UNITED STATES


SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

___________

FORM 20-F

|[ ] | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF
|--- | ----------------------------------------------------------
|    | THE
    SECURITIES EXCHANGE ACT OF 1934                   
|    | or                                                        
|[x] | ANNUAL
    REPORT PURSUANT TO SECTION 13 OR 15(d) OF      
|    | THE
    SECURITIES EXCHANGE ACT OF 1934                   
|    | For The
    Fiscal Year Ended October 31, 2008            
|    | or                                                        
|[ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF      
|    | THE
    SECURITIES EXCHANGE ACT OF 1934                   
|    | or                                                        
|[ ] | SHELL
    COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d)  
|    | OF THE
    SECURITIES EXCHANGE ACT OF 1934                
|    | Date of
    event requiring this shell report             



Commission File No. 0-26005

___________

MICROMEM TECHNOLOGIES INC.

(Exact name of Registrant as specified in its charter)



Ontario, Canada

(Jurisdiction of incorporation or organization)

777 Bay Street, Suite 1910,

Toronto, Ontario M5G 2E4, Canada

Tel: (416) 364-6513

Fax: (416) 360-4034

(Address of principal executive offices)

Joseph Fuda; 416-364-6513, JFuda@micromeminc.com, 777 Bay
  St., Suite 1910 Toronto, On M5G 2E4


(Name, Telephone, E-Mail and/or
Facsimile number and Address of Company Contact Person)

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

None

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

Common Shares without par value

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report:

82,936,667 Common Shares

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

Yes   NoX

If this report is an annual or transition report, indicate by check mark if the registration is not required to file a report pursuant to section 13 or 15 of the Securities Exchange Act of 1934:

Yes   NoX

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:

Yes X    No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of accelerated filer and large accelerator filer in Rule 12b-2 of the Exchange Act:

Large Accelerated Filer         Accelerated Filer   X        Non-Accelerated Filer

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

U.S. GAAP _____        International
Financial Reporting Standards as issued  by the International Accounting
Standards Board ______         


Other X

If "Other" has been checked in response to the previous
question,

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):

Yes   NoX

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TABLE OF CONTENTS

|           |                                                                                    |     
|---------- | ---------------------------------------------------------------------------------- | ----
|Part I     |                                                                                    | Page
|           |                                                                                    |     
|Item 1.    | Identity of Directors, Senior
      Management and Advisors                        | 1   
|Item 2.    | Offer Statistics and Expected Timetable                                            | 1   
|Item 3.    | Key Information                                                                    | 1   
|Item 4.    | Information on the Company                                                         | 13  
|Item 4A.   | Unresolved staff comments                                                          | 24  
|Item 5.    | Operating and Financial Review and Prospects                                       | 24  
|Item 6.    | Directors, Senior Management
      and Employees                                   | 37  
|Item 7.    | Major Shareholders and Related Party
      Transactions                            | 43  
|Item 8.    | Financial Information                                                              | 44  
|Item 9.    | The Offer and Listing                                                              | 44  
|Item 10.   | Additional Information                                                             | 45  
|Item 11.   | Quantitative and Qualitative Disclosures about
      Market Risk                   | 53  
|Item 12.   | Description of Securities Other
      Than Equity Securities                       | 53  
|           |                                                                                    |     
|Part II    |                                                                                    |     
|           |                                                                                    |     
|Item 13.   | Defaults, Dividend Arrearages
      and Delinquencies                              | 53  
|Item 14.   | Material Modifications to the Rights of
      Security Holders and Use of Proceeds | 53  
|Item 15.   | Controls and Procedures                                                            | 54  
|Item 15T.  | Controls and Procedures                                                            | 55  
|Item 16.   | Not Applicable                                                                     | 55  
|Item 16A   | Audit Committee Financial Expert                                                   | 55  
|Item 16B   | Code of Ethics                                                                     | 55  
|Item 16C   | Principal Accountant Fees and Services                                             | 55  
|Item 16D   | Exemptions from the Listing
      Standards for Audit Committees                   | 57  
|Item 16E   | Purchases of Equity by the Issuer and
      Affiliated Purchasers                  | 57  
|           |                                                                                    |     
|Part III   |                                                                                    |     
|           |                                                                                    |     
|Item 17.   | Financial Statements                                                               | 57  
|Item 18    | Financial Statements                                                               | 57  
|Item 19.   | Exhibits                                                                           | 58  
|Signatures |                                                                                    | 60  

3

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PART I

INTRODUCTION

Abbreviations

Throughout this document, Micromem Technologies Inc. and/or its
affiliates are referred to as Micromem, the Company, we, us or our.

Forward Looking and Cautionary Statements

This Form 20-F contains certain forward-looking statements.
These forward-looking statements are based on current expectations, estimates
and projections about the business of our company and the industry in which we
operate, our management's beliefs, and assumptions made by our management. Words
such as expects, anticipates, intends, plans, believes, seeks and
estimates, variations on such words and similar expressions are intended to
identify such forward-looking statements. These statements are not guarantees of
future performance and involve certain risks, uncertainties and assumptions
which are difficult to predict. Our actual results could differ materially from
those expressed or forecasted in these forward-looking statements as a result of
certain factors, including those set forth under Item 3-Key Information  Risk
Factors and elsewhere in this Form 20-F.

ITEM 1.

IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND
ADVISORS

Not Applicable.

ITEM 2.

OFFER STATISTICS AND EXPECTED TIMETABLE

Not Applicable.

ITEM 3.

KEY INFORMATION

A.

Selected Financial Data

The following table sets forth our selected consolidated
financial data in United States dollars as of and for each of the five fiscal
years ended October 31, 2008, 2006, 2005 and 2004. The selected consolidated
financial data has been derived from our audited consolidated financial
statements. All information contained in the following table should be read in
conjunction with our audited consolidated audited financial statements and the
notes thereto in Item 17-Financial Statements and "Item 5 - Operating and
Financial Review and Prospects, included elsewhere in this Annual Report on
Form 20-F.

Selected balance sheet information

|                             | 2008       | 2007         | 2006       | 2005       | 2004      
|---------------------------- | ---------- | ------------ | ---------- | ---------- | ----------
|Working capital (deficiency) | $(338,079) | ($1,531,855) | ($448,923) | ($ 74,831) | $ 34,685  
|Capital Assets               | 26,321     | -            | -          | -          | 2,925     
|Total Assets                 | 630,467    | 329,232      | 465,440    | 728,375    | 474,234   
|Capital Stock                | 44,380,134 | 37,166,397   | 36,693,353 | 34,305,087 | 32,103,787
|Shareholders' equity         |            |              |            |            |           
|(deficiency)                 | (311,758)  | (1,531,855)  | (448,923)  | (74,831)   | 37,610    

4

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Selected statement of operations and deficit information

|                                           | 2008        | 2007        | 2006        | 2005        | 2004       
|------------------------------------------ | ----------- | ----------- | ----------- | ----------- | -----------
|Interest and other income                  | $11,762     | $2,586      | $ 9,930     | $ 8,703     | $ 4,746    
|Research and development expenses          | 1,063,508   | 682,331     | 389,689     | 362,141     | 378,410    
|General and administrative
      expenses  | 3,323,565   | 1,862,417   | 2,448,249   | 1,951,600   | 570,684    
|Stock
      compensation expense           | 1,041,414   | 269,216     | 2,058,560   | 1,721,742   | 1,379,970  
|Loss before income taxes                   | (5,416,725) | (2,811,378) | (4,058,180) | (4,035,483) | (2,314,298)
|Provision for income taxes (recovery)      | -           | -           | -           | -           | -          
|Net loss                                   | (5,416,725) | (2,811,378) | (4,058,180) | (4,035,483) | (2,314,298)
|Loss per share-basic and diluted           | 0.07        | 0.04        | 0.06        | 0.07        | 0.04       
|Weighted average number of
      basic and |             |             |             |             |            
|diluted shares                             | 78,012,115  | 70,685,153  | 66,709,353  | 62,155,234  | 52,958,975 
|Dividends                                  | -           | -           | -           | -           | -          

Reconciliation between Canadian GAAP and U.S. GAAP:

Our consolidated financial statements for the period have been
prepared in accordance with Canadian GAAP which, in our case, conforms in all
material respects with U.S. GAAP.

Currency and Exchange Rates

Our financial statements are all expressed in United States
dollars. All other financial data appearing in this Form 20-F are expressed in
United States dollars with the exception of certain limited cases when reference
is made to instruments denominated in Canadian dollars (CDN $).

Transactions that were conducted in Canadian dollars or other
foreign currencies have been converted into United States dollars using the 3
month average rate of exchange per quarter which rate approximates the rate of
exchange prevailing at the date of such transactions. Assets and liabilities
denominated in Canadian dollars or other foreign currencies but expressed in
this Form 20-F in United States dollars have been converted into United States
dollars at the rate of exchange prevailing on the date of the applicable
financial statement.

The following table sets forth, for the periods indicated, the
high, low, end of period and average for period noon buying rates as published
by the Bank of Canada, as expressed in the amount of U.S. Dollars equal to one
Canadian dollar.

|                   | 2008   | 2007   | 2006   | 2005   | 2004  
|------------------ | ------ | ------ | ------ | ------ | ------
|High for period    | 1.1848 | 1.1853 | 0.9134 | 0.8690 | 0.8432
|Low for period     | 0.9671 | 0.9499 | 0.8349 | 0.7872 | 0.7288
|End of period      | 1.2165 | 0.9499 | 0.8907 | 0.8577 | 0.8319
|Average for period | 1.0269 | 1.1003 | 0.8782 | 0.8254 | 0.7717

The following table sets forth, for each period indicated, the
high and low exchange rates for United States dollars expressed in Canadian
dollars on the last day of each month during such period, based on the Noon
Buying Rate.

|     | November | December | January | February | March  | April 
|---- | -------- | -------- | ------- | -------- | ------ | ------
|     | 2007     | 2007     | 2008    | 2008     | 2008   | 2008  
|High | 1.0008   | 1.0217   | 1.0324  | 1.0190   | 1.0279 | 1.0270
|Low  | 0.9170   | 0.9785   | 0.9905  | 0.9719   | 0.9842 | 1.0025

|     | May    | June   | July   | August | September | October
|---- | ------ | ------ | ------ | ------ | --------- | -------
|     | 2008   | 2008   | 2008   | 2008   | 2008      | 2008   
|High | 1.0008 | 1.0282 | 1.0216 | 1.0678 | 1.0796    | 1.2943 
|Low  | 0.9844 | 1.0013 | 1.0016 | 1.0253 | 1.0338    | 1.0609 

5

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On February 13, 2009 the noon buying rate for one Canadian
dollar, as quoted by the Bank of Canada, was CDN $1.2480 = U.S. $1.00.

B.

Capitalization and Indebtedness

Not Applicable.

C.

Reasons for the Offer and Use of Proceeds

Not Applicable.

D.

Risk Factors

We and our investors face a number of significant risks, which
are described below.

Risk Factors Related to Our Business

The financial statements of our company have been
prepared on a going concern basis.

We have prepared our financial statements on a going concern
basis which presumes that we will be able to realize our assets and discharge
our liabilities in the normal course of business for the foreseeable future.

We are still in the development stage and have incurred
substantial losses to date. We must raise additional funds for the continued
development, testing and commercial exploitation of our technologies. The
sources of these funds have not yet been identified and there can be no
certainty that sources will be available in the future.

At October 31, 2008 we had approximately $475,000 cash on hand
and our current monthly cash expenses were approximately $250,000. Subsequent to
October 31, 2008, through to the date of this report, we have raised an
additional $818,881 through the exercise of stock options and through private
placement financings.

Our ability to continue as a going concern is dependent upon
completing the development of our technology for a particular application,
achieving profitable operations, obtaining additional financing and successfully
bringing our technologies to the market. The outcome of these matters cannot be
predicted at this time. Our consolidated financial statements have been prepared
on a going concern basis and do not include any adjustments to the amounts and
classifications of the assets and liabilities that might be necessary should we
be unable to continue in business.

If the going concern assumption was not appropriate for our
financial statements then adjustments would be necessary in the carrying value
of assets and liabilities, the reported expenses and the balance sheet
classifications used.

We currently have no operating revenue.

We have no revenues and there is no certainty that we will
generate revenues in the near future. If we fail to enter into license
agreements we will have no revenues. If we enter into such agreements the amount
of the revenues we receive will depend on the terms we are able to get from each
licensee and the ability of each licensee to compete in their particular market.

Our magnetic sensor technology is under development.

We have developed prototypes of our magnetic sensor technology
in 2008 working with our industrial foundry partners and technical advisors. We
are pursuing joint development agreements with potential strategic partners with
the expectation that we will jointly develop sensor applications for use by
these potential strategic partners.

There is no certainty that these current initiatives will
result in revenues and cash flow to the Company in future.

In the event that our magnetic sensor technology is
successfully developed we will face competition from larger corporations who
also sell sensor technology and who have greater financial resources than the
Company.

Our success will be determined by the following factors which
have not yet been tested or measured:

- the ability of manufacturers to incorporate the technology into existing
  manufacturing capabilities without significant retooling and material costs;
- price competitiveness; and
- the differential performance advantages of our memory technology.

6

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After completion of the development of our technology, our
ability to compete successfully will depend on elements outside of our control,
including the rate at which customers incorporate our technology into their
products, their success of such customers in selling those products, our
protection of our intellectual property, the number, nature and success of our
competitors and their product introductions and general market and economic
conditions. In addition, our success will depend on our ability to develop,
introduce, and license or sell in a timely manner our technology or products
incorporating our technology and to compete effectively on the basis of factors
such as speed, density, die size and power consumption.

Our MRAM technology is under development.

Our Magnetic Random Access Memory, also referred to herein as
MRAM, which is a non-volatile memory technology that uses magnetic, thin film
elements on a gallium arsenide substrate to store information, is currently
under development and is therefore not yet proven to be commercially viable. As
such, we are unsure if our development efforts will succeed and, accordingly,
significant development work remains to be completed.

In the event our technology is developed, we will face
competition when we are ready to sell or license our products. We will be
required to introduce our technology into a well-developed market and compete
with major corporations who manufacture, sell and license existing memory
products such as DRAM, SRAM, EPROM, EEPROM and Flash memory. The market for
memory technologies is dominated by major corporations who have established
market segments for their memory technologies and products. These corporations
have significantly greater financial resources which are required to design,
develop, manufacture, market, sell and license their products and technologies.
Many of these major corporations have worldwide wafer manufacturing and
integrated circuit production facilities.

Our success will be determined by the following factors which
have not yet been tested or measured:

- the ability of manufacturers to incorporate the technology into existing
  manufacturing capabilities without significant retooling and material costs;
- price competitiveness; and
- the differential performance advantages of our memory technology.

After completion of the development of our technology, our
ability to compete successfully will depend on elements outside of our control,
including the rate at which customers incorporate our technology into their
products, the success of such customers in selling those products, our
protection of our intellectual property, the number, nature and success of our
competitors and their product introductions and general market and economic
conditions. In addition, our success will depend on our ability to develop,
introduce, and license or sell in a timely manner our technology or products
incorporating our technology and to compete effectively on the basis of factors
such as speed, density, die size and power consumption.

