consolidated financial statements are the responsibility of the
Companys management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.

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

In our opinion, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of SAN Holdings, Inc. and subsidiaries
as of December 31, 2000, and the results of their operations and their cash
flows for the year then ended, in conformity with accounting principles
generally accepted in the United States of America.

Denver, Colorado
March 19, 2001
             
             
             
             
             
             
             
CAUSEY DEMGEN & MOORE INC.

---

# Report of
Independent Certified Public Accountants

The Board of Directors
and Stockholders
SAN Holdings, Inc.

We have audited the
accompanying consolidated balance sheet of SAN Holdings, Inc. and subsidiaries
as of December 31, 2001, and the related consolidated statements of operations,
stockholders equity and cash flows for the year then ended. These
consolidated financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.

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

In our opinion, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of SAN Holdings, Inc. and subsidiaries
as of December 31, 2001, and the consolidated results of their operations and
their consolidated cash flows for the year then ended, in conformity with
accounting principles generally accepted in the United States of America.

February 12, 2002
Dallas, Texas          
            
            
            
            
            
            
            
            
/s/ GRANT THORNTON LLP

---

# SAN
Holdings, Inc.

CONSOLIDATED
BALANCE SHEETS
December 31,

`ASSETS                                            2001          2000
                                                                        ----          ----

CURRENT ASSETS
    Cash and cash equivalents ...................................   $ 5,320,721   $   282,932
    Certificate of deposit ......................................          --         497,093
    Accounts receivable, less allowance for doubtful accounts
       of $212,750 in 2001 and $1,339,942 in 2000 ...............     6,397,915     4,116,064
    Other receivables ...........................................       265,635        61,836
    Inventory, less valuation allowance of $100,527 in 2001 .....     2,302,526        83,402
    Prepaid maintenance contracts ...............................       590,628          --
    Prepaid expenses ............................................       153,646        51,481
    Investment securities - available for sale ..................          --         654,419
                                                                    -----------   -----------
                  Total current assets ..........................    15,031,071     5,747,227

PROPERTY AND EQUIPMENT AT COST
    Furniture and fixtures ......................................       939,700       407,521
    Leasehold improvements ......................................        43,329         2,491
    Computer equipment and software .............................       559,975       241,101
    Demonstration equipment .....................................       122,328          --
                                                                    -----------   -----------
                                                                      1,665,332       651,113
    Less accumulated depreciation and amortization ..............       319,483        85,668
                                                                    -----------   -----------
                                                                      1,345,849       565,445

OTHER ASSETS
    Goodwill, net of accumulated amortization of
       $384,407 in 2001 and $152,223 in 2000 ....................    18,704,447     2,755,589
    Other .......................................................       670,919       286,082
                                                                    -----------   -----------
                                                                     19,375,366     3,041,671
                                                                    -----------   -----------
                                                                    $35,752,286   $ 9,354,343
                                                                    ===========   ===========`

---

# SAN
Holdings, Inc.

CONSOLIDATED
BALANCE SHEETS - CONTINUED
December 31,

`LIABILITIES                                                   2001            2000
                                                                          ----            ----

CURRENT LIABILITIES
    Accounts payable .............................................   $ 10,907,003    $  1,815,145
    Accrued expenses .............................................      2,694,910         724,105
    Accrued expenses - related parties ...........................           --           532,359
    Deferred revenue .............................................      2,123,269         164,698
    Current maturities of long-term debt .........................        200,349         757,480
                                                                     ------------    ------------
                  Total current liabilities ......................     15,925,531       3,993,787

LONG-TERM OBLIGATIONS, less current maturities
    Long-term debt- ..............................................           --           213,915

COMMITMENTS AND CONTINGENCIES ....................................           --              --

STOCKHOLDERS' EQUITY
    Preferred stock, no par value; 10,000,000 shares authorized;
       none issued and outstanding ...............................           --              --
    Common stock, no par value; 75,000,000 shares authorized;
       issued and outstanding, 37,022,624 shares in 2001 and
       9,300,874 shares in 2000 ..................................     30,957,815       9,888,902
    Accumulated deficit ..........................................    (11,131,060)     (4,742,261)
                                                                     ------------    ------------
                  Total stockholders' equity .....................     19,826,755       5,146,641
                                                                     ------------    ------------
                                                                     $ 35,752,286    $  9,354,343
                                                                     ============    ============`

The
accompanying notes are an integral part of these statements.

---

# SAN
Holdings, Inc.

CONSOLIDATED
STATEMENTS OF OPERATIONS
For the years ended December 31,

`2001            2000
                                                                          ----            ----

Revenues .........................................................   $ 21,155,765    $ 18,310,413

Cost of revenues .................................................     18,003,467      13,708,020
                                                                     ------------    ------------
                  Gross profit ...................................      3,152,298       4,602,393

General and administrative expenses ..............................      7,501,891       6,284,980
Impairment of receivables ........................................           --         2,605,763
Litigation settlement ............................................      1,384,419            --
Depreciation and amortization ....................................        613,593         400,960
                                                                     ------------    ------------
                                                                        9,499,903       9,291,703
                                                                     ------------    ------------
                  Loss from operations ...........................     (6,347,605)     (4,689,310)

Other income (expense)
    Interest expense .............................................        (97,471)       (140,940)
    Interest income ..............................................         43,550          85,211
    Other income .................................................         29,286            --
    Other expenses ...............................................        (16,559)           --
                                                                     ------------    ------------
                                                                          (41,194)        (55,729)
                                                                     ------------    ------------

                  Loss before income taxes .......................     (6,388,799)     (4,745,039)

Income tax expense ...............................................           --            60,000
                                                                     ------------    ------------
                  NET LOSS .......................................   $ (6,388,799)   $ (4,805,039)
                                                                     ============    ============
Loss per common share - basic and diluted ........................   $      (0.45)   $      (0.63)
                                                                     ============    ============
Weighted average common shares outstanding - basic and diluted ...     14,340,594       7,686,000
                                                                     ============    ============`

The
accompanying notes are an integral part of these statements.

---

# SAN
Holdings, Inc.

CONSOLIDATED
STATEMENTS OF STOCKHOLDERS EQUITY
For the years ended December 31, 2001 and 2000

`Preferred stock             Common
                                                 --------------------            stock
                                                 Shares         Amount           Shares
                                                 ------         ------           ------
Balances at January 1, 2000 .............      1,684,400    $  2,394,985       3,800,000

Recapitalization - Note B ...............           --              --           986,511

Acquisitions of businesses ..............           --              --           232,638

Issuance of Series AA preferred stock ...      1,134,526       1,530,291            --

Issuance of Series AAA preferred stock ..        363,734         898,350            --

Sale of common stock ....................           --              --           170,667

Exercise of stock warrants ..............           --              --           928,398

Conversion of Series AA and Series
    AAA preferred stock to common .......     (3,182,660)     (4,823,626)      3,182,660

Net loss ................................           --              --              --
                                            ------------    ------------    ------------
Balances at December 31, 2000 ...........           --              --         9,300,874

Sale of common stock, net of
    placement costs of $699,167 .........           --              --         8,960,488

Issuance of stock warrants ..............           --              --              --

Acquisitions of businesses ..............           --              --        18,761,262

Net loss ................................           --              --              --
                                            ------------    ------------    ------------
Balances at December 31, 2001 ...........           --      $       --        37,022,624
                                            ============    ============    ============

                                                                Retained
                                                 Common         earnings
                                                 Stock        (accumulated
                                                 Amount          deficit)        Total
                                                 ------        -----------       -----
Balances at January 1, 2000 .............   $    364,505    $     62,778    $  2,822,268

Recapitalization - Note B ...............        (18,337)           --           (18,337)

Acquisitions of businesses ..............        656,457            --           656,457

Issuance of Series AA preferred stock ...           --              --         1,530,291

Issuance of Series AAA preferred stock ..           --              --           898,350

Sale of common stock ....................        515,001            --           515,001

Exercise of stock warrants ..............      3,547,650            --         3,547,650

Conversion of Series AA and Series
    AAA preferred stock to common .......      4,823,626            --              --

Net loss ................................           --        (4,805,039)     (4,805,039)
                                            ------------    ------------    ------------
Balances at December 31, 2000 ...........      9,888,902      (4,742,261)      5,146,641

Sale of common stock, net of
    placement costs of $699,167 .........      4,848,115            --         4,848,115

Issuance of stock warrants ..............        170,500            --           170,500

Acquisitions of businesses ..............     16,050,298            --        16,050,298

Net loss ................................           --        (6,388,799)     (6,388,799)
                                            ------------    ------------    ------------
Balances at December 31, 2001 ...........   $ 30,957,815    $(11,131,060)   $ 19,826,755
                                            ============    ============    ============`

The
accompanying notes are an integral part of these statements.

---

# SAN
Holdings, Inc.

CONSOLIDATED
STATEMENTS OF CASH FLOWS
For the years ended December 31,

`2001          2000
                                                                                     ----          ----
Cash flows from operating activities:
    Net loss ................................................................    $(6,388,799)  $(4,805,039)
    Adjustments to reconcile net loss to net cash
       provided by (used in) operating activities
          Depreciation and amortization .....................................        613,593       400,960
          Impairment of receivables .........................................           --       2,605,763
          Litigation settlement .............................................      1,384,419          --
          Operating expenses paid in common stock warrants ..................        119,500          --
          Deferred income taxes .............................................           --          60,000
          Changes in operating assets and liabilities, net of acquisitions
              Accounts receivable ...........................................     (2,172,421)     (913,977)
              Other receivables .............................................        (15,635)         --
              Inventory .....................................................     (1,997,186)       71,580
              Prepaid expenses ..............................................        (45,157)       22,830
              Accounts payable ..............................................      7,091,410    (3,006,563)
              Income taxes payable ..........................................           --         (85,253)
              Accrued expenses ..............................................        670,067       462,839
              Deferred revenue ..............................................      1,958,571       164,698
                                                                                 -----------   -----------
                  Net cash provided by (used in) operating activities .......      1,218,362    (5,022,162)

Cash flows from investing activities
    Acquisitions of businesses, net of cash acquired ........................         49,700    (2,115,729)
    Purchase of certificate of deposit ......................................           --      (1,000,000)
    Maturity of certificate of deposit and investment securities ............      1,151,512       502,907
    Notes receivable ........................................................       (188,164)      (61,836)
    Purchase of property and equipment ......................................       (417,212)     (564,784)
    Purchase of other assets ................................................       (150,000)         --
    Deposits ................................................................         26,082       (24,082)
    Preacquisition advance to ITIS, Inc. ....................................       (577,600)         --
                                                                                 -----------   -----------
                  Net cash used in investing activities .....................       (105,682)   (3,263,524)

                                                                                       (continued next page)`

The
accompanying notes are an integral part of these statements.

---

# SAN
Holdings, Inc.

CONSOLIDATED
STATEMENTS OF CASH FLOWS - CONTINUED
For the years ended December 31,

`2001             2000
                                                                                  ----             ----
Cash flows from financing activities
    Proceeds from issuance of common stock and warrants ..................   $  4,848,115    $  6,491,292
    Proceeds from short-term borrowings ..................................           --         1,025,000
    Payments on notes payable ............................................       (851,046)     (1,736,844)
    Loan origination fees paid ...........................................        (71,960)           --
                                                                             ------------    ------------
                  Net cash provided by financing activities ..............      3,925,109       5,779,448
                                                                             ------------    ------------
                  Net increase (decrease) in cash and cash equivalents ...      5,037,789      (2,506,238)

Cash and cash equivalents at beginning of year ...........................        282,932       2,789,170
                                                                             ------------    ------------
Cash and cash equivalents at end of year .................................   $  5,320,721    $    282,932
                                                                             ============    ============
Supplemental disclosure of cash flow information:
 Cash paid during period for:
       Interest ..........................................................   $     97,471    $    118,190
       Income taxes ......................................................   $       --      $       --

Supplemental disclosure of non-cash investing and financing activities
    Acquisitions of businesses
       Assets acquired ...................................................   $ 19,427,026    $  4,810,895
       Notes payable issued ..............................................           --          (951,000)
       Cash received (paid), net of cash acquired ........................         49,700      (2,115,729)
       Common stock issued ...............................................    (16,050,298)       (638,120)
                                                                             ------------    ------------
       Liabilities assumed ...............................................   $  3,426,428    $  1,106,046
                                                                             ============    ============`

The
accompanying notes are an integral part of these statements.

---

# SAN
Holdings, Inc.

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000

## NOTE A -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

| | SAN
Holdings, Inc. (the Company), a Colorado corporation, was formed on July 1,
1983. The Company operates a single business segment, which sells and installs
computer data storage devices throughout the United States.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | A
summary of the significant accounting policies consistently applied in the
preparation of the accompanying consolidated financial statements follows:
| | -------------------------------------------------------------------------------------------------------------------------------------------------------

Principles
of Consolidation

| | The
consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiaries. All significant intercompany transactions and
balances are eliminated in consolidation.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Cash equivalents

| | For
the purposes of the statement of cash flows, the Company considers all highly
liquid instruments purchased with a maturity of three months or less to be cash
equivalents.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Inventory

| | Inventories
are stated at the lower of cost or market, with cost determined principally by
the first-in, first-out method.
| | --------------------------------------------------------------------------------------------------------------------------