Our competitors are seeking to develop other magnetic
based memory technologies.

MRAM as a market segment is both crowded and competitive. We
understand that other companies have research and development efforts under way
in connection with non-volatile random access memory, also referred to herein as
RAM. Much work is being done in the MRAM research and development at companies
such as NVE, Cypress, Freescale, Phillips, Motorola and others. Other research
and development efforts at IBM, Hewlett Packard and Nantero are focused on
non-magnetic based non-volatile RAM. While these companies may be considered our
competitors, their focus is on high-density RAM applications. As we anticipate
introducing our product in the less competitive, low-density applications
market, we believe our more direct competitors are Honeywell, Naval Research
Laboratories, Ramtron and NVE. All of these companies have substantial resources
at their disposal.

We may be materially affected by aggressive competitionas the memory and data storage industry is highly competitive and
customers make their decisions based on a number of competitive factors,
including functionality, technology, performance, reliability, system
scalability, price, quality, product availability, customer service and brand
recognition. We must address each of these factors effectively in order to
successfully compete.

7

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Failure to secure continued financing will cause our
business to suffer.

Since there is no assurance that revenues will be realized in
the near future, we will need additional financing to continue our research and
development and to successfully market our technology to potential licensees and
strategic partners. While we have had sufficient funds thus far to meet our
requirements, there is no assurance we will be able to continue to do so and
failure to raise sufficient funds in the future will affect our ability to
develop and market our technology.

Because much of our success and value depends on our
ownership and use of intellectual property, our failure to protect our property
could adversely affect our future growth and success.

Our success will depend on our ability to protect our
intellectual property. We rely primarily on patent, copyright, trademark and
trade secret laws, as well as nondisclosure agreements and other methods to
protect our proprietary technology and processes. Despite our efforts to do so,
unauthorized parties may attempt to copy or otherwise obtain and use our
products or technology, develop similar technology independently or design
around our patents. Policing unauthorized use of our products is expensive and
difficult, and we cannot be certain that the steps we have taken will prevent
misappropriation or infringement of our intellectual property.

Intellectual property claims against us, no matter how
groundless, could cause our business to suffer.

Our future success and competitive position depend in part on
our ability to retain exclusive rights to our technology, including any
improvements that may be made on that technology from time to time by us or on
our behalf. While our technology is patented or is subject to pending patent
applications in the United States and we know of no challenge that has been made
either against our technology or our rights to it, and we have no reason to
believe that any such challenge might be made or that the grounds for any such
challenge exist, if any intellectual property litigation were to be commenced
against us, no matter how groundless, the result could be a significant expense
to us, adversely affecting further development, licensing and sales, diverting
the efforts of our technical and management personnel and, in the event of an
adverse outcome, damages and possible restrictions on the further development,
licensing and use of our technology.

There is no assurance that any of our pending patent
applications will be issued as patents or that any issued patent will not be
determined to be invalid at a later date.

We have a history of losses, and we may continue to
generate losses in the foreseeable future.

To date, we have been solely a development company. We have not
been profitable in any of the last three fiscal years. Unless and until we are
able to successfully complete the development of our technology and develop
markets for the commercialization of such technology, we may not be able to
generate revenues in future periods and we may not be able to attain
profitability.

The development of non-volatile random access memory products
is a capital intensive business. Therefore, we expect to incur expenses without
corresponding revenues at least until we are able to license our technology to
third parties. This may result in net operating losses, which will increase
continuously until we can generate an acceptable level of revenues, which we may
never attain. Further, even if we do achieve operating revenues, there can be no
assurance that such revenues will be sufficient to fund continuing operations.
Therefore, we cannot predict whether we will ever be able to achieve
profitability.

The likelihood of success of our business plan must be
considered in light of the problems, expenses, difficulties, complications and
delays frequently encountered in connection with developing and expanding early
stage businesses and the competitive environment in which we operate.

We lack manufacturing capacity and will be dependent on
third party manufacturers.

Our success will partially depend upon our ability to secure
manufacturing of our technology in large quantities and at competitive prices.
We have no in-house manufacturing capacity and do not anticipate developing such
capacity. To the extent we are successful in completing the development of our
technology we will likely be required to rely upon contract manufacturers to
produce our products. We may not be able to enter into manufacturing
arrangements on terms that are favorable to us. Moreover, there is no assurance
that any future manufacturers will have the capability to manufacture our
products in sufficient quantities to achieve profitability and within the
quality, price, and technical standards required by our customers. In addition,
because our technologies use semi-conducting materials other than silicon, there
may be a limited number of contract manufacturers capable of producing our
products since most are focusing on silicon-based manufacturing. If any future
manufacturers should cease doing business with us or experience delays, shortages of supply or
excessive demands on their capacity, we may not be able to obtain adequate
quantities of product in a timely manner, or at all. Manufacturing new products
involves integrating complex designs and processes, coordinating with suppliers
for parts and components, and managing manufacturing capacities to accommodate
forecasted demand. Failure to obtain sufficient quantities of parts and
components, as well as other manufacturing delays or constraints, could
adversely affect the timing of new product introductions. Any manufacturing
problem or the loss of a contract manufacturer could be disruptive to our
operations and result in lost sales.

8

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We will be dependent upon the success of a limited range
of products.

The range of products we intend to commercialize is currently
limited to applications of non-volatile random access memory technologies and
sensors. Reliance on a limited range of products could restrict our ability to
respond to adverse business conditions. If we are not successful in developing
this specific technology, or if there is not adequate demand for such technology
or the market for such technology develops less rapidly than we anticipate, we
may not have the capability to shift our resources to the development of
alternative products. In such case our business would likely be at a significant
disadvantage to other competitors in the field. As a result, the limited range
of products we intend to develop could limit our revenues and profitability.

We may not realize income from the licensing of our
technologies if our licensees fail to commercialize the products that
incorporate these technologies.

In order to generate revenues from our MRAM technology, we will
need to enter into licensing arrangements with third parties who can integrate
our technology into products that will gain acceptance in the market. We have
not yet entered into any licensing agreements, and there is no assurance that we
will be able to do so on acceptable terms or at all. To the extent we are
successful in licensing our technology, in general we will seek upfront payments
plus ongoing royalties based on anticipated commercial sales of the products
into which our technology is incorporated. Our ability to realize royalties will
thus depend upon the successful manufacture and commercialization of such
products, which will be primarily within the control of the licensee. There is
no assurance that any eventual licensees' products will be technologically
viable, nor that such licensees will be successful in marketing and selling such
products. In addition, licensees could decide to delay or discontinue the
commercialization of products for financial or other business reasons. Even if
our licensees succeed in developing products that incorporate our technology, in
all likelihood a significant amount of research, development and testing will be
required before such products can be introduced to market. Therefore we may not
receive royalty income for a substantial period following the commencement of
any licensing arrangements. If our licensees are unable to commercialize
products on a timely basis, they may lose market share to competing or
alternative technologies. Any failure by the companies to which we license our
technologies to successfully develop marketable products would have an adverse
affect on our future royalty payments and financial condition.

Our supply of future products could be dependent upon
relationships with key suppliers.

We will be reliant on third parties to supply the raw materials
needed to manufacture our future products. Any reliance on suppliers may involve
several risks, including a potential inability to obtain critical materials and
reduced control over production costs, delivery schedules, reliability and
quality. Any unanticipated disruption to future contract manufacture caused by
problems at suppliers could delay shipment of products, increase our cost of
goods sold and result in lost sales.

In order to commercialize our future products, we will
need to establish a sales and marketing capability.

At present, we have limited sales and marketing capability
since our technology is currently in the development stage and our financial
resources are limited. However, if we are successful in completing our
development efforts, we will need to add marketing and sales personnel who have
expertise in the computer technology business. We must also develop the
necessary supporting distribution channels. Although we believe we can build the
required infrastructure, we may not be successful in doing so if we cannot
attract personnel or generate sufficient capital to fund these efforts. Failure
to establish a sales force and distribution network would have a material
adverse effect on our ability to grow our business.

The rights to certain of our patented technologies are
shared with a third party.

Our earliest technology included a memory design with the
magnetic bit aligned vertically to the substrate, also referred to herein as our
VEMRAM technology. We have abandoned the development of this earliest
technology. We acquired ownership of certain patents and patent applications
covering the VEMRAM technology, as well as certain related rights, pursuant to
an Asset Purchase Agreement dated as of December 10, 2000 with Estancia Limited,
also referred to herein as Estancia. However, under the terms of the Asset
Purchase Agreement we have been required to convey back to Estancia a 40%
undivided interest in the VEMRAM patents, as well as the right to participate in gross
profits and royalties from the license or sale of such patents. This
participation right requires us to pay to Estancia 32% of (i) the gross profit,
less expenses to be agreed by the parties, for each license of the patents sold
or otherwise transferred by us and (ii) all royalties received by us as a result
of the license or sale of the patents less reasonable expenses directly related
to the obtaining of such royalties.

9

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We will be reliant upon contractual rights to use certain
technologies that are material to our business.

Until 2008, certain technologies material to our business have
been developed through collaborative arrangements with the University of
Toronto. We entered into a number of successive Research Collaboration
Agreements with the University of Toronto under which research and development
programs were led by a University research team. We have provided funding,
equipment and background technology to these projects. Certain Canadian
governmental entities are also parties to these agreements and have provided
additional funding. The University of Toronto has ownership rights to all
intellectual property developed under these programs. We have no ownership
rights but have the right to obtain exclusive, world-wide and perpetual
sub-licenses from the governmental participants to use such intellectual
property; the governmental participants in turn have the right to obtain an
exclusive, world-wide license to such technology directly from the University of
Toronto.

Our auditors have previously identified significant
deficiencies in our internal accounting controls.

We operate as a development stage company and have historically
had only limited accounting personnel and resources with which to address our
internal control procedures.

In anticipation of the implementation of Rules 13a-15(c) of the
Securities Exchange Act of 1934 as amended (the Exchange Act), also referred
to as Section 404 of the Sarbanes-Oxley Act of 2002, we engaged, in 2008, an
independent firm of external accountants - a different firm from our independent
registered public accounting firm - to complete an in-depth review of our
internal accounting procedures and controls. The firm's evaluation met the
requirements of Rule 13a-15(c). The independent firm of external accountants
submitted their final report on November 10, 2008.

In the course of the work completed by the firm of external
accountants and subsequently during the course of our year-end audit of the
financial statements three Material Weaknesses were identified in our internal
accounting and disclosure procedures and controls. These Material Weaknesses are
described in Item 15 of this Annual Report.

Management has evaluated the report of the independent
accountant and acknowledge the Material Weaknesses cited and the risks that
arise with respect to the Company's disclosure controls and procedures and
internal control over financial reporting. We have compensating controls in our
systems and our procedures which we believe mitigate these risks as further
discussed in Item 15 of this Annual Report.

We are committed to improving and enhancing our disclosure
controls and procedures. We believe, with the compensatory controls in place and
with our commitment to continuous monitoring and improving of our controls, that
our systems, procedures and controls, taken in total, gives us reasonable
assurance that information used internally and disclosed externally is complete,
accurate, reliable and timely. The disclosure controls and procedures are
designed to provide reasonable assurance that information required to be
disclosed in its various reports are recorded, processed, summarized and
reported accurately.

In spite of its evaluation, management does recognize that any
controls and procedures, no matter how well designed and operated, can only
provide reasonable assurance and not absolute assurance of achieving the desired
control objectives. In the unforeseen event that lapses in the disclosure
controls and procedures occur and/or mistakes arise, the Company intends to take
the necessary steps to minimize the consequences thereof. If, however, we fail
to maintain adequate controls and procedures, we may not meet the demands that
are placed upon us as a public company, including the requirements of the
Sarbanes-Oxley Act of 2002 and our business could accordingly face
repercussions.

We depend on key personnel.

Our senior managers and employees are Salvatore Fuda, who
serves as the Chairman of the Board of Directors, Joseph Fuda, who serves as our
Chief Executive Officer, Mr. Steven Van Fleet, who has primary responsibility
for business development and who serves as President of our wholly-owned
subsidiary, MAST Inc. and Dan Amadori, who serves as our Chief Financial
Officer. We have engaged the services of an engineering/technical consulting
firm, Strategic Solutions Inc. to assist in converting our development efforts
to an industrial fabrication plant. We have also engaged Dreifus Associates
Ltd., a technical and intellectual property consulting firm whose major
shareholder, Henry Dreifus, is a director of Micromem. Our success depends on
our ability to retain certain of our senior management and key technical
personnel and our ability to attract and retain additional highly skilled
personnel in the future.

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We may be materially affected by global economic and
political conditions.

Our ability to generate revenue may be adversely affected by
uncertainty in the global economy and could also be affected by unstable global
political conditions. Terrorist attacks or acts of war could significantly
disrupt our operations and the operations of our future customers, suppliers,
distributors, or resellers. We cannot predict the potential impact on our
financial condition or our results of operations should such events occur.

We may be materially affected by rapid technological
change and evolving industry standards.

Short product life cycles are inherent in high-technology
companies due to rapid technological change and evolving industry standards. Our
future financial condition and results of operations depend on our ability to
respond effectively to these changes. We cannot provide any assurance that we
will be able to successfully develop, manufacture, and market innovative new
products or adapt our current products to new technologies or new industry
standards. In addition, our customers may be reluctant to adopt new technologies
and standards or they may prefer competing technologies and standards. Because
the technology market changes so rapidly, it is difficult for us to predict the
rate adoption of our MRAM technology.

We may be materially affected by risks associated with
new product development.

Our new product research and development is complex and
requires us to investigate and evaluate multiple alternatives, as well as plan
the design and manufacture of those alternatives selected for further
development. Our research and development efforts could be adversely affected by
hardware and software design flaws, product development delays, changes in data
storage technology, changes in operating systems and changes in industry
standards.

The manufacturing of new products involves integrating complex
designs and processes, coordinating with suppliers for parts and components and
managing manufacturing capacities to accommodate forecasted demand. Our failure
to obtain sufficient quantities of parts and components or other manufacturing
delays and constraints could adversely affect our ability to timely introduce
new products.

Our operations may be materially affected by the risks
associated with developing and protecting intellectual property.

We cannot provide any assurance that we will be able to
continue to develop new intellectual property or that we will continue to have
it developed for us.

We rely on a combination of U.S. patent, copyright, trademark,
and trade secret laws to protect our intellectual property rights. Due to
financial constraints, we have decided to not file patent and trademark
registration applications with foreign governments and this may expose our
technologies to infringement in foreign jurisdictions.

We enter into confidentiality and non-disclosure agreements
relating to our intellectual property with our employees and consultants.

Despite all of our efforts to protect our intellectual property
rights, unauthorized parties may attempt to copy or otherwise obtain or use our
intellectual property. Monitoring the unauthorized use of our intellectual
property is difficult and we cannot provide assurance that we will be able to
adequately protect our intellectual property in the future.

We may be materially affected if we are unable to
attract, retain and motivate key employees.

Our future success depends, in large part, on our ability to
attract, retain and motivate key employees. We face significant competition for
individuals who possess the skills required to design, develop, manufacture, and
market our technologies. An inability to successfully attract, retain, and
motivate these employees in the future could have an adverse effect on our
future operating and financial performance.