Property and equipment

| | Property
and equipment is recorded at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of five to seven years or
for leasehold improvements, the lesser of the life of the lease improvements.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Intangible assets

| | Purchased
software and licenses are stated at cost, net of accumulated amortization.
Amortization is provided using the straight-line method over fifty months, the
period estimated by management to be benefited. Goodwill is the excess of the
purchase price over the fair value of tangible net assets acquired in business
combinations accounted for as purchases. Goodwill is being amortized on the
straight-line method over 5 to 15 years.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Impairment of long-lived
assets

| | The
Company evaluates the carrying value of long-lived assets, including goodwill,
whenever events or changes in circumstances indicate the carrying amount may not
be fully recoverable. If the total of the expected future undiscounted cash
flows is less than the carrying amount of the asset, a loss is recognized based
on the amount by which the carrying value exceeds the assets fair market
value.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

# SAN
Holdings, Inc.

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2001 and 2000

## NOTE A -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

Financial Instruments

| | The
fair values of the Companys financial instruments, consisting of cash and
cash equivalents, accounts receivable, investments and long-term debt
approximate their carrying values.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Revenue Recognition

| | The
Companys revenue is derived primarily from two sources: (i) resale and
installation of computer hardware and software, and (ii) service revenue,
derived primarily from providing consulting services to end users.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Revenue
from resale and installation of computer hardware and software is recognized
upon completion of delivery and service obligations, provided that no
uncertainties regarding customer acceptance exist. Service revenue is recognized
as the related services are performed.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Use of estimates

| | In
preparing financial statements in conformity with accounting principles
generally accepted in the United States of America, management is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company evaluates the realizibility of goodwill based on managements best
estimates of future cash flows from operations. However, the Company
participates in a highly competitive industry that is characterized by
aggressive pricing practices, and price sensitivity and changing demands of
customers. As a result, it is at least reasonably possible that the estimates
used by the Company to evaluate the realizibility of goodwill will be materially
different from actual amounts or results.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | These
differences could result in the impairment of all or a portion of the
Companys goodwill, which could have a materially adverse effect on the
Companys results of operations and financial position.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Stock-Based Compensation

| | The
Company accounts for stock-based compensation to employees using the intrinsic
value method. Accordingly, compensation cost for employee stock options is
measured as the excess, if any, of the quoted market price of the Companys
common stock at the date of grant over the exercise prices.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

# SAN
Holdings, Inc.

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2001 and 2000

## NOTE A -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

Earnings (Loss) Per Share

| | The
Company computes basic earnings (loss) per share based on the weighted average
number of common shares outstanding. Diluted earnings (loss) per share is
computed using the weighted-average number of common shares outstanding plus the
number of additional common shares that would have been outstanding if dilutive
potential common shares had been issued. For the years ended December 31, 2001
and 2000, all potential common shares were anti-dilutive.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Recent Account Pronouncements

| | In
2001, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 141 (SFAS 141), Business Combinations. This
standard eliminates the pooling method of accounting for business combinations
initiated after June 30, 2001. In addition, SFAS 141 addressed the accounting
for intangible assets and goodwill acquired in a business combination. This
portion of SFAS 141 is effective for business combinations completed after June
30, 2001. The Company does not expect SFAS 141 to have a material effect on the
Companys financial position, results of operations or cash flows.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
2001, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 142 (SFAS 142), Goodwill and Intangible Assets,
which clarifies the accounting for impairments to purchased goodwill and
intangible assets. Under SFAS 142, goodwill and intangible assets with
indefinitive lives will no longer be amortized, but will be tested for
impairment annually and also in the event of an impairment indicator. SFAS 142
is effective for fiscal years beginning after December 15, 2001. The Company
expects that the adoption of SFAS 142 will decrease annual operating expenses by
approximately $300,000. The Company adopted SFAS 142 on January 1, 2002.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
August 2001, the Financial Accounting Standards Board approved for issuance
Statement of Financial Accounting Standards No. 144 (SFAS 144), Accounting
for the Impairment or Disposal of Long-Lived Assets. This standard
addresses financial accounting and reporting for the impairment or disposal of
long-lived assets. SFAS 144 is effective for fiscal years beginning after
December 15, 2001. The Company does not expect SFAS 144 to have a material
effect on the Companys financial position or result of operations.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Reclassifications

| | Certain
reclassifications were made to the 2000 financial statements to conform to the
current year presentation.
| | -----------------------------------------------------------------------------------------------------------------

---

# SAN
Holdings, Inc.

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2001 and 2000

## NOTE B-
RECAPITALIZATION

| | In
January 2000, Citadel Environmental Group, Inc. (the Registrant) acquired all of
the outstanding capital stock of Storage Area Networks, Inc. (SAN). The
Registrant changed its name to SAN Holdings, Inc. The acquisition resulted in
approximately 79% of the outstanding common stock of the Registrant being owned
by the former SAN shareholders. The Registrant issued 3,800,000 shares of Series
BB convertible preferred stock to the SAN shareholders. These preferred shares
were converted into 3,800,000 shares of common stock in March 2000.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | For
accounting purposes, the transaction is deemed to be a reverse acquisition and
recapitalization of SAN based upon historical costs. Accordingly, the capital
accounts have been restated at January 1, 2000 to give effect to the
recapitalization.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
capital accounts have also been adjusted to reflect (1) the 666,511 shares of
the Registrant outstanding at the date of the transaction; (2) 320,000 shares
issued as a finders fee; and (3) the net liabilities of the Registrant of
$18,337 at the date of the transaction.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

## NOTE C -
CREDIT RISK AND CONCENTRATIONS

| | The
Company provides credit in the normal course of business to customers throughout
the United States. The Company currently performs ongoing credit evaluations of
its customers. For the year ended December 31, 2001, three customers accounted
for 29%, 13% and 11% of the Companys revenues. For the year ended December
31, 2000, two customers accounted for 15% each of the Companys revenues.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

## NOTE D -
ACQUISITIONS OF BUSINESSES

| | On
January 21, 2000, in exchange for approximately $1,800,000 in cash, $951,000 in
promissory notes and 88,888 shares of the Companys common stock valued at
$153,332, the Company acquired all the outstanding stock of Co Comp, Inc., a
provider of data storage systems and services based in Colorado. In connection
with this transaction, the Company recorded goodwill of $2,110,587.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
June 27, 2000, the Company acquired Value Technologies, Inc. for $130,000 in
cash and 143,750 shares of common stock valued at $503,125. In connection with
this transaction, the Company recorded goodwill of $797,225.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
October 2001, the Company acquired certain assets of ECOSoftware Systems in
exchange for $150,000, a note payable in the amount of $80,000 and 250,000
shares of the Companys common stock valued at $200,000. The Company
recorded goodwill of approximately $500,000 on this acquisition which was
accounted for using the purchase method of accounting.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

# SAN
Holdings, Inc.

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2001 and 2000

## NOTE D -
ACQUISITIONS OF BUSINESSES - Continued

| | Effective
December 31, 2001, the Company acquired all of the outstanding stock of ITIS
Services, Inc. (ITIS) in exchange for 18,511,262 shares of the Companys
common stock valued at $14,000,000, options to acquire 3,315,050 shares of the
Companys common stock valued at $1,966,852, and approximately $500,000 of
acquisition costs. ITIS sells and installs computer data storage devices
throughout the eastern United States. The Company recorded goodwill of
approximately $15,000,000 in connection with the ITIS acquisition which was
accounted for using the purchase method of accounting.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The condensed balance sheet of ITIS at the acquisition date is as follows:
| | --------------------------------------------------------------------------

`Cash                            $    573,942
        Accounts receivable                1,493,849
        Inventories                          812,567
        Other                                 57,008
                                         -----------
                Total current assets       2,937,366

        Property and equipment               521,435
        Goodwill                              85,398
        Other                             15,652,527
                                         -----------
                                        $ 19,196,726
                                         ===========

        Accounts payable                $  2,000,448
        Accrued expenses                     768,380
        Note payable                         577,600
                                           3,346,428
        Stockholders' equity              15,850,298
                                         -----------
                                        $ 19,196,726
                                         ===========`

| | The
operating results of the acquired businesses have been included in the
consolidated statements of operations from the dates of acquisition. The
following unaudited pro forma information presents summary consolidated results
of operations of the Company, as if the acquisitions had occurred at the
beginning of each period presented.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`Year ended December 31,
                                              2001           2000
                                              ----           ----

         Revenues                        $ 30,461,306   $ 22,952,333
         Net loss                        $ (9,027,599)  $ (5,584,016)
         Loss per share                         $(.28)         $(.21)`

| | These
pro forma results have been prepared for comparative purposes only and do not
purport to be indicative of what would have occurred had the acquisition been
made as of these dates or of results which may occur in the future.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

## NOTE E - LONG
TERM DEBT

| | Long-term
debt consists of the following:
| | -----------------------------------------

`December 31,
                                                                             2001       2000
                                                                             ----       ----
   Note payable to a bank, due in monthly installments of $86,500,
      including interest at 6.9%, secured by a certificate of deposit;
      paid in March 2001.                                                 $   --     $ 257,480

   Non-interest bearing notes payable to former shareholders of CoComp,
      Inc.; principal payments of $100,000 in January 2001, $50,000 in
      March 2001 and $40,000 per month thereafter with any remaining
      amounts due in May 2002.                                              160,349    713,915

   Other                                                                     40,000       --
                                                                           --------   --------
                                                                            200,349    971,395
   Less current maturities                                                  200,349    757,480
                                                                           --------   --------
                                                                          $   --     $ 213,915
                                                                           ========   ========`

---

# SAN
Holdings, Inc.

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2001 and 2000

## NOTE F - LINE OF
CREDIT

| | The
Company has a revolving credit facility (the Facility) which permits the Company
to borrow up to $2.5 million, subject to availability under its borrowing base.
At December 31, 2001, no amounts were outstanding. The Facility bears interest
at prime plus 3% (8% at December 31, 2001), expires in May 2004 and requires the
maintenance of certain financial covenants. The facility is secured by certain
assets of a subsidiary of the Company.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

## NOTE G -
INCOME TAXES

| | Following
is a reconciliation of income tax expense at the statutory federal income tax
rate of 34% to the actual income tax expense:
| | -------------------------------------------------------------------------------------------------------------------------------------

`2001           2000
                                                     ----           ----

  Income tax benefit at statutory rate          $ (2,172,188)  $ (1,613,313)
  Nondeductible expenses                              10,548          --
  Increase in valuation reserve                    2,165,737      1,613,313
  Other                                               (4,097)        60,000
                                                 -----------    -----------
                                                $     --       $     60,000
                                                 ===========    ===========`

| | Deferred
income tax assets and liabilities reflect the tax consequences on future years
of differences between the tax basis of assets and liabilities and their basis
for financial reporting purposes. Temporary differences that give rise to
deferred tax assets are as follows:
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`December 31,
                                                    2001          2000
                                                    ----          ----

  Net operating loss carryforwards              $ 2,858,571    $ 727,354
  Accounts receivable                               448,780      448,780
  Investments                                       455,821      455,821
  Other                                              15,878      (18,642)
                                                -----------  -----------
     Deferred tax assets                          3,779,050    1,613,313
  Valuation allowance                            (3,779,050)  (1,613,313)
                                                -----------  -----------
     Net deferred tax asset                     $    --        $    --
                                                ===========  ===========`

| | As
a result of the significant net losses incurred in 2001 and 2000, the Company
recorded a valuation allowance to fully reserve its deferred tax assets.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------

| | At
December 31, 2001, the Company has net operating loss carryforwards available to
offset future federal taxable income of approximately $8,400,000. Such
carryforwards expire principally in 2020 and 2021.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

# SAN
Holdings, Inc.

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2001 and 2000

## NOTE H -
COMMITMENTS AND CONTINGENCIES

| | As
of December 31, 2001, the Company had long-term noncancelable lease agreements
for office space with the following minimum commitments:
| | ------------------------------------------------------------------------------------------------------------------------------------------

`Amount
                                            ------

    2002                                  $ 372,510
    2003                                    296,718
    2004                                    178,591
    2005                                    117,435
    2006                                     13,861
                                           --------
                                          $ 979,115
                                           ========`

| | In
December 2001, the Company settled all of its litigation with 3Si Holdings, Inc.
(3Si) and XS Data Solutions, Inc. (XS Data) by forgiving certain accounts
receivable owed by 3Si and XS Data and the release of a pledge on certain shares
of 3Si common stock. During the years ended December 31, 2001 and 2000, the
Company recorded charges of $1,384,419 and $2,605,763, respectively, related to
these matters.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company is engaged in the defense of certain claims and lawsuits arising out of
the ordinary course and conduct of its business, the outcome of which is not
determinable at this time. In the opinion of management, any liability that
might be incurred by the Company upon the resolution of these claims and
lawsuits will not, in the aggregate, have a material adverse effect on the
Companys consolidated results of operations, cash flows or financial
condition.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

## NOTE I -
STOCKHOLDERS EQUITY

Stock Split

| | On
March 1, 2000, the shareholders of the Company approved a 1 for 36 common stock
reverse split. All per share and share amounts have been adjusted to reflect the
reverse split.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Private Placements

| | During
March 2000, the Company sold 1,134,526 shares of Series AA preferred stock and
363,734 units of Series AAA preferred stock for net proceeds of $1,530,291 and
$898,350, respectively. Each unit of Series AAA preferred stock consisted of one
Series AAA preferred share and a warrant to purchase one share of common stock
exercisable at $3.50 per share and one share of common stock exercisable at
$5.00 per share.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During
March and April 2000, the Company completed a private placement of 170,667
shares of common stock with warrants to purchase 1,000,000 shares at $9.00 per
share for net proceeds of $515,001 (net of offering costs of $55,000). The
warrants expire as follows: 200,000 in December 2000, 400,000 in June 2001, and
400,000 in December 2001.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