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There are foreign exchange risks associated with our
company.

Because we have historically raised funding in U.S. dollars,
and a significant portion of our costs are denominated in Canadian dollars, our
funding is subject to foreign exchange risks. A decrease in the value of the
U.S. dollar relative to the Canadian dollar could affect our costs and potential
future profitability. We do not currently hold forward exchange contracts or
other hedging instruments to exchange foreign currencies for U.S. dollars to
offset potential currency rate fluctuations.

Risk Factors Related to Our Common Shares

Our stock is subject to the penny stock regulations,
which may discourage brokers from effecting transactions in the stock and
adversely affect the stock's market price and liquidity

Our common shares constitute penny stock under applicable
regulations of the Securities and Exchange Commission. Penny stock is defined as
shares of stock that (a) are issued by a company that has less than $5,000,000
in net tangible assets and has been in business less than three years, by a
company that has less than $2,000,000 in net tangible assets and has been in
business for more than three years, or by a company that has average revenues of
less than $6,000,000 for the last three years; (b) have a market price of less
than $5 per share; and (c) are not quoted on the NASDAQ National Stock Market or
listed on a U.S. stock exchange. The penny stock regulations impose significant
restrictions on brokers who sell penny stock to persons other than established
customers and institutional accredited investors. Broker-dealers participating
in sales of our stock will be subject to the so called penny stock regulations
covered by Rule 15g-9 under the Exchange Act. Under the rule, broker-dealers
must furnish to all investors in penny stocks a risk disclosure document
required by the rule, make a special suitability determination of the purchaser
and have received the purchaser's written agreement to the transaction prior to
the sale. In order to approve a person's account for a transaction in penny
stock, the broker or dealer must (i) obtain information concerning the person's
financial situation, investment experience and investment objectives; (ii)
reasonably determine, based on the information required by paragraph (i) that
the transactions in penny stocks are suitable for the person and that the person
has sufficient knowledge and experience in financial matters that the person
reasonably may be expected to be capable of evaluating the risks of transactions
in penny stock; and (iii) deliver to the person a written statement setting
forth the basis on which the broker or dealer made the determination required by
paragraph (ii) in this section, stating in a highlighted format that it is
unlawful for the broker or dealer to effect a transaction in a penny stock
unless the broker or dealer has received, prior to the transaction, a written
agreement to the transaction from the person; and stating in a highlighted
format immediately preceding the customer signature line that the broker or
dealer is required to provide the person with the written statement and the
person should not sign and return the written statement to the broker or dealer
if it does not accurately reflect the person's financial situation, investment
experience and investment objectives, and obtain from the person a manually
signed and dated copy of the written statement. Our common shares are subject to
the penny stock regulations, which may discourage brokers from effecting
transactions in the common shares. This would decrease market liquidity,
adversely affect market price and make it difficult for you to use the common
shares as collateral.

The rights of our shareholders may differ from the rights
typically afforded to shareholders of a U.S. corporation.

We are incorporated under the Business Corporations Act
(Ontario), also referred to herein as the OBCA. The rights of holders of our
common shares are governed by the laws of the Province of Ontario, including the
OBCA, by the applicable laws of Canada, and by our Articles of Incorporation and
all amendments thereto, also referred to herein as the Articles, and our
By-laws. These rights differ in certain respects from the rights of shareholders
in typical U.S. corporations. The principal differences include without
limitation the following:

Under the OBCA, we have a lien on any common share registered
in the name of a shareholder or the shareholder's legal representative for any
debt owed by the shareholder to us. Under U.S. state law, corporations generally
are not entitled to any such statutory liens in respect of debts owed by
shareholders.

With regard to certain matters, we must obtain approval of our
shareholders by way of at least 662/3% of the votes cast at a meeting of
shareholders duly called for such purpose being cast in favor of the proposed
matter. Such matters include without limitation: (a) the sale, lease or exchange
of all or substantially all of our assets out of the ordinary course of our
business; and (b) any amendments to our Articles including, but not limited to,
amendments affecting our capital structure such as the creation of new classes
of shares, changing any rights, privileges, restrictions or conditions in
respect of our shares, or changing the number of issued or authorized shares, as
well as amendments changing the minimum or maximum number of directors set forth
in the Articles. Under U.S. state law, the sale, lease, exchange or other
disposition of all or substantially all of the assets of a corporation generally requires approval by a majority of the outstanding
shares, although in some cases approval by a higher percentage of the
outstanding shares may be required.

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In addition, under U.S. state law the vote of a majority of the
shares is generally sufficient to amend a company's certificate of
incorporation, including amendments affecting capital structure or the number of
directors. Under certain circumstances the board of directors may also have the
ability to change the number of directors under U.S. state law.

Pursuant to our By-laws, two persons present in person or
represented by proxy and each entitled to vote thereat shall constitute a quorum
for the transaction of business at any meeting of shareholders. Under U.S. state
law, a quorum generally requires the presence in person or by proxy of a
specified percentage of the shares entitled to vote at a meeting, and such
percentage is generally not less than one-third of the number of shares entitled
to vote.

Under rules of the Ontario Securities Commission, a meeting of
shareholders must be called for consideration and approval of certain
transactions between a corporation and any related party (as defined in such
rules). A related party is defined to include, among other parties, directors
and senior officers of a corporation, holders of more than 10% of the voting
securities of a corporation, persons owning a block of securities that is
otherwise sufficient to affect materially the control of the corporation, and
other persons that manage or direct, to a substantial degree, the affairs or
operations of the corporation. At such shareholders' meeting, votes cast by any
related party who holds common shares and has an interest in the transaction may
not be counted for the purposes of determining whether the minimum number of
required votes have been cast in favor of the transaction. Under U.S. state law,
a transaction between a corporation and one or more of its officers or directors
can generally be approved either by the shareholders or a by majority of the
directors who do not have an interest in the transaction. Corporations that are
listed on a U.S. securities exchange or are quoted on Nasdaq may also be
required to have transactions with officers and directors and other related
party transactions reviewed by an audit committee comprised of independent
directors.

There is no limitation imposed by our Articles or other charter
documents on the right of a non-resident to hold or vote our common shares.
However, the Investment Canada Act , also referred to herein as the Investment
Act, as amended by the World Trade Organization Agreement Implementation Act,
also referred to herein as the WTOA Act, generally prohibits implementation of a
reviewable investment by an individual, government or agency thereof,
corporation, partnership, trust or joint venture that is not a Canadian, as
defined in the Investment Act, unless, after review, the minister responsible
for the Investment Act is satisfied that the investment is likely to be a net
benefit to Canada. An investment in our common shares by a non-Canadian would be
reviewable under the Investment Act if it were an investment to acquire direct
control of Micromem, and the value of our assets were CDN $5.0 million or more.
However, an investment in our shares by a national of a country (other than
Canada) that is a member of the World Trade Organization or has a right of
permanent residence in such a country (or by a corporation or other entity that
is a WTO Investor-controlled entity pursuant to detailed rules set out in the
Investment Act) would be reviewable at a higher threshold of CDN $223 million in
assets, except for certain economic sectors with respect to which the lower
threshold would apply. A non-Canadian, whether a national of a WTO member or
otherwise, would acquire control of Micromem for purposes of the Investment Act
if he or she acquired a majority of our common shares. The acquisition of less
than a majority, but at least one-third of our common shares, would also be
presumed to be an acquisition of control of Micromem, unless it could be
established that Micromem was not controlled in fact by the acquirer through the
ownership of voting shares. The United States is a WTO Member for purposes of
the Investment Act. Certain transactions involving our common shares would be
exempt from the Investment Act, including:

- an acquisition of our common shares if the acquisition were made in
  connection with the person's business as a trader or dealer in securities;
- an acquisition of control of Micromem in connection with the realization
  of a security interest granted for a loan or other financial assistance and
  not for any purpose related to the provisions of the Investment Act; and
- an acquisition of control of Micromem by reason of an amalgamation,
  merger, consolidation or corporate reorganization, following which the
  ultimate direct or indirect control of Micromem, through the ownership of
  voting interests, remains unchanged. Under U.S. law, except in limited
  circumstances, restrictions generally are not imposed on the ability of non-
  residents to hold a controlling interest in a U.S. corporation.

U.S. shareholders may not be able to enforce civil
liabilities against us.

Micromem is incorporated under the laws of the Province of
Ontario. Additionally, a number of our directors and executive officers are
non-residents of the U.S., and all or a substantial portion of the assets of
such persons are located outside the U.S. As a result, should any investor
commence an action in the U.S. against Micromem or its directors or executive
officers, Micromem or its directors or officers, as the case may be, may be able
to insist that any action against them take place in the jurisdiction of the Province of Ontario. In addition, if an investor were to obtain
a U.S. judgment against Micromem or its directors or executive officers, there
is doubt as to the enforceability of such U.S. judgment in Canada.

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We do not anticipate paying dividends.

We have never paid a dividend on our securities and we do not
anticipate paying dividends in the foreseeable future.

We may need to issue additional securities which may
cause our shareholders to experience dilution.

Our Board of Directors has the authority to issue additional
common shares, without par value, also referred to herein as the common shares,
or other of our securities without the prior consent or vote of our
shareholders. The issuance of additional common shares would dilute the
proportionate equity interest and voting power of our shareholders.

The price of our common shares and volume of our common
shares may be volatile.

Our shareholders may be unable to sell a significant number of
our common shares on the NASD OTC-BB without a significant reduction in the
market price of the shares.

Furthermore, there can be no assurance that we will be able to
meet the listing requirements of, or achieve listing on, any other stock
exchange. The market price of the common shares may be affected significantly by
factors such as fluctuations in our operating results, announcements of
technological innovations or new products by us or our competitors, action by
governmental agencies against us or the industry in general, developments with
respect to patents or proprietary rights, public concern as to the safety of
products developed by us or others, the interest of investors, traders and
others in public companies such as ours and general market conditions. In recent
years, the securities markets in the United States and Canada have experienced a
high level of price and volume volatility, and the market price of securities of
many companies, particularly small capitalization companies, have experienced
fluctuations which have not necessarily been related to the operating
performance, underlying asset values or business prospects of such
companies.

ITEM 4.

INFORMATION ON THE COMPANY

A.

History and Development of Our Company

Micromem is a corporation formed under the laws of the Province
of Ontario, Canada, with principal executive offices at 777 Bay Street, Suite
1910, Toronto, Ontario M5G 2E4 (416.364.6513) . Micromem was incorporated on
October 21, 1985 as Mine Lake Minerals Inc. We subsequently changed our name to
Avanti Capital Corp. on June 23, 1988, to AvantiCorp International Inc. on April
30, 1992 and to Micromem Technologies Inc. on January 11, 1999 in connection
with our acquisition of Pageant Technologies Incorporated, also referred to
herein as Pageant International. Our website address is www.micromeminc.com. The information on our website is not part of this
annual report on Form 20-F. We have included our website address in this
document as an inactive textual reference only.

Purchase of Pageant International

On January 11, 1999, we completed the acquisition of 100% of
the capital stock of Pageant Technologies Inc. (Pageant International), in
exchange for 32,000,000 of our common shares and warrants for the purchase of an
additional 1,000,000 of our common shares, also referred to herein as the
warrants, representing 88.94% of the outstanding common shares of Micromem
(89.24% assuming exercise of all the shares underlying the warrants). The
acquisition was completed pursuant to an agreement, dated December 7, 1998,
amongst Micromem, as the purchaser, and Ataraxia Corp., as the vendor, and
Pageant International. The warrants were exercisable at CDN $2.00 per share
through January 11, 2000 and thereafter at CDN $2.30 per share through January
12, 2001 on which date the warrants remaining unexercised expired. The total
purchase price for the Pageant International common stock was $30,000,000. The
value of our common shares used to pay the purchase price was determined through
arm's length negotiations using as a point of reference the price per common
share of $1.16 on September 23, 1998 less an agreed upon discount.

The primary asset of Pageant International was an undivided 50%
interest in patents issued in the United States and Europe, with a corresponding
application in Japan, for nonvolatile random access memory technology which was,
at the time, called MAGRAM and which is, today, called VEMRAM, referred to
herein as the VEMRAMpatents. The VEMRAM technology also includes certain improvements to the VEMRAM
patents, some of which are the subject of pending patent applications.

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The undivided 50% interest in the VEMRAM patents was originally conveyed to Ataraxia Corp. by Estancia Limited, a
company incorporated under the laws of the Turks & Caicos Islands, pursuant
to a Joint Ownership and Licensing Agreement dated September 17, 1997, referred
to herein as the JointOwnership and Licensing Agreement, which Ataraxia
Corp. assigned to Pageant International on October 22, 1997 with the written
consent of Estancia Limited. In addition to the undivided 50% interest in the
VEMRAM patents, under the Joint Ownership and Licensing Agreement, Pageant
International was granted an exclusive worldwide license to develop, manufacture
and sell the VEMRAM technology. The Joint Ownership and Licensing Agreement
required Pageant International to pay Estancia Limited, or its nominee, a
royalty of 40% of the gross profits less expenses agreed by the parties for each
technology license sold. Additionally, Pageant International would be required
to pay Estancia Limited 40% of any per unit royalty received by Pageant
International less properly documented reasonable expenses directly related to
the obtaining of those royalties and as agreed by the parties in writing.

The Joint Ownership and Licensing Agreement also provided that
if Pageant International, as approved assignee of Ataraxia Corp., sold the
rights to the VEMRAM technology to a third party not owned or controlled by it,
it would have to pay Estancia Limited 50% of the proceeds from such transaction.
In the event of the sale of all of the VEMRAM technology rights, 50% of the
proceeds would be assigned to Estancia Limited, reflecting its 50% undivided
interest in the technology, rather than 40% reflecting its royalty rights under
the VEMRAM License. Estancia Limited is controlled by John Zammit. Mr. Zammit
has no direct control relationship with us, and our management is not aware of
the existence of an indirect control relationship between us and Ataraxia Corp
and Mr. Zammit.

The acquisition of Pageant International was treated as a
reverse takeover for accounting purposes. In the case of the purchase of Pageant
International by Micromem, the two former shareholders of Pageant International
ended up with a greater number of voting shares than did the pre-acquisition of
our shareholders and therefore were deemed to have apparent control. Our
consolidated financial statements are presented as a continuation of the
financial position and results of Pageant International, even though we remain
the legal parent and Pageant International remains the legal subsidiary. The
primary consequence of the application of this treatment to the acquisition is
that the patent rights were recorded at $100 on the date of the reverse
takeover, the historical value at which they were carried on the Pageant
International balance sheet.

Agreement to Purchase Estancia Limited Interests

On December 10, 2000, we and Pageant International entered into
an Asset Purchase Agreement with Estancia Limited and Richard M. Lienau to
purchase from Estancia Limited and Mr. Lienau all interests in the VEMRAM
patents and the VEMRAM technology and all other rights, interests and
entitlements held by Estancia Limited and Mr. Lienau as set forth in the Joint
Ownership and Licensing Agreement, also referred to herein as the estancia
limited interests.