# SAN
Holdings, Inc.

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2001 and 2000

## NOTE I -
STOCKHOLDERS EQUITY - Continued

| | In
June 2001, the Company completed a private placement of 8,960,488 shares of
common stock, warrants to purchase 2,207,747 shares of common stock at $.625 per
share and warrants to purchase 2,207,747 shares of common stock at $1.25 per
share for net proceeds of $4,848,115 (net of offering costs of $699,167).
Additionally, the Company issued warrants to purchase 1,156,942 shares of common
stock at $.625 per share and warrants to purchase 271,000 shares of common stock
at $1.15 per share for sales commissions incurred in connection with the private
placement.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Stock options:

| | On
March 1, 2000, shareholders of the Company approved the 2000 Incentive Stock
Option Plan (2000 Plan). The total number of shares of common stock subject to
options under this plan may not exceed 1,500,000 shares.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
September 20, 2001, the Company approved the 2001 Stock Option Plan (2001 Plan).
The total number of shares of common stock subject to options under this plan
may not exceed 5,000,000 shares. Options granted under the plan vest generally
over three to ten years.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | At
December 31, 2001, 5,000,000 and 1,500,000 shares of common stock were
reserved for future grants under the 2001 Plan and 2000 Plan,
respectively.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company has adopted only the disclosure provisions of Statement of Financial
Accounting Standards No. 123 (SFAS 123), Accounting for Stock-based
Compensation, for employee stock options and continues to apply Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, for recording stock options granted. If the Company had elected
to recognize compensation expense based upon the fair value at grant date
consistent with the methodology prescribed by SFAS 123, net loss and loss per
share would have been increased to the pro forma amounts indicated below:
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`Year ended December 31,
                                                            2001           2000
                                                            ----           ----

   Net loss - as reported                             $ (6,388,799)  $ (4,805,039)
   Net loss - pro forma                                 (7,848,042)    (8,006,626)

   Basic and diluted loss per share - as reported             (.45)          (.63)

   Basic and diluted loss per share - pro forma               (.55)         (1.04)`

| | The
fair value of these options was estimated at the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions used for grants in fiscal 2001 and 2000, respectively: dividend
yield of 0% for all periods; volatility of 105% and 100%; risk-free interest
rates of 4.13% and 6.375% and expected lives of one to five years. The weighted
average fair value of options granted were $.80 and $1.76 per share during
fiscal 2001 and 2000, respectively.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

# SAN
Holdings, Inc.

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2001 and 2000

## NOTE I -
STOCKHOLDERS EQUITY - Continued

Option
activity for the two years ended December 31, 2001 is summarized as follows:

`Number of Shares   Weighted Average
                                               Underlying Options   Exercise Price
                                               ------------------  ----------------
   Outstanding at January 1, 2000                        --           $   --
   Granted                                          1,404,499             3.72
                                                   ----------          -------
   Outstanding at December 31, 2000                 1,404,499             3.72
   Granted                                          7,205,050             1.14
   Forfeited                                       (1,492,604)            2.59
                                                   ----------          -------
   Outstanding at December 31, 2001                 7,116,945             1.34
                                                   ==========          =======
   Exercisable at December 31, 2000                   644,833         $   2.50
                                                   ==========          =======
   Exercisable at December 31, 2001                 1,088,561         $   2.06
                                                   ==========          =======`

| | Further
information regarding options outstanding and options exercisable at December
31, 2001 is summarized below:
| | -------------------------------------------------------------------------------------------------------------------

`Options Outstanding          Options Exercisable
                             -------------------------------   --------------------
                                       Weighted     Weighted              Weighted
                             Number     Average      Average    Number     Average
           Range of            of      Remaining    Exercise     of       Exercise
       Exercise Prices       Shares      Life         Price     Shares      Price
       ---------------       ------    ---------    --------    -------   --------

      $ .33  to   1.00      3,672,811    9.34 years $  .68       309,797  $  .98
       1.01  to   1.50      1,207,239    5.96         1.50       400,603    1.50
       1.51  to   2.00      1,300,000    5.81         2.00       250,000    2.00
       2.01  to   2.25        866,895    5.93         2.25        58,161    2.25
       2.26  to  10.82         70,000    3.20        10.12        70,000   10.12
       ---------------      ---------    ----        -----     ---------   -----
      $ .33  to  10.82      7,116,945    3.99       $ 1.34     1,088,561  $ 2.06
      ================      =========    ====        =====     =========   =====`

---

# SAN
Holdings, Inc.

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 2001 and 2000

## NOTE I -
STOCKHOLDERS EQUITY - Continued

Warrant
activity for the two years ended December 31, 2001 is summarized as follows:

`Number of Shares    Weighted Average
                                           Underlying Warrants    Exercise Price
                                           -------------------   ----------------
   Outstanding at January 1, 2000                  --                $   --
   Granted                                    2,244,688                  5.88
   Exercised                                   (912,148)                 3.89
   Forfeited                                    (82,540)                 3.50
                                             ----------                ------
   Outstanding at December 31, 2000           1,250,000                  7.50
   Granted                                    6,743,436                  1.12
   Forfeited                                 (1,000,000)                 9.00
                                             ----------                ------
   Outstanding at December 31, 2001           6,993,436              $   1.13
                                             ==========                ======
   Exercisable at December 31, 2000           1,250,000              $   7.50
                                             ==========                ======
   Exercisable at December 31, 2001           6,993,436              $   1.13
                                             ==========                ======`

| | In 2001, in addition to the warrant issuances discussed above and in Note D, the
Company granted warrants to purchase 300,000 shares of common stock at $.81 to
$1.00 per share to an employee; a warrant to purchase 100,000 shares of common
stock at $1.00 per share, valued at $51,000, in connection with the acquisition
of assets and warrants to purchase 500,000 shares of common stock at $1.00 to
$2.00 per share, with a fair value of $186,000, as consideration for certain
consulting services. The warrants issued to non-employees were valued by using
the Black-Scholes option pricing model with the following weighted average
assumptions; dividend yield of 0%; volatility of 98%; risk free interest rate of
4.4%, and expected life of 2.6 years. The related expense was recorded at the
date of grant, which approximated the performance of the service.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

## NOTE J -
DEFINED CONTRIBUTION PLAN

| | In
October 2001, the Company implemented a defined contribution plan covering all
employees who have three months of service with the Company. The Plan allows
participants to make voluntary pre-tax contributions, which are partially
matched by the Company. For the year ended December 31, 2001, employer
contributions were approximately $93,000.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

We are a relatively
small company with limited resources compared to some of our current and
potential competitors.

Some of our current and
potential competitors have longer operating histories, significantly greater
resources, broader name recognition and a larger installed base of customers
than we have. As a result, these competitors may have greater credibility with
our existing and potential customers. They also may be able to adopt more
aggressive pricing policies and devote greater resources to the development,
promotion and sale of their products than we can to ours, which would allow them
to respond more quickly than us to new or emerging technologies or changes in
customer requirements. In addition, some of our current and potential
competitors have already established supplier or joint development relationships
with decision makers at our current or potential customers.

## Item 7.
Financial Statements.

Required financial
statements immediately follow this page, and are listed below.

`Report  of Independent Certified Public Accountants                        F-1

     Report  of Independent Certified Public Accountants                        F-2

     Consolidated Balance Sheets, December 31, 2000 and 2001                    F-3

     Consolidated Statements of Operations for the Years Ended
               December 31, 2000 and 2001                                       F-5

     Consolidated Statements of Stockholders' Equity for the Years Ended
          Ended December 31, 2000 and 2001                                      F-6

     Consolidated Statements of Cash Flows for the Years Ended                  F-7
          December 31, 2000 and 2001

     Notes to Consolidated Financial Statements                                 F-9`

## Item 8.
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure

There
are no changes or disagreements required to be reported under this Item 8.

---

# PART III

## Item 9.
Directors, Executive Officers, Promoters and Control Persons; Compliance With
Section 16(a) of the Exchange Act

Our directors and executive
officers are identified below. Directors are elected for one-year terms at the
annual meeting of our shareholders. The board of directors elects executive
officers annually. Messrs. Busk, Reilly, and OReilly became officers
and/or directors (as indicated) effective December 19, 2001, in accordance with
our acquisition agreement with ITIS. There are no other arrangements or
understandings between any officer or director and any other person pursuant to
which anyone was or is to be selected as an officer or director.

John
Jenkins, Age 52, Chairman, CEO and President since November 2000.
From January 1995 through June 2000, Mr. Jenkins was CEO, president and a
director of TAVA Technologies, Inc., where he led the build-out of a national
systems integration business. In 1999, all outstanding TAVA shares were sold in
a cash transaction approved by TAVA shareholders. From 1990 until he joined TAVA
in 1995, he had served as president of Morgan Technical Ceramics, Inc., a
wholly-owned subsidiary of Morgan Crucible plc, a diversified industrial
products company based in England and publicly-traded on the London stock
exchange. From 1993 until 1990, Mr. Jenkins served in various capacities (most
recently as vice president and general manager) with the structural ceramic
division of Coors Ceramic Company, a subsidiary of Adolph Coors Company. Mr.
Jenkins holds a B.S. from the University of Washington and a J.D. from the
University of Denver.

Fred T.
Busk, Age 35, Chief Operating Officer, Executive Vice President and
Director since December, 2001, pursuant to our acquisition agreement with
ITIS. Prior to April 2000, when he joined ITIS as its president, Mr. Busk served
as president and CEO of the Bank of Bermuda (NY) Limited, which he served in
various capacities beginning in 1993. He remains a director of The Bank of
Bermuda (NY). Mr. Busk also is a director of Measurisk LLC and a Trustee of the
New York Chapter of the Leukemia Society of America. Mr. Busk graduated with a
B.A. in Philosophy and Religion from Colgate University.

Brendan
Reilly, Age 36, Chief Technology Officer and Director since
December, 2001, pursuant to our acquisition agreement with ITIS. Mr. Reilly, a
co-founder of ITIS, spent seven years with EMC Corporation in various
capacities, most recently as senior territory manager, before founding ITIS in
1998. During the two years before joining EMC, he co-founded and operated
Veritas International Trading Company, an import-export company conducting East
Asian trade for companies such as LL Bean, Starter and Redman. Mr. Reilly earned
his undergraduate degree in Business Marketing from Providence College.

Robert K.
Brooks, Age 58, Director since June 2000. Mr. Brooks has over 30
years of experience in the information technology industry, having held
positions in recruiting, sales and management. In June 1993, he became chairman
and managing partner of The Systems Group and Technical Directions, Inc., after
it merged with his contract programming, consulting and project management firm.
In January 1995, The Systems Group was acquired by ACS Technology Solutions, a
wholly owned subsidiary of Affiliated Computer Services, an international IT
services company (NYSE:ACS). From June 1995 through December 1999, Mr. Brooks
served as senior vice president of Affiliated Computer Services and as executive
vice president of ACS Technology Solutions, Inc. Currently, he is a director of
Cornus Corporation of Medford, Oregon, a privately held desktop software
products company. He received a Bachelor of Science Degree in Psychology from
the University of New Mexico.

William R.
Hipp,Age 61, Director since June 2000. Mr. Hipp was one of the
co-founders of 2M Invest, a venture capital company based in Copenhagen, Denmark
in 1994, and serves as its Managing Partner of US operations. Before founding 2M
in 1994, Mr. Hipp served as president and CEO of RadioMail Corporation (now
BlueKite) (1992 - 1994), president of Dowty Network Systems (1990 - 1992) and
vice president of Hughes Lan Systems (Sytek) (1985 - 1990). Prior to that time
he was a Colonel in the US Air Force running advanced computer systems for that
service. He is a director of BlueKite and i'TeleWeb, both private companies. Mr.
Hipp holds an MBA in Finance and Economics from the University of Southern
California.

---

Holly J. Burlage,
Age 38, Senior Vice President of Finance and Treasurer, joined SANZ in
February 2001. From 1994 until 2001, Ms. Burlage held multiple financial
positions with Integrated Security Systems, Inc. (ISSI), a publicly traded
security software provider. From 1999 until 2001, she was Executive Vice
President and Chief Financial Officer of ISSI. During 1994, Ms. Burlage was
Corporate Controller for Signature Home Care Group, Inc., and from 1989 to 1994
she was Controller and chief accounting officer of National Heritage, Inc., a
publicly traded long-term care company. Ms. Burlage holds a B.B.A from Baylor
University.

Hugh A.
OReilly, Age 38, General Counsel and Senior Vice President,
Legal and Administration,joined SANZ in December 2001 pursuant to our
acquisition agreement with ITIS, where he had served as Senior Vice President
 Finance and Administration and General Counsel. Mr. OReilly joined
ITIS in October 2000. Prior to joining ITIS, Mr. OReilly was a partner at
Nutter, McClennen & Fish LLP, a law firm based in Boston, Massachusetts,
where he practiced corporate law for eleven years and served as the primary
outside counsel for ITIS. Mr. OReilly holds a J.D. from Vanderbilt
University and an A.B in English from Dartmouth College

Board Committees

The
Board of Directors has established a compensation committee and an audit
committee, each consisting of Mr. Hipp and Mr. Brooks. The audit committee
members are independent as defined by the National Association of Securities
Dealers listing standards. The Board also has a standing nominating
committee, consisting of Messrs. Hipp, Brooks, Jenkins, and Busk. Mr. Hipp is
the chairman of this committee.