Under the Asset Purchase Agreement, which closed on March 9,
2001, Pageant International agreed to pay a purchase price of $50.0 million to
Estancia Limited, as follows:

- $10.0 million was paid on closing, in the form of 2,007,831 of our common
  shares (or $8.0 million worth of our common shares based on the close price on
  the closing date, being $3.98 per share) and $2.0 million in cash;
- $20.0 million, paid if and when either: (a) certification was received
  from Honeywell Federal Manufacturing & Technologies that fully integrated,
  randomly addressable memory matrices of VEMRAM technology met certain
  stipulated performance standards, or (b) Micromem or any of its affiliates
  executed a definitive agreement for the sale or licensing of the VEMRAM
  technology to an arm's length third party for any commercial purposes other
  than testing or evaluation of the technology. The $20 million was payable in
  the form of cash and common shares to be determined by Pageant International
  provided that a minimum of 50% of the $20.0 million shall be paid in our
  common shares valued at the close of trading on the date of such certification
  receipt, sale or licensing; and
- $20.0 million, paid if and when we or any of our affiliates executed a
  definitive agreement for the sale or licensing of any technology (including
  the VEMRAM technology) owned by us to an arm's length third party for any
  commercial purposes other than testing or evaluation of the technology;
  payable in the form of cash and common shares to be determined by Pageant
  International provided that a minimum of 50% of the $20.0 million shall be
  paid in common shares valued at the close of trading on the date of execution
  of the license.

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Notwithstanding the provisions triggering the two $20.0 million
payments, also referred to herein as the triggering events, Pageant
International had the right to pay any portion or all of the purchase price at
any time following the March 9, 2001 closing date,through a combination
of cash and common shares, provided that a minimum of 50% of such payment was
through the issuance of common shares.

At the closing of the Asset Purchase Agreement, on March 9,
2001, Estancia Limited was also required to and, they did in fact enter into a
three year technology development agreement with Pageant International for the
continued services of Mr. Lienau towards the development of VEMRAM technology,
also referred to as the Technology DevelopmentAgreement. The Technology
Development Agreement provided for fees to Estancia Limited of $215,000 per
annum and a budget for the continued development of VEMRAM of up to $500,000 per
annum. Effective April 23, 2002, the Technology Development Agreement was
amended to extend the term of the agreement for an additional eight months
commencing March 9, 2004 through to November 9, 2004, and to provide a reduction
of the monthly fees payable to Estancia Limited to $107,500 during the period
from June to December 2002, and during the extended period.

Because neither of the triggering events occurred prior to
March 9, 2004, Pageant International was deemed to have conveyed a 40% undivided
interest in the VEMRAM patents and granted a 32% gross profits royalty (as
described below), to Estancia Limited, where the proportionate interest was
calculated as the ratio of the portion of the purchase price remaining unpaid
(being $40.0 million) at such date over $50.0 million. Consequently, Pageant
International owns a 60% interest in the VEMRAM patents and is required to pay
Estancia Limited royalties equal to 32% of: (a) the gross profit, less expenses
agreed to by the parties, for each license of the VEMRAM patents sold or
otherwise transferred by Pageant International; and (b) the amount of any unit
royalty received by Pageant International as a result of the license or sale of
the VEMRAM patents less reasonable expenses directly related to the obtaining of
said royalties.

Research and Development Initiatives at the University of
Toronto 2003-2007

On October 24, 2002, we entered into a two-year research
collaboration agreement, also referred to herein as the U of T Research
Collaboration Agreement, with Materials and Manufacturing Ontario, the
University of Toronto and Dr. Harry Ruda, Chair Professor in Nanotechnology.
Through the collaboration, we have continued our involvement in the research and
development of magnetic memory technology, carried out by a highly skilled
research team headed and assembled by Dr. Ruda. Under the agreement, we and
Materials and Manufacturing Ontario have each provided CDN $272,000 of funding
and a combined CDN $544,000 was used to cover the operating expenses of the
research collaboration over a term of two years. Under the agreement, we
maintain our ownership of our portfolio of patents and intellectual property to
date.

On November 1, 2002, we entered into an Infrastructure
Agreement with the University of Toronto to fund the assembly of a facility for
research and development and fabrication of magnetic memory which involves the
storage of memory using magnetization. Under the terms of the agreement, we
agreed to contribute $249,463 (CDN $360,000) in cash to fund the direct costs of
magnetic memory files. The payment schedule to the University of Toronto was as
follows:

- $83,154 (CDN $120,000) on execution of agreement, which was paid;
- $83,154 (CDN $120,000) at end of the two months following November 1,
  2002, which was paid; and
- $83,155 (CDN $120,000) at end of the four months following the November 1,
  2002, which was paid.

On December 10, 2002, we entered into a Collaborative Research
Agreement with Communications and Information Technology Ontario, the University
of Toronto and Dr. Harry Ruda. Under the terms of the agreement, over a period
of two years, we were required to contribute $63,750 (CDN $92,000) in cash and
$67,632 (CDN $97,600) of in-kind contribution. Communications and Information
Technology Ontario was required to contribute $215,430 (CDN $308,000) for
research into High Density Magnetic Memory Device Development. In
consideration of such contribution, Communications and Information Technology
Ontario received a royalty based on revenues received from the sale of products
incorporating intellectual property developed under this collaboration agreement
for the remaining life of patents issued in connection with such intellectual
property.

On March 1, 2003, we entered into an Equipment Transfer
Agreement with the University of Toronto. Under the terms of this agreement, we
conveyed equipment having an estimated value of $200,000 (CDN $297,600) to the
University of Toronto for incorporation into the University's magnetic memory
facility for the research and development and fabrication of magnetic
memory.

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On November 12, 2003, we entered into a second two-year
research collaboration agreement, also referred to herein as the Second U of T
Research Agreement, with Materials and Manufacturing Ontario and the University
of Toronto. Through the collaboration, we continued our involvement in the
research and development of magnetic memory technology carried out by a highly
skilled research team headed by Dr. Harry Ruda. Under this agreement, we
committed to providing $56,130 (CDN $81,000) per year in cash and $30,770 (CDN
$44,400) per year of in kind contributions. Materials and Manufacturing Ontario
committed to providing $58,900 (CDN $85,000) in cash. The combined cash
contributions of both us and Materials and Manufacturing Ontario of $230,060
(CDN $332,000), was designated to cover the operating expenses of the research
collaboration over a term of two years. Materials and Manufacturing Ontario's
funding of $117,800 (CDN $170,000) is paid directly to the University of
Toronto. Under the agreement, we maintained our ownership of our portfolio of
patents and intellectual property that were developed prior to or outside of the
scope of the agreement.

Each research collaboration agreement contemplates a number of
milestones under a comprehensive research plan. The research was carried out
from research facilities at the University of Toronto. We have the first right
to an exclusive and perpetual worldwide sub-license for all uses of the
technology developed under the collaboration (except that the University of
Toronto may use the technology for educational and research purposes). Materials
and Manufacturing Ontario and Communications and Information Technology Ontario,
as the case may be, were entitled to receive a royalty on our manufacturing
revenues from the sale of products incorporating the technology developed under
the collaboration. A separate royalty would be negotiated in the future on
revenues to be generated by us from sub-licenses of the technology developed
under the collaboration.

Each of Materials and Manufacturing Ontario and Communications
and Information Technology Ontario is one of four Ontario Centres of Excellence
established by the Ontario government to promote commercial research
partnerships between universities and industry. The Ontario Centres of
Excellence program is funded by the Ministry of Enterprise, Opportunity and
Innovation and is part of the Provincial government's $2 billion investment in
Ontario's knowledge economy. On April 1, 2004, Materials and Manufacturing
Ontario, Communications and Information Technology Ontario and two other Centres
of Excellence (CRESTech and PRO) merged to become OCE Inc., a non-for-profit,
member based corporation.

In June 2005, we signed a license agreement with the University
of Toronto and OCE Inc. whereby OCE Inc. released us from all future claims that
existed under previous research collaboration and infrastructure agreements, and
we acquired the exclusive worldwide license to exploit the related technology
developed at the University of Toronto. We committed to a schedule of royalty
payments on net revenues from related license revenues subject to a maximum
cumulative payment of CDN $500,000. Thereafter we can buy out all remaining
obligations under this agreement by the payment of an additional CDN $500,000 or
the sum of the prior two years of royalty payments at the time of the
buyout.

The research work contained at the University of Toronto
through early 2007 when it began to wind down and, as described further below,
the Company began to pursue commercial prototyping in industrial foundry
settings.

Hiring of Cynthia Kuper as CTO

In mid-2004 we hired Cynthia Kuper as a consultant and in
January 2005, we entered into an employment agreement with Ms. Kuper for her
services as Chief Technology Officer. The agreement had a term of two years and
could be terminated by either party at any time with 4 months notice. The
remuneration stipulated in the agreement was $260,000 per year and 300,000
options, each option enabling her to purchase one common share at $0.80. These
options expired unexercised on March 22, 2007. In addition, Ms. Kuper was
previously granted 100,000 options each of which entitled her to purchase one
common share for $0.68 in connection with her role as acting Chief Technology
Officer since September 2004. These options expired on December 31, 2005 and
were replaced by 100,000 options each of which entitled her to purchase one
common share for $0.68 and which were exercised in May 2008.

In September 2006, we extended the employment agreement with
Ms. Cynthia Kuper for an additional two years commencing in January 2007 on the
same terms, conditions and cancellation provisions as reflected in the original
contract. Ms. Kuper was granted an additional 200,000 stock options in August
2006, each option enabling her to purchase one common share for $0.80 and which
were exercised in May 2008.

On November 18, 2007 the Company served Ms. Kuper with the
required four months written notice of termination of her employment agreement
without cause.

Ms. Kuper filed a claim against the Company in February 2008
citing wrongful dismissal and making a number of allegations against the
Company. The Company vigorously denied Ms. Kupers claims stating that they were
malicious and frivolous. The Company pursued this matter through November 2008 when it was
ultimately dismissed by the regulators. See Item 8 - Major Shareholders and
Related Party Transactions - B. Legal Proceedings.

17

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Research and Development Efforts

We began to pursue potential strategic development partners in
2006. At that time, we engaged Strategic Solutions Inc. (Strategic Solutions),
a California based engineering/design consulting firm to work with us to take
forward to industrial partners the work that was being completed in the
University of Toronto research laboratory.

A number of initial meetings and discussions were held with
US-based and foreign companies, notably Hewlett Packard, Lockheed Martin and
Omron Inc. in 2006-2007. The Company was encouraged by the future potential to
work with such parties but realized that substantial additional development work
was still required.

Accordingly, the Board of Directors formed a Technical Advisory
Committee in mid 2007 consisting of Larry Blue and Steve Van Fleet, two of its
Directors and both of whom have substantial industry experience and careers in
related technology. To round out the Technical Advisory Committee, the Company
recruited Mr. Henry Dreifus of Dreifus Associates Limited of Orlando, Florida.
It recruited Mr. Dreifus as its candidate of choice, having considered a number
of other technical experts from across North America.

The Technical Advisory Committee took the leadership role in
the Company's technical developments commencing in September, 2007. At the time,
with ongoing assistance provided by Strategic Solutions, the Company engaged
Global Communications Semiconductor Ltd., of California to develop initial
prototypes in its California-based foundry. GCS had considerable experience in
dealing with gallium arsenide-based applications which was a significant
consideration in the selection of that foundry.

Between September 2007 and February 2008, the Company announced
a series of development milestones achieved in the GCS foundry. Through the
efforts of our Technical Advisory Committee, the Company determined that it
would pursue the further development of its magnetic sensor market opportunities
in the immediate term while pursuing the longer term goal of also developing its
memory applications.

In early 2008 the Company was approached by BAE Systems (BAE)
which had expressed initial interest in the Company's sensor technology. The
Company and BAE executed the appropriate confidentiality material transfer
agreements and began discussions with respect to specific project work to be
conducted in BAE's foundries in the United States. In August 2008, the Company
entered into a working agreement with BAE whereby the Company agreed to commit
up to $1 million of funding to BAE led development work on its sensor
technology. The Company retains exclusive ownership of any intellectual property
that is developed in this initiative.

The end goal of the BAE development work is to identify
specific applications where BAE would incorporate the Company's technology into
their product offerings to their own large defense and aerospace customers.

In parallel with the BAE initiatives the Technical Advisory
Committee began to pursue multiple discussions with other potential strategic
partners.

Over the past six months, the Company has announced that it is
in initial discussions with a number of other entities who are considering
strategic alliances with the Company. At the same time the Company has committed
resources to the development of specific sensor application/technology in the
mining and in the oil and gas sectors. The development in these areas continue.

The Company continues to rely on a number of key advisors
including Strategic Solutions, GCS, DAL and BAE. It has worked exclusively with
Morgan Lewis LLP with respect to its intellectual property filings with respect
to all of this development work.

Changes to Our Board of Directors and Management

On January 11, 1999, immediately following our acquisition of
Pageant International, Stephen Fleming, who had been serving as President and
Chief Executive Officer of Pageant Technologies (USA) Inc., was elected to our
Board of Directors to join Salvatore Fuda and Ross McGroarty, who had served as
Directors since 1992 and 1988, respectively. The Board of Directors then elected
Mr. Fuda as Chairman of the Board of Directors, Mr. Fleming as President and
Chief Executive Officer, and Mr. McGroarty, who had been serving as our
President, to serve as our Executive Vice President and Secretary.

18

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Subsequently, on March 18, 1999,
Robert Patterson, who had been serving as Chairman of the Board of Directors and
Vice President of Corporate Development of Pageant Technologies (USA) Inc., was
elected to serve as our President and Chief Executive Officer to replace Mr.
Fleming. On November 15, 1999, Antonio Lopes was appointed Chief Financial
Officer. On June 15, 2000, Mr. McGroarty resigned as Executive Vice-President
and Secretary.

At our annual meeting of shareholders held on June 29, 2000,
the following individuals were elected to serve on our Board of Directors:
Andrew Brandt, Stephen Fleming, Salvatore Fuda, Charles Harnick and George
Kennedy. The terms of all previously elected directors ended on such date. The
term of Mr. Lopes' employment as our Chief Financial Officer ended on June 5,
2000 and Mr. Raj Viswanathan was then appointed to serve as our Chief Financial
Officer. The term of Robert Patterson's employment as our President and Chief
Executive Officer having ended, Salvatore Fuda was reappointed as Chairman of
the Board of Directors and he was appointed to serve as our Chief Executive
Officer on June 29, 2000. Also on June 29, 2000, Manoj Pundit was appointed to
serve as our Executive Vice-President and General Counsel. On February 21, 2001,
Dr. Dale Hensley was appointed to serve as Chief Operating Officer of both
Micromem and Pageant Technologies (USA) Inc.

At our annual meeting of shareholders held on March 14, 2001,
Andrew Brandt, Stephen Fleming, Salvatore Fuda, Charles Harnick, George Kennedy,
Manoj Pundit and David Sharpless were elected to serve on our Board of
Directors.

At a meeting of our Board of Directors held on March 14, 2001,
a resolution was passed appointing Dale Hensley as a director of Micromem. At a
meeting of our Board of Directors held on February 13, 2002, our Board of
Directors accepted the resignation of Salvatore Fuda as President and Chief
Executive Officer of Micromem due to health reasons. Salvatore Fuda continues to
serve as our Chairman of the Board of Directors. In his place, the Board of
Directors appointed Joseph Fuda to serve as our Director and as President and
Chief Executive Officer. Messrs. Andrew Brandt, Stephen Fleming, Salvatore Fuda,
Charles Harnick, Dale Hensley, George Kennedy, Manoj Pundit, David Sharpless and
Stephen Van Fleet were elected as Directors of Micromem at the annual meeting
held April 30, 2002.

Dr. Dale Hensley's employment as our Chief Operating Officer
was terminated effective as of September 24, 2002. Raj Viswanathan resigned as
our Chief Financial Officer on October 31, 2002 and as a Director of Pageant
Technologies (USA) Inc. on September 26, 2002. Dr. Hensley resigned as a
Director of Pageant Technologies (USA) Inc. on September 26, 2002 and as a
Director of Micromem effective October 9, 2002. Antonio Lopes was reappointed as
our Chief Financial Officer on November 1, 2002.

At our annual meeting of shareholders held on June 6, 2003,
Salvatore Fuda, Stephen Fleming, Charles Harnick, George Kennedy, Andrew Brandt,
Manoj Pundit, Joseph Fuda, David Sharpless and Steven Van Fleet were elected to
serve on our Board of Directors.

At our annual meeting of shareholders held on June 25, 2004,
Salvatore Fuda, Stephen Fleming, Charles Harnick, George Kennedy, Andrew Brandt,
Manoj Pundit, Joseph Fuda, David Sharpless and Steven Van Fleet were elected to
serve on our Board of Directors. Dan Amadori replaced Antonio Lopes as our Chief
Financial Officer on the annual meeting date.

Cynthia Kuper joined us as Chief Technology Officer on January
28, 2005 after serving as acting Chief Technology Officer since September 2004.
At our annual meeting of shareholders held on June 27, 2005, Salvatore Fuda,
Stephen Fleming, Charles Harnick, George Kennedy, Andrew Brandt, Manoj Pundit,
Joseph Fuda, David Sharpless and Steven Van Fleet were elected to serve on our
Board of Directors.

On November 12, 2005 Mr. Larry Blue was appointed to serve on
our Board of Directors.

At our annual meeting of shareholders held on June 26, 2006,
Salvatore Fuda, Andrew Brandt, Joseph Fuda, David Sharpless, Steven Van Fleet,
Oliver Nepomuceno and Larry Blue were elected to serve on our Board of
Directors. Messrs. Salvatore Fuda, Joseph Fuda, Manoj Pundit, Dan Amadori and
Ms. Cynthia Kuper continued to hold the officer roles as described above.

At our Annual Meeting of shareholders on Friday, July 27, 2007
Salvatore Fuda, Andrew Brandt, Joseph Fuda, David Sharpless, Steven Van Fleet,
Oliver Nepomuceno and Larry Blue were all re-elected to serve on our Board of
Directors. Messrs. Salvatore Fuda, Joseph Fuda, Manoj Pundit, Dan Amadori and
Ms. Cynthia Kupers roles as officers of the Company were continued.

On November 18, 2007, pursuant to the terms of the employment
agreement previously executed, the Company served four months notice to
terminate the employment contract of Cynthia Kuper as Chief Technology Officer.

19

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On February 1, 2008, Manoj Pundit resigned as Vice President
and Secretary of the Corporation.

On March 12, 2008, Mr. Henry Dreifus was appointed to serve on
our Board of Directors.

In May 2008, the Company entered into a three-year employment
agreement with Steven Van Fleet to serve as President of MAST INC., our
wholly-owned US-based subsidiary. We also entered into a two-year employment
agreement with Joseph Fuda in his capacity of President and Dan Amadori in his
capacity as CFO.

In our annual meeting of shareholders held on Thursday June 26,
2008, Salvatore Fuda, Andrew Brandt, Joseph Fuda, David Sharpless, Steven Van
Fleet, Oliver Nepomuceno, Larry Blue and Henry Dreifus were all re-elected to
serve on our Board of Directors. Messrs. Salvatore Fuda, Joseph Fuda, Dan
Amadori and Steven Van Fleet roles as officers were continued.

B.

Business Overview

We are engaged in the development of memory technology having
the characteristic of non-volatility, which is the ability to retain information
after power has been shut off. Our technology is based on our ability to use
magnetic materials in combination with a sensor to record the state of
magnetization. Each magnetic element stores one bit of data based on its
ability to alternate between states of magnetic polarization, which states are
determined by a sensor. Our technology represents 1s and 0s by the different
polarization of magnets. For example, a magnet oriented north/south is a 1 and
a magnet oriented south/north is a 0. The magnetic field strength and
direction do not decay when power is switched off, and, therefore, the memory is
non-volatile.

In June 2002, our management determined that our research and
development required restructuring due to financial constraints, in order to
continue the development of magnetic non-volatile memory technology.
Accordingly, we commenced restructuring our operations in July 2002 to achieve
an orderly transition of our research and development program. As part of this
restructuring, Pageant Technologies (USA) Inc., a subsidiary of Pageant
International, closed its Lee's Summit, Missouri facility by August 31, 2002 and
we downsized our head office in Toronto as of October 31, 2002. Both we and
Pageant Technologies (USA) Inc. terminated Dr. Dale Hensley as Chief Operating
Officer effective as of September 24, 2002. Pageant Technologies (USA) Inc.
terminated all of its other employees by October 31, 2002. Dr. Hensley resigned
from our Board of Directors on October 9, 2002 and as a Director of Pageant
Technologies (USA) Inc. on September 26, 2002. In September 2002, Pageant
Technologies (USA) Inc. terminated its agreement with Townsend Capital Inc.
pursuant to which Pageant Technologies (USA) Inc. occupied the offices,
laboratory and clean room it had occupied at Summit Technology Campus, Lee's
Summit, Missouri.

Until August 2002, we were pursuing the development of our two
unique memory technologies:

- a memory design with the magnetic bit aligned horizontally to the
  substrate, known as HEMRAM; and
- a memory design with the magnetic bit aligned vertically to the substrate,
  known as VEMRAM.

Since July 2002, we have participated in further magnetic
memory technology research and development pursuant to our collaboration with
the University of Toronto and Dr. Harry Ruda. We launched additional development
initiatives in 2007. See Research and Development Efforts on Page 18 of this
Annual Report.

We have a portfolio of patents and patent applications
protecting the technology that we are developing.

Industry Background

The semiconductor memory industry is principally driven by the
requirements of the computing industry. The nature of the memory manufacturing
industry is that it is capital intensive, cyclical, rapidly changing and it
depends significantly on patent protection.

The semiconductor industry is intensely competitive. Both
low-density and high-density nonvolatile memory products are manufactured and
marketed by major corporations possessing worldwide wafer manufacturing and
integrated circuit production facilities and by specialized product companies.

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Our Company's Technology

The various characteristics of the our technology can be better
understood by describing the three basic types of memory used in present day
computers, Random Access Memory (RAM), Read Only Memory (ROM), and secondary
storage devices such as floppy and hard disks. The three types of memory are
described below:

Random Access Memory (RAM) is memory that can be
both read and written randomly, which means that its storage locations can be
accessed in any order. Thus, a computer using RAM can find and go directly to
the selected location rather than performing a sequential search. Semiconductor
RAM is usually the primary memory associated with the computer's central
processing unit (CPU), the computational unit of the computer responsible
for interpreting and executing instructions. However, RAM is volatile
which means that all stored information vanishes once the power supply is
removed and must be restored from a secondary storage device each time the power
is resumed.

Two typical examples of RAM are Dynamic Random Access Memory
and Static Random Access Memory. Dynamic Random Access Memory (DRAM) uses
integrated circuits containing capacitors to achieve significant storage
capacity and speed. DRAM can be written and read in the speed range of less than
100 nanoseconds. DRAM has a major drawback in that its capacitors lose their
charge over time and therefore information contained in DRAM must be continually
refreshed. This means that, on average, DRAM must stop operations every 16-30
milliseconds and restore all of the data it contains or the data will disappear.
During this refresh time, the processor has no access to the information being
refreshed. Static Random Access Memory (SRAM) differs from DRAM in that
it stores information in a logic circuit referred to as a flip-flop, rather than
in a capacitor. SRAM memory does not need to be refreshed while the power is on,
but also loses its information once the power is turned off.

Read Only Memory (ROM), like RAM, can be
read randomly, but cannot be written randomly. Unlike RAM, however, it is
non-volatile and therefore does not lose its information when a computer's power
is cut off. ROM is typically employed to store vital program information
required during the first moments after a computer is powered on. It may be used
for such purposes as forcing system test routines, directing the processor to
input/output devices or for controlling access to certain computer subsystems
such as hard drives. EPROMs (erasable programmable read-only
memory) and EEPROMs (electrically erasable read-only memory) are read
only memories that can be erased and rewritten, but must be written en masse,
rather than at the individual word level. Flash memory is a form of EEPROM
that is widely used today in such devices as cell phones, modems and personal
digital assistants. The drawbacks to Flash memory are that write times are
slower, the number of read/write cycles are limited and there is a requirement
for significantly higher power to store data.

Secondary Storage Devices include CDs,
which are light and portable and are written and read by a motor driven
mechanical drive. They normally have a storage capacity in the low megabyte
range and are non-volatile and can be both written and read. However, since they
are serial (as opposed to parallel) devices, they are considerably slower than
RAM.

Our technology combines the use of semi-conducting
ferromagnetic metals with a sensor. When the magnetization of the magnetic
material changes direction, the sensor senses the change in direction and
records a 0 or 1. In this fashion, a bit is created that is non-volatile and
based on magnetic properties. We are developing this form of magnetic random
access memory for low-density applications, such as RFID, that can benefit from
non-volatile data storage.

Competition

We are aware of others conducting research, development and
commercialization in the magnetic non-volatile memory area. These include IBM
Research (San Jose, California), Ovonyx, Inc. (Troy, Michigan), Hewlett-Packard
(Palo Alto, California), Honeywell (Plymouth, Minnesota), Motorola (Phoenix,
Arizona) and Freescale Semiconductor.

Two main centers of MRAM research are at IBM and Infineon. IBM
and Infineon have alternative MRAM technologies based on the giant magneto
resistance principle. This giant magneto resistance principle primarily consists
of two ferromagnetic layers separated by a conductive nonmagnetic interlayer.
The electrical resistance is high in the absence of an external magnetic field.
However, an applied external field forces the initially anti-parallel
magnetization in the coupled films into parallel alignment and the resistance
drops. The high or low resistance determines the data storage state. Magnetic
tunnel junction cells, as they are known, have similar sandwiched structures but
the interlayer is insulating instead of conducting. In contrast to giant magneto
resistance structures, in which the sense current flows parallel to the layers,
the current in magnetic tunnel junction flows perpendicularly to the layers of
the stack. Even thought we cite these companies as our competitors,
because they develop MRAM technology, it should be noted that our technology is
significantly different with respect to the device architecture and mechanism of
functioning.

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Equity Financing Transactions

In August 2003, we completed unit private placements to two
private investors. Under the private placements, we received $162,500 as
subscription proceeds for the sale and issue of 2,031,250 units. Each unit
consists of one common share and one Series A warrant. Each Series A warrant
entitles the holder to purchase one common share and one Series B warrant for
$0.08 per unit until expiry 12 months from the date of issue. Each Series B
warrant entitled the holder to purchase one additional common share for $0.08
per share until expiry 12 months from the date of issue. In August 2004, the
investors exercised 2,031,250 Series A warrants and we thus issued 2,031,250
common shares and 2,031,250 Series B warrants and realized proceeds of $162,500.
In February 2005, the investors exercised 1,406,250 Series B warrants and we
thus issued 1,406,250 common shares and realized proceeds of $112,500. In August
2005, our investors exercised the remaining 625,000 Series B warrants and we
thus issued 625,000 common shares and realized proceeds of $50,000.

In December 2003, we completed unit private placements to two
Canadian private investors pursuant to prospectus and registration exemptions
set forth in applicable securities laws. Under the private placements, we
received $33,000 as subscription proceeds for the sale and issue of 300,000
units. Each unit consists of one common share and one Series A warrant. Each
Series A warrant entitled the holder to purchase one common share and one Series
B warrant for $0.11 per unit until expiry 12 months from the date of issue. Each
Series B warrant entitled the holder to purchase one additional common share for
$0.11 per share until expiry 12 months from the date of issue. In October 2004,
the private investors exercised 200,000 Series A warrants and we thus issued
200,000 common shares and 200,000 Series B warrants and realized proceeds of
$22,000. In November 2004 and February 2005 the investors exercised the balance
of their Series A and B warrants and we thus issued 400,000 common shares and
realized proceeds of $44,000.

In December 2003, we also completed a unit private placement to
one Canadian private investor pursuant to prospectus and registration exemptions
set forth in applicable securities laws. Under the private placement, we
received $40,000 as subscription proceeds for the sale and issue of 500,000
units. Each unit consists of one common share and one Series A warrant. Each
Series A warrant entitles the holder to purchase one common share and one Series
B warrant for $0.08 per unit until expiry 12 months from the date of issue. Each
Series B warrant entitles the holder to purchase one additional common share for
$0.08 until expiry 12 months from the date of issue. In June 2004, the private
investor exercised the Series A warrants and we thus issued 500,000 common
shares and 500,000 Series B warrants and realized proceeds of $40,000. In
September 2004, the private investor exercised the Series B warrants and we thus
issued 500,000 common shares and realized proceeds of $40,000.

In December 2004, we completed a unit private placement to
several U.S. investors pursuant to prospectus and registration exemptions set
forth in applicable securities laws. Under the private placement, we received
$617,000 as subscription proceeds for the sale and issue of 1,028,344 units.
Each unit consists of one common share and one Series A warrant. Each Series A
warrant entitles the holder to purchase one common share and one Series B
warrant for $0.60 per unit until expiry 12 months from the date of issue. Each
Series B warrant entitles the holder to purchase one additional common share for
$0.60 per share until expiry 24 months from the date of issue. In December 2005,
we revised the terms of this unit private placement. The unit was revised to
consist of one common share, one Series A warrant expiring on June 30, 2006 and
one Series B warrant expiring on December 31, 2006. The remaining terms of the
warrants are unchanged.

In January 2005, we completed a unit private placement to one
Canadian investor pursuant to prospectus and registration exemptions set forth
in applicable securities laws. Under the private placement, we received $10,500
as subscription proceeds for the sale and issue of 14,000 units. Each unit
consists of one common share and one Series A warrant. Each Series A warrant
entitles the investor to purchase one common share and one Series B warrant for
$0.75 per unit until expiry 12 months from the date of issue. Each Series B
warrant entitles the holder to purchase one additional common share for $0.75
per share until expiry 12 months from the date of issue. In December 2005, we
revised the terms of this unit private placement. The unit was revised to
consist of one common share, one Series A warrant expiring on June 30, 2006 and
one Series B warrant expiring on December 31, 2006. The remaining terms of the
warrants are unchanged.