Section 16(a)
Beneficial Reporting Compliance

Based
on a review of filings with the SEC, as well as copies of the reports and
written representations we received from directors and officers required to file
and their written representations, we believe that during the year ended
December 31, 2001, Ms. Burlage filed two late reports on Form 4, and Messrs.
Brooks, Hipp and Jenkins filed one late report on Form 4.

---

## Item 10.
Executive Compensation.

Summary
Compensation Table

The
following table sets forth information regarding compensation paid during the
past three fiscal years to our Chief Executive Officer and to any of the four
most highly compensated executive officers who earned total salary and bonus in
excess of $100,000 per year during the year ended December 31, 2001.

`Long Term
                         Annual Compensation                 Compensation
                         -------------------                 ------------
Name and                                        Annual       Securities      All other
principal                                       Compen-      Underlying      compen-
position         Year    Salary($)   Bonus($)   sation($)  Options/SARs(#)   sation($)
---------        ----    --------    -------    --------   --------------    --------
John Jenkins     2001    $188,469      -0-       $-0-            -0-           -0-
President and
CEO              2000(1) $ 58,230(2)   -0-        -0-         300,000(3)       -0-
---------------- ------  --------    -------    ----------   -------------   --------
Holly J. Burlage
Vice President   2001    $143,175(2)   -0-        -0-          30,000(3)       -0-
and CFO
================ ====   ===========  =======    ==========   =============   ========`

| | (1) | Mr. Jenkins became CEO and President in November 2000.
| | --- | ------------------------------------------------------

| | (2) | Represents compensation paid pursuant to consulting agreements.
| | --- | ---------------------------------------------------------------

| | (3) | These options are exercisable at $2.25 per share and vest in increments of
one-third annually.
| | --- | ----------------------------------------------------------------------------------------------

---

# Option and
Stock Appreciation Right Grants Table

The
following table sets forth information regarding the grant of options and stock
appreciation rights during the year ended December 31, 2001, to each of our
executive officers required to be named in the Summary Compensation Table.

`Number of Securities    Percent of total options/     Exercise or
                Underlying Options/   SARs granted to employees in    base price    Expiration
 Name             SARs granted (#)           fiscal year (%)            ($/Sh)         date
 ----           --------------------  ----------------------------    -----------   ---------
Holly J. Burlage     30,000                 Less than 1%                $2.25         02/28/08`

# Aggregated
Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End Option/SAR Values

The
following table shows the number of shares underlying unexercised options
held at December 31, 2001 by each of the executive officers required to be named
in the Summary Compensation Table, and the aggregate dollar value of
in-the-money, unexercised options held at the end of the fiscal year. SANZ has
not granted any stock appreciation rights.

`Number of                      Value of
                                  unexercised                   unexercised
                                   options at                   in-the-money
                                   FY-end (#)                    options at
Name                        exercisable/unexercisable             FY-end($)
----                        -------------------------           ------------
John Jenkins, CEO               100,000/200,000                      -0-(1)

Holly J. Burlage, CFO            10,000/20,000                       -0-(1)`

_______________

| | (2) | These options are exercisable at $2.25 per share, in excess of the market price
of the shares at December 31, 2001.
| | --- | -------------------------------------------------------------------------------------------------------------------

# Compensation
of Directors

In
September 2001, we granted 15,000 options, exercisable at $.81 per share (the
market value on the date of grant), to each of our non-employee directors,
Messrs. Brooks and Hipp. We paid no cash compensation to our directors for their
services as directors during 2001.

# Employment
Contracts and Termination of Employment
and Change in
Control Arrangements

We
have three year employment agreements with Messrs. Jenkins, Busk, Reilly and
OReilly which require us to continue paying their salaries for a period of
12 months following termination of employment in the following cases:

| | ° | if the employee terminates his employment within 90 days following change of
control events,
| | - | --------------------------------------------------------------------------------------------

| | ° | if the employee terminates his employment due to our material change of his
employment conditions; or
| | - | -----------------------------------------------------------------------------------------------------

| | ° | if we terminate his employment agreement other than for cause.
| | - | --------------------------------------------------------------

# Item 11.
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matter

The table below reflects
the number of shares beneficially owned as of April 19, 2002 by:

| | ° | each person or group we believe to be the beneficial owner of more than five
percent of our shares;
| | - | ---------------------------------------------------------------------------------------------------

| | ° | each director;
| | - | --------------

| | ° | all executive officers required to be named in the Summary Compensation Table;
and
| | - | ----------------------------------------------------------------------------------

| | ° | all directors and executive officers as a group.
| | - | ------------------------------------------------

Beneficial ownership
includes shares represented by all options that are exercisable within 60 days
after April 19, 2002.

---

`Amount and Nature of      Percent
Name and Address of Beneficial Owner           Beneficial Ownership      of Class


John Jenkins                                        415,000(1)             1.07%
900 West Castleton Road, Suite 100
Castle Rock, CO  80104

Fred T. Busk, III                                 2,579,887(2)             6.46%
50 Day Street
Norwalk, CT 06854

Brendan T. Reilly                                 4,839,117(3)            12.59%
50 Day Street
Norwalk, CT 06854
Holly J. Burlage                                    370,000(4)                 *
900 West Castleton Road, Suite 100
Castle Rock, CO  80104

Hugh A. O'Reilly                                  1,011,311(5)             2.57%
50 Day Street
Norwalk, CT 06854

Robert K. Brooks                                    100,000(6)                 *
900 West Castleton Road, Suite 100
Castle Rock, CO  80104

William R. Hipp                                      93,333(6)                 *
900 West Castleton Road, Suite 100
Castle Rock, CO  80104

All executive officers and                        9,287,032               22.45%
  directors as a group (7 persons)

Hollger LLC(7)                                    2,797,209                7.28%
c/o 5 Mile Ventures
95B Rowayton Avenue
Rowayton, CT 06855

Andrew K. Reilly                                  4,839,117               12.59%
7 Extension Street
Newport, RI`

_________________

*     Less than 1%.

| | (1) | Includes 100,000 shares underlying an option currently exercisable at $2.25 per
share, 40,000 shares underlying a warrant currently exercisable at $.625 per
share, and 40,000 shares underlying a warrant currently exercisable at $1.25 per
share.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | Includes 150,000 shares underlying an option currently exercisable at $.33 per
share and 1,345,677 shares underlying an option currently exercisable at $.625
per share. A total of 1,719,924 of the shares (including shares issuable under
options are under a lock-up agreement, pursuant to which 224,247 shares will
cease to be restricted on October 1, 2002, and the remaining 1,495,677 shares
will cease to be restricted on December 20, 2002.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | Includes 3,629,338 shares which are under a lock-up agreement, of which 403,260
shares will cease to be restricted on October 1, 2002 and the remaining 3,226,078
shares will cease to be restricted on December 20, 2002.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (4) | Includes 10,000 shares underlying an option currently exercisable at $2.25 per
share, 10,000 shares underlying a warrant currently exercisable at $.625 per
share, 10,000 shares underlying a warrant currently exercisable at $1.25 per
share; 100,000 shares underlying a warrant currently exercisable at $.81 per
share; 100,000 shares underlying a warrant currently exercisable at $.89 per
share; and 100,000 shares underlying a warrant currently exercisable at $1.00
per share.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (5) | Includes:200,000 shares underlying an option currently exercisable at $.33 per
share; 411,635 shares underlying an option currently exercisable at $.625 per
share; and 235,782 shares underlying an option currently exercisable at $.70 per
share. A total of 746,395 shares (including shares issuable under options) are
under a lock-up agreement, pursuant to which 74,639 shares will cease to be restricted
on October 1, 2002 and the remaining 671,756 shares will cease to be restricted
on December 20, 2002.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

| | (6) | Includes 5,000 shares underlying an option currently exercisable at $10.82 per
share, 15,000 shares underlying an option currently exercisable at $.81 per
share, 10,000 shares underlying a warrant currently exercisable at $.625 per
share and 10,000 shares underlying a warrant currently exercisable at $1.25 per
share.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (7) | Messrs. Gary Holloway and Konrad Kruger may each be deemed to have voting and
dispositive power over the shares held by Hollger, LLC.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------

## Item 12.
Certain Relationships and Related Transactions.

There
are no relationships or transactions required to be reported under this Item 12.

---

## Item 13. Exhibits
and Reports on Form 8-K.

(a)
Exhibits. The Exhibits required by Item 601 of Regulation SB are listed below
and are filed with this report or incorporated herein by reference to a prior
filing, as indicated below.

|Exhibit
Number | Description                                                                                                                                                                                                                                       | Location                                                                                                                    
|-------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------
|2.1            | Agreement and Plan of Merger dated December 10, 2001 by and among SAN Holdings, Inc., ITIS Acquisition Corp. and ITIS Services, Inc., including exhibits thereto, but omitting listed schedules which will be furnished to the staff upon request | Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K dated December 19, 2001, filed December 31, 2001
|3.1            | Amended and Restated Articles of Incorporation                                                                                                                                                                                                    | Incorporated by reference to Exhibit 3.1 to the Quarterly Report on Form 10-QSB for the quarter ended September 30, 2001    
|3.2            | By-laws, as amended                                                                                                                                                                                                                               | Incorporated by reference to Exhibit 3.2 to the Annual Report on Form 10-KSB for the year ended December 31, 1999           
|10.1           | Share Exchange Agreement dated January 7, 2000 between Citadel Environmental Group and Storage Area Networks                                                                                                                                      | Incorporated by reference to Exhibit 10 to the Current Report on Form 8-K dated January 7, 2000, filed January 24, 2000     
|10.2           | Purchase Agreement dated January 21, 2000 by and among the Company, Storage Area Networks and Brent J. Duckworth                                                                                                                                  | Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K dated January 21, 2000, filed January 31, 2000  
|10.3           | Purchase Agreement dated January 21, 2000 by and among the Company, Storage Area Networks and Lawrence J. Chisesi                                                                                                                                 | Incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K dated January 21, 2000, filed January 31, 2000  
|10.4           | Purchase Agreement dated January 21, 2000 by and among the Company, Storage Area Networks and Kent A. Shields                                                                                                                                     | Incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K dated January 21, 2000, filed January 31, 2000  
|10.5           | Agreement and Plan of and Reorganization dated June 19, 2000, by and among SAN Holdings, Inc., Value Tech Acquisition Corporation and Value Technology, Inc.                                                                                      | Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K dated June 28, 2000, filed July 12, 2000        
|10.6           | Credit and Security Agreement, dated May 31, 2001, by and between Storage Area Networks, Inc., and Wells Fargo Business Credit, Inc.                                                                                                              | Incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-QSB for the quarter ended June 30, 2001        
|Exhibit
Number | Description                                                                                                                                                                                                                                       | Location                                                                                                                    
|10.7           | Executive Employment Agreement - John Jenkins                                                                                                                                                                                                     | Filed herewith.                                                                                                             
|10.8           | Executive Employment Agreement - Fred T. Busk, III                                                                                                                                                                                                | Filed herewith.                                                                                                             
|10.9           | Executive Employment Agreement - Brendan T. Reilly                                                                                                                                                                                                | Filed herewith.                                                                                                             
|10.10          | Executive Employment Agreement - Hugh A. O'Reilly                                                                                                                                                                                                 | Filed herewith.                                                                                                             
|10.11          | Executive Employment Agreement - F. William Tilt                                                                                                                                                                                                  | Filed herewith.                                                                                                             
|21.1           | List of Subsidiaries                                                                                                                                                                                                                              | Filed herewith                                                                                                              
|23.1           | Consent of Grant Thornton LLP                                                                                                                                                                                                                     | Filed herewith                                                                                                              
|23.2           | Consent of Causey Demgen & Moore Inc.                                                                                                                                                                                                             | Filed herewith                                                                                                              

---



(b)  Reports filed on Form 8-K.  The filed the following reports on Form 8-K during the last quarter of the period covered by this report.



| | Date of Report    | Date Filed        | Items Reported                                                                                                                                                                                                                                     
| | ----------------- | ----------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | October 10, 2001  | October 11, 2001  | Item 5 - Other Events                                                                                                                                                                                                                              
| | October 29, 2001  | October 30, 2001  | Item 5 - Other Events                                                                                                                                                                                                                              
| | December 11, 2001 | December 11, 2001 | Item 5 - Other Events                                                                                                                                                                                                                              
| | December 19, 2001 | December 31, 2002 | Item 1 - Changes in Control of Registrant
Item 2 - Acquisition or Disposition of Assets
Item 7(a) - Financial Statements of Business Acquired.  Audited financial statements of ITIS Services LLC as of and for the period ended December 31, 2000.

---

# SIGNATURES

In accordance with Section
13 or 15(d) of the Securities Exchange Act of 1934, the registrant has caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

SAN Holdings, Inc.
                
                
                
                
                
                
                  
             
   (Registrant)
Date:   August 7, 2002
                
           
             
  /s/ Hugh A. OReilly
                
                
                
                
                
                
                
Hugh A. OReilly
                
                
                
                
                
                
                
Senior Vice President, Legal and Administration
Date:   August 7, 2002
              
                
          
  /s/ Holly J. Burlage
                
                
                
                
                
                
                
Holly J. Burlage
                
                
                
                
                
                
                
Senior Vice President of Finance

---