In January 2005, we arranged a unit private placement to
several investors pursuant to prospectus and registration exemptions set forth
in applicable securities laws. Under the private placement we received $845,000
by April 1, 2005 as subscription proceeds for the sale of 1,300,000 units. Each
unit consists of one common share and one Series A warrants. Each Series A
warrant entitles the holder to purchase one common share and one Series B
warrant for $0.65 per unit until expiry 12 months from the issue date. Each
Series B warrant entitles the holder to purchase one additional common share for
$0.65 per share until expiry 12 months form the date of issue. In December 2005, we revised the
terms of this unit private placement. The unit was revised to consist of one
common share, one Series A warrant expiring on June 30, 2006 and one Series B
warrant expiring on December 31, 2006. The remaining terms of the warrants are
unchanged.

22

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Our Board of Directors subsequently again revised the terms of
the Series A and Series B warrants relating to the Unit private placements
completed in December 2004 and January 2005 as follows:

- In June 2006, the expiry date on the Class A warrants was extended to
  September 30, 2006 on the provision that one-third of the outstanding Class A
  warrants were exercised by June 20, 2006. A total of 771,850 Class A warrants
  were exercised on this basis and the Company realized proceeds of $485,948. A
  total of 1,563,484 Class A warrants remained outstanding.
- In September 2006 the expiry date on the Class A warrants were extended to
  December 31, 2006.
- In January 2007 all of the outstanding Class A and Class B warrants were
  re-priced to $0.50 per warrant and the expiry date was extended to June 30,
  2007.
- In April 2007 all of the outstanding Class A and Class B warrants were
  repriced to $0.40 per warrant and the expiry date was extended to June 30,
  2008.

In 2007, the Company decided to suspend its efforts to register
these warrants and the underlying shares issuable upon exercise of the warrants
with the Securities and Exchange Commission.

On June 8, 2005, we entered into a financial advisory services
agreement with an arm's length entity and, as consideration, issued a warrant to
purchase 1,000,000 of our common shares. The warrant entitled the holder to
purchase our common shares at $0.70 per share. The warrant expired unexercised
in June 2006.

We entered into a second financial advisory services agreement
on June 22, 2005 with an arm's length entity and, as consideration, issued
warrants to purchase 800,000 of our common shares. The warrant entitled the
holder to exercise the warrants on a "cashless" basis as further described
below. The warrants originally were to expire in December 2006. Prior to the
original expiry date, the Board of Directors extended the expiry date to March
31, 2007. These warrants were subsequently extended to June 30, 2008 and
repriced to $0.40 per warrant.

In May 2006 the Company completed a unit private placement
financing with two investors pursuant to prospectus and registration exemptions
set forth in applicable securities laws. The Company received $75,000 as
subscription proceeds for the sale and issue of 150,000 units. Each unit
consists of one common share and one Series A warrant. Each Series A warrant
entitles the investor to purchase one common share for $0.50 until expiry in
April 2007.

In October 2007, the Company completed a series of private
placement financings with 8 arms length investors pursuant to prospectus and
registration exemptions set forth in applicable securities laws. The Company
received a total of $716,230 subscription proceeds and issued a total of
1,577,368 common shares.

On September 16, 2007 the Company secured a 30-day bridge loan
from an arms length investor in the amount of $505,000. The Company paid a 5%
financing fee to arrange the bridge loan and issued 250,000 common share
purchase warrants to acquire common shares at a exercise price of $0.50 per
share. The Company recorded a non-cash expense of $85,484 with respect to these
warrants, calculated in accordance with the Black Scholes option-pricing model.
The warrants have a one-year term and expire in September 2008 if unexercised.
The bridge loan was repaid in October 2007.

The Company secured a 30 day bridge loan of $200,000 from an
arms length investor in January 2008. The interest rate on the bridge loan was
4% due in 30 days. As additional consideration, the Company issued 100,000
common share purchase warrants at a exercise price of $0.60 per share. The loan
was repaid in February 2008.

In the 2008 fiscal year, the Company completed a series of
private placement financings with arms length investors pursuant to prospectus
and registration exemptions set forth and applicable securities laws. In total,
the Company received proceeds from the issuance of 3,960,255 common shares,
realizing proceeds totaling $2,876,328. In certain of these private placement
financings, common share purchase warrants were attached as follows:

23

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|(a) | 200,000 warrants issued at a price of $1.17 per warrant
      issued on July 31, 2008      
|--- | -------------------------------------------------------------------------------------------
|    |                                                                                            
|(b) | 75,000 warrants issued at a price of $0.95 per warrant
      issued on August 26, 2008; and
|    |                                                                                            
|(c) | 262,128 warrants issued at a price of $1.17 per warrant
      on September 2, 2008         

In all cases these warrants expire 12 months after issue date
if unexercised.

In the fiscal year ending October 31, 2008 investors exercised
a total of 3,421,318 common share purchase warrants to acquire common shares at
a price of $0.40 per warrant and in this fashion the Company realized proceeds
of $1,368,527.

In 2008, the holders of the 800,000 common share purchase
warrants that arose from the 2005 financial advisory services agreements
described above exercised these warrants on a cashless basis. In essence, the
stock price was $2.09 per share on the date of exercise and the exercise price
was $0.40 per warrant. These warrants were "in the money" to the extent of
$1,352,000 and the Company issued a total of 686,446 common shares to fulfill
the obligations under this contract.

A total of 1,440,000 common stock options were exercised by
directors, officers and consultants in 2008 and the Company realized proceeds of
$1,080,000.

Subsequent to October 31, 2008, the Company has completed
additional private placement financing with arms length investors, securing a
total of $794,465 of subscription proceeds through the issuance of 1,489,899
common shares. In addition, officers and directors exercised a total of 32,801
common stock options and the Company realized $24,416 proceeds.

Patents and Trademarks

We believe that protection of our intellectual property is
important to our ability to generate revenues from our technology in the future.
We have both issued patents and pending patent applications and also entered
into confidentiality and other agreements with third parties and our employees
to protect our intellectual property and trade secrets. We intend to continue to
actively pursue the protection of our intellectual property. Our management will
determine from time to time the jurisdictions where protection will is
appropriate. This determination will be based on a number of factors including
the state of development of our technology, the importance of a particular
market for our technology, the costs of pursuing patent protection in a
jurisdiction and our financial position at the time.

Our magnetic patent portfolio comprises separate series of
patents and patent applications as follows:

|(a) | our initial patents covering what is referred to as the
      Vemram and Hemram technologies which the Company has not further pursued
      since 2002;                         
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                  
|(b) | those covering technologies developed pursued to research
      collaboration agreements with the University of Toronto; and                                                     
|    |                                                                                                                                                                                  
|(c) | those applications covering the technology developments
      that the Company has furthered since it began working with the US-based
      foundries and BAL in September, 2007.

Morgan Lewis LLP has served as our patent attorneys since 2005.
In 2008, we filed several provisional patents.

Environmental Matters

We are subject to various environmental protection regulations
imposed by the government in the jurisdiction where we conduct our development
work. We are not aware of any current or pending environmental protection laws
or regulations that would have a material impact on our capital expenditure
requirements or competitive position.

C.

Organizational Structure

We have a wholly-owned subsidiary, Pageant International, which
was incorporated under the laws of the Turks & Caicos Islands and continued
to Barbados on May 25, 2001. Pageant International has a wholly-owned
subsidiary, Pageant Technologies (USA) Inc., a corporation incorporated in the
State of Utah. We have a second wholly-owned subsidiary, Memtech International
Inc, incorporated under the laws of the Bahamas, which in turn has a
wholly-owned subsidiary, Memtech International (USA) Inc., a corporation
incorporated in the State of Delaware. These subsidiaries are inactive.

24

---

We had a third wholly-owned subsidiary, Micromem Technologies
B.V., incorporated under the laws of the Netherlands on January 16, 2001, which
had a subsidiary, Micromem Technologies S.p.A.,a corporation
incorporated under the laws of Republic of Italy on January 25, 2001. Micromem
Technologies S.p.A. was dissolved pursuant to the laws of Italy on December 27,
2002. Micromem Technologies B.V. was dissolved pursuant to the laws of the
Netherlands on August 11, 2003.

Pageant International and Pageant USA are sometimes jointly
referred to in this Form 20-F as Pageant. Micromem, Pageant International,
Pageant Technologies (USA) Inc., Memtech International Inc. and Memtech
International (USA) Inc. are sometimes collectively referred to as Micromem in
this Form 20-F.

In November, 2007, the Company incorporated MAST INC. as a
Delaware-based wholly-owned subsidiary. MAST has since set up an office in New
York City and is being managed on a day-to-day basis by Steven Van Fleet as
President of MAST and a director of Micromem. MAST is pursuing a number of
potential strategic joint development agreements with industry partners. This
process is ongoing.

In October, 2008, the Company incorporated 7070179 Canada Inc.
as a wholly-owned subsidiary. On October 31, 2008, the Company assigned its
rights, title and interest in certain patents which it previously held directly
to 707179 Canada Inc. in exchange for common shares of this wholly-owned
subsidiary.

D.

Property, Plant and Equipment

We maintain our corporate headquarters in Toronto, Ontario,
Canada. We occupy 3,987 square feet of commercial office space pursuant to a
lease that expires in 2010.

The research and development facilities at the University of
Toronto are comprised of equipment, tools, a clean room and laboratory space.
All facilities and equipment are owned by the University of Toronto and are
being made available to the research and development team under our research
collaboration agreements with the University of Toronto and an infrastructure
agreement between us and the University of Toronto.

The Company made $31,531 of capital expenditures in 2008. It
did not make any capital expenditures in 2005-2007; it made $4,567 of
expenditures in 2004.

ITEM 4A.

UNRESOLVED
STAFF COMMENTS

Not Applicable.

ITEM 5.

OPERATING AND FINANCIAL REVIEW AND
PROSPECTS

This section of the Form 20-F has been prepared to provide a
more substantive discussion of our business and to assist the reader in
analyzing the audited consolidated financial statements for the year ended
October 31, 2008. This discussion and analysis of financial condition and
results of operations should be read in conjunction with the consolidated
financial statements and related notes in this Annual Report, which are prepared
in accordance with Canadian GAAP and are stated in United States dollars. These
principles are also in conformity in all material respects with U.S. GAAP as
described in Note 18 to our 2008 audtied consolidated financial statements.

I.

OVERVIEW

The Company: We are a development stage Company that
currently operates in a single segment as a developer of non-volatile magnetic
memory technology (the Technology). Non-volatile memory implies the ability to
retain information after power has been shut off. Our Technology is based on our
ability to use magnetic materials in combination with a sensor to record a state
of magnetization as a mechanism of data storage.

25

---

A.

Operating Results

The following table sets forth certain selected financial
information of our Company:

Selected statement of operations and deficit information

|(all amounts in United States dollars)
|--------------------------------------
|                                      
|Interest and other income             
|Loss for the year                     
|Loss per share-basic and diluted      

Selected balance sheet information

|(all amounts in United States dollars)
|--------------------------------------
|                                      
|Working capital (deficiency)          
|Property and equipment                
|Total Assets                          
|Shareholders equity (deficiency)     

26

---

Fiscal 2008 Compared to Fiscal 2007

The Company remains in pre-revenue mode as at October 31, 2008.
We reported interest income totaling $11,762 in 2008 compared to $2,586 in 2007.
We earned additional interest income on temporarily available surplus funds in
2008, a year in which we raised significant additional capital for the Company.

Administration costs increased $604,203 in 2008 from $223,177
in 2007. In 2008 we engaged the services of a New York City based investor
relations firm and incurred $78,000 of related costs. We reserved $88,000 of
doubtful accounts receivable from certain related companies with whom we have
overhead cost sharing agreements. These amounts were reserved due to uncertainty
of collection. With the start-up of operations in MAST INC., our wholly-owned
subsidiary, we incurred incremental direct costs associated with that entity
totaling $31,000. Other administrative costs including telephone, insurance,
rent increased in 2008 given higher level of general activity.

The cash component of professional, management and other
consulting fees totaled $2,021,000 in 2008 versus $1,250,984 in 2007. The major
component of the cost in 2008 included legal costs pertaining to our patent
portfolio of $253,000, other legal costs totaling $287,000 including
approximately $125,000 pertaining to the Cynthia Kuper matter with the balance
relating to listing fees in Canada and the adoption of a Shareholder Rights
Plan. We reported $794,000 in management fees to our Chairman and key executives
versus $791,000 in 2007. In 2008 we incurred $65,000 of additional professional
fees relating to compliance with the Sarbanes-Oxley Act of 2002 (SOX). We
incurred $297,000 with respect to services provided by Dreifus Associates
Limited (DAL) (2007 - $46,000) and $138,000 with respect to payments to the
President of MAST INC. (2007 - $33,000) for the latter part of the year. The
non-cash component of these fees total $1,041,414 (2007: $269,000) and related
to stock compensation expense calculated in accordance with the Black Scholes
option pricing model. This compensation expense relates to warrants issued in
connection with financings completed in 2008 and to the vesting of stock options
awards to officers, directors and employees.

Research and development costs total $1,063,508 in 2008
compared to $682,331 in 2007. The largest components of the costs incurred in
2008 included payments to Strategic Solutions totaling $729,000, to BAE totaling
$400,000, and to GCS totaling $192,000. The BAE work began in 2008 and the work
completed by Strategic Solutions accelerated considerably in 2008.

Travel and entertainment costs totaled $398,474 in 2008
compared to $141,200 in 2007. We incurred a substantial amount of additional
travel expense in 2008 in pursuit of multiple potential strategic alliances and
working arrangements with different companies in North America and in Europe.
The bulk of the travel expenses related to costs incurred by Strategic
Solutions, Steven Van Fleet in his capacity as President of MAST INC. and as
head of business development for the Company and, additionally, travel costs
incurred by Henry Dreifus and DAL.

The Company issued a total of 2,145,000 stock options in
2008.

The foreign exchange loss in 2008 was $52,321 compared to a
loss of $135,947 in 2007. These expenses reflect the significant appreciation of
the Canadian dollar against the US dollar in 2007, a trend which continued
through mid 2008 before the Canadian dollar depreciated against the US dollar in
the second half of the fiscal year.

We reported a net loss of $5,416,725 in 2008 or a loss of 7
cents per share, compared to a loss of $2,811,378 or 4 cents per share in
2007.

Fiscal 2007 Compared to Fiscal 2006

The Company remains in pre-revenue mode. We reported interest
income totaling $2,586 in 2007, compared to $9,930 in 2006.

Administration costs were consistent between years  in 2007
the Company reported $223,177 of administration costs (2006: $268,241). These
costs relate to public company filings, office support costs, Annual Meeting
costs, communication costs etc.

Professional, management and consulting fees totaled $1,250,984
in 2007 (2006: $1,017,859). The major components of the costs in 2007 include
legal fees pertaining to intellectual property filings of approximately
$220,000, other legal expenses totaling $26,000 and audit and filing-related
expenses totaling approximately $100,000. Management and consulting fees
incurred in 2007 totaled $309,000 paid to the Chairman (2006: $133,600),
$116,000 to each of the President and the CFO (2006: $72,000 in each case) and
$266,000 paid to the Companys CTO (2006: $266,000). The Company has paid a
total of approximately $100,000 to other consultants during the year (2006:
$86,000).

27

---

Wages and salaries totaled $111,109 in 2007 (2006: $172,169).
There are three employees on payroll and in 2007 we recovered a portion of their
payroll costs from other companies for whom services were provided.

Research and development costs in 2007 totaled $682,331 (2006:
$368,969). In 2007, the Company incurred incremental costs associated with the
services provided by SSI of approximately $300,000 as compared to approximately
$50,000 in the prior year. We incurred approximately $330,000 with respect to
work performed at the University of Toronto, in 2007, comparable to the costs
incurred in 2006.

Travel and entertainment costs totaled $141,200 in 2007 (2006:
$195,607). In 2006, the Company incurred considerable travel expenses pertaining
to our Chief Technology Officer, these costs were not replicated in 2007. Other
travel costs incurred in 2007 relate to costs incurred with respect to visits to
the California-based foundry, travel costs associated with the attempted
European financing and costs associated with a preliminary due diligence visit
to a European-based potential strategic partner.

Stock compensation expense in 2007 totaled $269,216. The
Company issued a total of 775,000 stock options in 2007 and 250,000 common share
purchase warrants associated with the bridge loan financing that it completed in
September 2007. The total non-cash costs associated with these options and
warrants were calculated in accordance with the Black Scholes option-pricing
model. In 2006, the comparable expense was $2,058,580, relating primarily to a
total of 4.6 million stock options granted to officers, directors and employees
in July 2006.

The Companys functional currency is the U.S. dollar. It has
ongoing exposure to Canadian dollar denominated expenses. Given fluctuations in
the prevailing exchange rates from time to time, the Company reports foreign
exchange gains or losses relating to the translation of its statements into U.S.
dollars. The foreign exchange loss in 2007 was $135,947 reflecting the
significant appreciation of the Canadian dollar against the U.S. dollar in 2007.
The foreign exchange gain in 2006 was $13,295.

Unaudited quarterly financial information(all
amounts in United States dollars)

|Quarter ended    | Total    | Net Loss     | Loss Per share   
|---------------- | -------- | ------------ | -----------------
|                 | Revenues |              | Basic and diluted
|October 31, 2008 | 4,023    | (3,588,411)  | 0.050            
|July 31, 2008    | 3,258    | (1,280,143)  | 0.020            
|April 30, 2008   | 2,988    | (1,180,108)  | 0.020            
|July 31, 2008    | 1,493    | (720,055)    | 0.010            
|                 |          |              |                  
|October 31, 2007 | $2,166   | ($1,328,604) | 0.02             
|July 31, 2007    | 420      | (600,100)    | 0.01             
|April 30, 2007   | -        | (524,906)    | 0.005            
|January 31, 2007 | -        | (357,766)    | 0.005            
|October 31, 2006 | $7,687   | ($2,359,560) | 0.04             
|July 31, 2006    | 1,024    | (530,370)    | 0.01             
|April 30, 2006   | -        | (333,768)    | 0.005            
|January 31, 2006 | 1,219    | (834,482)    | 0.005            

B.

Liquidity and Capital Resources

Liquidity

We are a development stage company. We currently have no cash
flow from operations and will have none until we are in a position to either
license or directly produce and sell products utilizing our Technology.

We currently have no lines of credit in place and must obtain
equity financing from investors and from persons who hold outstanding options
and warrants in order to meet our cash flow needs until we can generate
revenues. At October 31, 2008, we had approximately $475,000 cash on hand and
our monthly cash expenses approximate $250,000. Since October 31, 2008, we have
raised an additional $818,881 through the exercise of stock options and private
placements.

28

---

We have granted to our directors, officers and other employees
a number of options to purchase shares at prices that are at or above market
price on the date of grant. None of the optionees has any obligation to exercise
their options and there can be no guarantee that we will realize any funds from
these options.

Capital Resources

We had no commitments for capital expenditures as of October
31, 2008 or 2007. In 2008 we spent $31,531 on capital equipment.

In March 2001, we and our wholly owned subsidiary, Pageant
International, completed the acquisition of the VEMRAM patents, VEMRAM
technology and related assets. The total consideration payable in respect of the
purchased assets was $50 million in the form of cash and shares. Of this amount,
$10 million was paid at closing through a cash payment of $2.0 million and the
issuance by us of 2,007,831 of our common shares valued at $3.98 per share. The
balance of $40 million was to have been payable in two equal amounts of $20
million each upon achievement of certain stipulated milestones provided that a
minimum of 50% of each $20 million payment would be in the form of our common
shares. None of the stipulated milestones were met and therefore no amounts were
paid toward the balance of the $40 million purchase price. See  Item 4 -
Information on the Company - A. History and Development of the Company.

As no further payments toward the purchase price were made to
Estancia Limited under the Asset Purchase Agreement, Pageant International was
deemed to have conveyed back, as of March 9, 2004, a percentage of the VEMRAM
patents and to have granted a gross profits royalty to Estancia Limited such
that Pageant International would remain holding a 60% interest in the VEMRAM
patents and it would be required to pay a 32% gross profits royalty to Estancia
Limited in respect of the VEMRAM technology.

Critical Accounting Policies

Our significant accounting policies are set forth in Note 3 to
our consolidated financial statements, which should be read in conjunction with
management's discussion of our critical accounting policies and estimates set
forth below.

Our financial statements are prepared in conformity with
Canadian GAAP, which in our case, conform in all material respects with U.S.
GAAP. Management is required to make estimates and assumptions which can affect
the reported balances. In determining estimates of net recoverable amounts and
net realizable values, or whether there has been a permanent impairment in
value, we rely on assumptions regarding applicable industry performance and
prospects, as well as general business and economic conditions that prevail and
are expected to prevail. Assumptions underlying asset valuations are limited by
the availability of reliable comparable data and the uncertainty of predictions
concerning future events.

Accounts recorded in foreign currency have been converted to
United States dollars as follows:

- Current assets and current liabilities at the prevailing exchange rates at
  the end of the year;
- Other assets at historical rates;
- Revenues and expenses are translated at the 3 month average monthly
  exchange rate per quarter which rate approximates the rate of exchange
  prevailing at the transaction dates; and
- Gains and losses resulting from the fluctuation of foreign exchange rates
  are included in the determination of income.

Until October 31, 2004, for all awards of employee stock-based
compensation granted after January 1, 2002, we recognized employee stock-based
compensation costs under the intrinsic value-based method and provided proforma
disclosure of the impact on net income and earnings per share as if the fair
value-based method has been applied. Effective November 1, 2004, we have adopted
the fair value method of accounting for employee stock-based compensation costs.
The stock-based compensation expense for options granted during the fiscal years
ending October 31, 2005 - 2008 has been reflected as an expense in the
consolidated statement of operations.

We are a development stage company. Research and development
costs are expensed in the period incurred.

29

---

|Commitments                                                                 
|----------------------------------------------------------------------------
|Summary of
      commitments:                                               
|A. Research collaboration agreements                                        
|(1) Materials and Manufacturing Ontario                                     
|(2) University of Toronto                                                   
|(3) Communications and Information Technology Ontario                       
|(4) Revised
      Licensed Agreement  University of Toronto                
|                                                                            
|B. Technology Development Agreement, Pageant Technologies
      Incorporated
|                                                                            
|C. Operating
      Leases                                                   
|                                                                            
|D. Consulting and Employment Contracts                                      
|(1) Chairman of the Board of Directors                                      
|(2) Chief Technology Officer                                                
|(3) President                                                               
|(4) President, MAST INC.                                                    
|(5) CFO                                                                     
|C. Other Commitments                                                        
|(1) Engineering/design consultants                                          
|(2) Design/IP/marketing consultants                                         
|(3) BAE                                                                     

A. Research Collaboration and Infrastructure Agreements:

1. Materials and Manufacturing Ontario:

On October 24, 2002, we entered into a two year Research
Collaboration Agreement with Materials and Manufacturing Ontario, a
not-for-profit organization funded by the provincial government, the University
of Toronto and a researcher employed by University of Toronto to fund the
research on Magnetic Structure development for Hall effect memory devices.

Under the terms of the agreement, we committed to contribute
$87,432 and $18,000 in cash and in-kind contribution, respectively, per year to
fund the research. We have met all of our obligations under this agreement.

On November 12, 2003, we entered into a second research
collaboration agreement with Materials and Manufacturing Ontario and the
University of Toronto for research and development associated with magnetic
memory devices. Under the second agreement, in the first year and upon renewal
in the second year, Materials and Manufacturing Ontario granted $58,900 in cash
funding and we contributed $56,130 in cash funding and additionally made $30,770
of in-kind contributions, all towards the research collaboration, each year. We
have met all of our obligations under the agreement.

2. University of Toronto:

On November 1, 2002, we entered into an Infrastructure
Agreement with the University of Toronto to fund the assembly of a magnetic
memory facility for research, development and fabrication of magnetic memory.
The University of Toronto has agreed to use the magnetic memory facility in
connection with, among other things, research to be conducted pursuant to
collaborations between us and the University of Toronto.

Under the agreement, we were required to and did contribute
$249,463 in cash to fund the direct costs of the magnetic memory facility. The
contribution has been included as a research and development expense in the
consolidated statements of operations and deficit.

3. Communications and Information Technology Ontario:

On December 10, 2002, we entered into a two year Collaborative
Research Agreement with Communications and Information Technology Ontario, the
University of Toronto and Dr. Harry Ruda. For the first year, Communications and
Information Technology Ontario provided funding of $106,715 and we contributed
$31,875. For the second year, Communications and

30

---

Information Technology Ontario provided funding of $107,715
  and we provided funding of $31,875. We have further provided $67,632
  of in-kind contributions to the research collaboration.

4. Revised License Agreement, June 2005:

In June 2005, we signed a new license agreement with the University
  of Toronto and the Ontario Centres of Excellence whereby:

a. Ontario Centres of Excellence released us and the University
  of Toronto from the commercialization obligations set forth in all prior research
  collaboration agreements.

b. We acquired exclusive worldwide rights to the technology
  and any technology or patent rights under the agreement related to the MRAM
  technology developed at the University of Toronto.

c. We have agreed to royalties and payments as follows:

1.1 In consideration for the rights and licenses granted,
  we agreed to pay to the University of Toronto: a. 4% of Net Sales until such
  time as the University of Toronto has received from us an aggregate amount of
  CDN $500,000. b. 1% of Net Sales thereafter.

1.2 If we sublicense any rights granted herein to any non-affiliate:
  a. In combination or association, the University of Toronto shall receive 10%
  of any Net Fees and/or Net Royalties that shall be received by us in respect
  of any licenses involving both the rights granted herein and such our intellectual
  property;

b. For all other sublicenses of the rights granted herein
  to a non-affiliate, the University of Toronto shall receive 20% of any Net Fees
  and/or Net Royalties that shall be received by us in respect of such sublicenses;
  and

c. Net Fees and/or Net Royalties shall be paid to the University
  of Toronto until such time as it has received an aggregate amount of CDN $500,000;
  thereafter we shall pay half of the amounts set forth in 1.2 (a) or (b) as is
  applicable.

1.3 At any point after which we have paid the University of
  Toronto CDN $500,000, we may at our option buy out the obligation to pay
  royalties hereunder by paying to the University of Toronto a single lump sum
  payment equaling the greater of CDN $500,000 and an amount equal to the
  total amount of royalties paid by us to the University of Toronto in the preceeding
  twenty-four months. We are entitled to exercise such option by providing written
  notice to the University of Toronto along with the required payment, after which
  time our obligation to pay royalties under Section 4 1.1. or 4 1.2 shall be
  waived by the University of Toronto.

As a condition to entering the license agreement, we have
  agreed that we will enter into a further research agreement with a funding commitment
  of no less than CDN $500,000 to continue the further research and development
  of inventions and our intellectual property. In August 2005, we made an initial
  payment of $250,000 and, subsequent to October 31, 2005, we made the second
  payment of $250,000 under the terms of this further research agreement.

We believe that there are substantial market opportunities
  available to commercialize our technology in conjunction with strategic partners,
  and we are currently pursuing such opportunities. We plan to complete our research
  initiatives and enter into agreements with strategic partners so as to commercialize
  our Technology under licensing and other arrangements.

B.

Technology
  Development Agreement:

On March 14, 2001, our subsidiary, Pageant International,
  entered into a three-year technology development agreement with Estancia Limited
  and Mr. Lienau to continue the development of the technology. Under the terms
  of the agreement, Pageant International committed to pay Estancia Limited $215,000
  per year, payable on a monthly basis in arrears, and committed to incur expenditures
  in connection with development expenses of up to a maximum of $500,000 per
  agreement year.

On April 23, 2002, the technology development agreement was
  amended to extend its term for an additional eight-month period through November
  2004. The go-forward payments were renegotiated as $62,707 between the months
  of May and October 2002, $197,086 during fiscal 2003 and $143,330 during
  fiscal 2004.

31

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The development efforts under this agreement ceased in July 2002.
  We have reported approximately $287,000 in accounts payable and accrued liabilities
  with respect to this agreement as of October 31, 2005, as compared to $287,000
  at October 31, 2004.

C.

Operating leases:

We have operating lease commitments which expire in 2010 for
  the lease of our corporate headquarters. The future minimum annual lease payments
  are approximately as follows:

|2009  2010 (annually) | $113,000
|---------------------- | --------

D.

Consulting and
  employment contracts:

|1. | On May 29, 2005, we entered into a new employment agreement
        with the Chairman of the Board of Directors. The agreement commenced on
        January 1, 2005 and expires on September 30, 2009. Under the terms of
        the agreement, the Chairman of the Board of Directors has been retained
        to provide certain management services to us. We have agreed to provide
        compensation based on a percentage of the increase of the market capitalization
        on a year-over-year basis commencing as of December 31, 2005. This compensation
        is subject to a minimum annual amount of $150,000 Canadian funds or (approximately
        $158,000 U.S. funds at current exchange rates). At our option, we can
        pay either cash or issue common shares as compensation providing that
        the cumulative maximum number of shares that we can issue under the agreement
        is 2,000,000 common shares. At December 31, 2008, $416,171 of cash compensation
        for the 2008 fiscal year has been provided for (2007: $309,232).
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|2. | In January 2005, we entered into an employment agreement
        with an arm's length individual, Ms. Kuper, for her services as our Chief
        Technology Officer. The agreement extended for 2 years with a cancellation
        clause which could be executed by us at any time with 4 months notice.
        The base remuneration stipulated in the contract was $260,000 per year.
        We also granted Ms. Kuper 100,000 options to purchase our common shares
        exercisable at $0.68 per share which expired on December 31, 2005, 300,000
        options to purchase our common shares exercisable at $0.80 per share which
        expired on March 22, 2007 and 100,000 options to purchase our common share
        at $0.68 per share which option were exercised on May 2, 2008.                                                                                                                                                                                                                                                                           

In September 2006 we extended the employment agreement with Ms.
  Kuper for an additional two years commencing in January 2007 on the same terms,
  conditions and cancellation provisions as reflected in the original contract.
  Ms. Kuper was granted additional 200,000 stock options in August 2006 each option
  enabling her to purchase one common share for $0.80 and which were exercised
  in April 2008.

On November 18, 2007 we provided the required four months written
  notice to terminate the agreement without cause.

|3. | In May, 2008, we entered into employment agreement
        with:
|-- | ----------------------------------------------------------------
|   |                                                                 
|   | (a)                                                             
|   |                                                                 
|   | (b)                                                             
|   |                                                                 
|   | (c)                                                             

32

---

Contingencies:

|A. | We have agreed to indemnify our directors and officers
        and certain of our employees in accordance with our By-laws. We maintain
        insurance policies that may provide coverage against certain claims.                                                                                                                                                                                                                                                                               
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|B. | As outlined above, certain interests under the Asset
        Purchase Agreement with Estancia Limited reverted to Estancia Limited
        on March 9, 2004. On this basis, to the extent that revenues are generated
        by us relating directly and specifically to the VEMRAM patents, we are
        obligated to pay Estancia Limited 32% of the gross profit realized less
        expenses agreed to by the parties and 32% of any unit royalties realized
        less direct expenses.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|C. | Our former CTO, Ms. Cynthia Kuper, filed a claim against
        the Company in February 2008. This claim has since been dismissed. See
        Item 8- Financial Statements - Legal Proceedings on page 44 of this
        Annual Report report.                                                                                                                                                                                                                                                 

Translation of Foreign Currencies

Our functional and reporting currency is the United States
  dollar. Accounts recorded in foreign currency have been converted to United
  States dollars as follows:

Monetary assets and liabilities are translated at exchange
  rates at the consolidated balance sheet dates; 
  Non-monetary assets are translated using the historical rate of exchange in
  effect at the translation dates;
  Revenues and expenses are translated using the 3 month average rate of exchange
  per quarter, which rate approximates the rate of exchange prevailing at the
  transaction dates; and 
  Gains and losses resulting from the translation are included in the determination
  of net loss for the period.

C.

Research and
  Development

We are a development stage company. Research and development
  costs are expensed in the period incurred.

Our research and development activities have been related
  primarily to research and development of a magnetic random access memory device
  and the development of our magnetic sensor through research collaboration agreements.
  Our research and development expenses for the year ended October 31, 2008 were
  $1,063,508, were $682,331 for the year ended October 31, 2007, and were
  $368,969 for the year ended October 31, 2006.

D.

Trend Information

The digital memory industry and, more broadly, the semiconductor
  industry, have historically been characterized by wide fluctuations in demand
  for and supply of semiconductors and memory technologies. Prior experience has
  shown that restructuring of operations, resulting in significant restructuring
  charges, may become necessary if an industry downturn were to occur.

Our prospects for revenues are dependent upon the successful
  completion of our technology development and the incorporation of any technology
  that may be developed under or pursuant to our research collaboration agreements.

E.

Off-Balance
  Sheet Arrangements

We are not party to any material off-balance sheet arrangements.
  In addition, we have no unconsolidated special purpose financing or partnership
  entities.

F.

Tabular Disclosure
  of Contractual Obligations

A summary of our financial commitments as of October 31, 2008
  is as below:

33

---



Payments due by periodTotal
      Less
        than 1 year
      1-3
        years
      3-5
        years
      More
        than 5 yearsLong term debt obligations
      -
      -
      -
      -
      -Capital Lease obligations
      -
      -
      -
      -
      -Operating lease
        obligations
      226,000
      113,000
      113,000
      -
      -Purchase obligations
      -
      -
      -
      -
      -Management contracts• Chairman
      123,000
      123,000
      -
      -
      -• CFO
      189,000
      123,000
      62,000
      -
      -• President
      197,000
      131,000
      66,000• President
        MAST INC.
      450,000
      180,000
      270,000All other
      750,000
      750,000
      -
      -
      -Total:
      1,935,000
      1,310,000
      511,000
      -
      -


Transactions With Related Parties, Directors & Officers

The Company has paid cash and non-cash compensation to its officers
  and directors during the fiscal year as follows:

|                     |      | Cash         | Non-Cash    
|-------------------- | ---- | ------------ | ------------
|                     |      | Compensation | Compensation
|Chairman             | 2008 | $416,171     | $       -   
|                     | 2007 | 309,232      | -           
|                     | 2006 | 133,600      | 416,250     
|                     | 2005 | 133,600      | 659,000     
|Officers & Directors | 2008 | 825,748      | 637,835     
|                     | 2007 | 563,000      | 105,000     
|                     | 2006 | 611,000      | 1,165,000   
|                     | 2005 | 639,000      | 1,044,000   

34

---

ITEM 6.

DIRECTORS, SENIOR
  MANAGEMENT AND EMPLOYEES

A.

Directors and
  Executive Officers

The Directors, Executive Officers and other key personal of Micromem
  as at October 31, 2008 are set forth below:

|Name              | Age | Position                                       
|----------------- | --- | -----------------------------------------------
|                  |     |                                                
|Salvatore Fuda    | 73  | Chairman of the Board of Directors             
|Joseph Fuda       | 48  | President, Chief Executive Officer and Director
|Andrew Brandt     | 70  | Director                                       
|David Sharpless   | 58  | Director                                       
|Steven Van Fleet  | 54  | Director                                       
|Larry Blue        | 52  | Director                                       
|Dan Amadori       | 57  | Chief Financial Officer                        
|Oliver Nepomuceno | 40  | Director                                       
|Henry Dreifus     | 48  | Director                                       

Salvatore Fuda is and has served as Chairman of the Board
  of Directors of Micromem since January 11, 1999 and a Director of Micromem since
  1992. He served as President and Chief Executive Officer from June 2000 through
  to February 13, 2002. From 1992 to January 11, 1999 he also served as Secretary
  of Micromem. He served as President and Chief Executive Officer of Ontex Resources
  Limited (TSE) from 1986 to December 1998 and as Chairman of the Board of Ontex
  Resources Limited since that date. He has served as Chairman of the Board of
  Directors and as a director of Echo Energy Canada Inc. since June 2002. He also
  serves as Chairman of the Board of Leader Capital Corp. He is the father of
  Joseph Fuda.

Joseph Fuda is and has been President, Chief Executive
  Officer and Director since February 13, 2002. Previously he served as Manager
  of Strategic Alliances for Micromem since February 2001. Prior thereto, he served
  as a consultant to Micromem since November 2000. Prior thereto he served as
  a Vice-President and a Director of IPO Capital Corp since April 1999. He was
  a director of Leader Capital Corp. until June 2007 and currently also serves
  as a director of Echo Energy Canada Inc. and of Echo Power Generational Inc.

Andrew Brandt was Chairman of the Board of Directors and
  Chief Executive Officer of the Liquor Control Board of Ontario from February
  1991 to January 2006. The Liquor Control Board of Ontario is one of the largest
  single purchasers of alcohol beverage products in the world. Prior to his appointment
  to the Liquor Control Board of Ontario, Mr. Brandt served as Leader of the Ontario
  Progressive Conservative Party from 1987 to 1990. He has previously served as
  the Minister of Industry and Trade, Minister of Environment and Mayor of Sarnia,
  Ontario. Mr. Brandt has served as a director of Micromem since June 2000.

David Sharpless is Vice-Chairman of the Board of Directors
  of HKMB Hub International Limited (formerly Hunter, Keilty, Muntz & Beatty
  Limited), a Toronto-based property and casualty insurance broker. He was Chairman
  of the Board of Directors of Hunter, Keilty, Muntz & Beatty Limited prior
  to its purchase in January 2008 by Hub International Limited a Chicago-based
  property and casualty insurance broker. He also serves as Chairman of the Board
  of Directors of Maverick Inc., a family investment and consulting corporation.
  From 2000 to September 2001, he was President of CIT's Vendor Technology Finance
  unit. In this capacity, he was responsible for CIT's international vendor finance
  business, covering CIT's operations in Canada, Europe, Latin America, Asia Pacific
  and Australia. Prior thereto, Mr. Sharpless was Newcourt Credit Group Inc.'s
  Deputy Chairman of the Board of Directors and was responsible for international
  operations for Newcourt Financial. Mr. Sharpless is a graduate of Osgoode Hall
  Law School and is a member of the bar of Ontario. Mr. Sharpless has served as
  a director of Micromem since March 2001.

Steven Van Fleet currently serves as a technology consultant
  to a number of companies. He was the principal of the R&V Group LLC, an
  RFID business consulting and technology development company until 1996. Between
  1999-2003 he served as Program Director for the Silent Commerce/Smart Packaging
  Initiative at International Paper Company. From January 1999 to November 1999,
  he was Program Director for Process and Product Uniformity and from March 1996
  to December 1998 he was the Director for Control Systems Development at International
  Paper in Cincinnati, Ohio. He is also presently on the Board of Overseers for
  the Massachusetts Institute of Technology Auto ID Center. Mr. Van Fleet has
  been a director of Micromem since 2002.

35

---

Larry Blueis President of Hi-G-Tek Inc. a privately-held
  technology company based in Maryland. Previously he was the Vice President and
  General Manager of Symbol Technologies Inc. and was appointed to the Micromem
  Board of Directors on November 7, 2005. Previously Mr. Blue had senior management
  roles with Hughes Network Systems and with IBM in Research Triangle Park.

Dan Amadoriserved as Chief Financial Officer of Micromem
  since June 2004. He has also served as Chief Financial Officer of Leader Capital
  since June 2004. He served as a Director and Chair of the Audit Committee of
  Ontex Resources between September 2003 and March 2005. He served as CFO of Echo
  Power Generation Inc. from June 2004-March 2008. He served as a director of
  Hydrive Technologies Inc. from 2004-2008 and a Chair of the Audit Committee
  of Hydrive from 2006-2008. He is President of Lamerac Financial Corp., a financial
  advisory firm and has held that position since October 1988. Mr. Amadori is
  a Chartered Accountant and holds an MBA from the Ivey School of Business.

Oliver Nepomucenohas served as a director of Micromem
  since June 26, 2006. He is a resident of Switzerland and continues to serve
  as a Financial Advisor and as a member of the Board of Directors of Intel Trust,
  a private wealth management company located in Switzerland.

Henry Dreifus has served as a director of Micromem since
  March 12, 2008. Previously he was a consultant to Micromem from July 2007 
  March 2008. He is President and majority shareholder of Dreifus Associates Ltd.,
  a privately-held Orlando, Florida based consulting firm.

There are no arrangements or understandings between any director
  and any other person pursuant to which the director was selected as a director
  or executive officer. Each director holds office until the next annual meeting
  of shareholders or until his or her successor is elected or appointed, unless
  his or her office is earlier vacated according to the provisions of our By-laws
  or the

Business Corporations Act (Ontario).

Other than a father/son relationship between Salvatore Fuda (father)
  and Joseph Fuda (son), there is no family relationship between any director
  or executive officer and any other director or executive officer.

B.

Compensation

Annual Compensation
      Long-Term CompensationAwards
      PayoutsName and Principal Position
      Year
      Salary 
          (US$)
      Bonus 
        (US$)
      Other Annual Compensation 
        (US$)
      Securities Under Options Granted
        
        (#)
      Restricted Shares or Restricted
        Share Units 
        ($)
      Long Term Incentive Plan Payouts
        
        ($)
      All other Compensation 
        ($)Joseph Fuda 
        Chief Executive Officer 1
      2008 
        2007 
        2006
      131,000 
        72,000 
        65,000
      - 
        50,000 
        -
      - 
        - 
        -
      850,000 11
        900,000 8
      - 
        - 
        -
      - 
        - 
        -
      - 
        - 
        -Salvatore Fuda, 
        Chairman of the Board of Directors Former Chief Executive Officer and
        President 1
      2008 
        2007 
        2006
      461,944 
        - 
        -
      - 
        - 
        -
      - 
        - 
        -
      - 
        1,000,000 8
      - 
        - 
        -
      - 
        - 
        -
      - 
        309,000 
        133,000Manoj Pundit, 
        Executive Vice President and General Counsel 4
      2007 
        2006 
        2005
      - 
        - 
        -
      - 
        - 
        -
      - 
        - 
        -
      - 
        100,000 8
        -
      - 
        - 
        -
      - 
        - 
        -
      - 
        - 
        -


36

---



Andrew Brandt 
        Director
      2008 
        2007 
        2006
      - 
        - 
        -
      - 
        - 
        -
      - 
        - 
        -
      85,000 11
        - 
        300,000 8
      - 
        - 
        -
      - 
        - 
        -
      - 
        - 
        -Stephen Fleming 
        Director
      2005 
        2004 
        2003
      - 
        - 
        -
      - 
        - 
        -
      - 
        -
        -
      - 
        300,000 2
        300,000 3
      - 
        -
        -
      - 
        -
        -
      - 
        - 
        -Charles Harnick 
        Director
      2005 
        2004 
        2003
      - 
        - 
        -
      - 
        - 
        -
      - 
        - 
        -
      - 
        400,000 2
        400,000 3
      - 
        - 
        -
      - 
        - 
        -
      - 
        - 
        -George A Kennedy 
        Director
      2005 
        2004 
        2003
      - 
        - 
        -
      - 
        - 
        -
      - 
        - 
        -
      - 
        300,000 2
        300,000 3
      - 
        - 
        -
      - 
        - 
        -
      - 
        - 
        -David Sharpless 
        Director
      2008 
        2007 
        2006
      - 
        - 
        -
      - 
        - 
        -
      - 
        - 
        - 
        -
      75,000 12
        85,000 11
        - 
        300,000 8
      - 
        - 
        - 
        -
      - 
        - 
        - 
        -
      - 
        - 
        - 
        -Steven Van Fleet 
        Director
      2008 
        2007 
        2006
      140,728 
        30,000 
        86,000
      - 
        - 
        -
      - 
        - 
        - 
        -
      100,000 12
        500,000 11
        350,000 9
        300,000 8
      - 
        - 
        - 
        -
      - 
        - 
        - 
        -
      - 
        - 
        - 
        -Dan Amadori 
        Chief Financial Officer 6
      2008 
        2007 
        2006
      120,316 
        72,000 
        65,000
      - 
        50,000 
        -
      - 
        - 
        -
      100,000 11
        - 
        400,000 8
      - 
        - 
        -
      - 
        - 
        -
      - 
        - 
        -Cynthia Kuper 
        Acting Chief Technology Officer5
      2008 
        2007 
        2006
      97,000 
        260,000 
        260,000
      - 
        - 
        -
      - 
        - 
        -
      - 
        - 
        300,000 10
      - 
        - 
        -
      - 
        - 
        -
      - 
        - 
        -Antonio Lopes 
        Former Chief Financial Officer 6
      2005 
        2004 
        2003
      - 
        - 
        -
      - 
        - 
        -
      - 
        - 
        -
      - 
        - 
        300,000 3
      - 
        - 
        -
      - 
        - 
        -
      - 
        14,000 
        20,789Larry Blue 
        Director
      2008 
        2007 
        2006
      - 
        - 
        -
      - 
        - 
        -
      - 
        - 
        -
      75,000 12
        85,000 11
        300,000 8
        300,000 7
      - 
        - 
        -
      - 
        - 
        -
      - 
        - 
        -Henry Dreifus 
        Director
      2008
      300,11515
      -
      
      350,000 13
        200,000 14


37

---

Notes:

|1.  | Salvatore Fuda has served as our Chairman of the Board
        of Directors since January 11, 1999. He served as our President and Chief
        Executive Officer from June 2000 through to February 13, 2002. Joseph
        Fuda was appointed our Chief Executive Officer on February 13, 2002.                         
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.  | Each option entitles the holder to purchase one of our
        common shares at $0.30 prior to expiry on July 18, 2009 and is fully vested.                                                                                                                                                                                 
|3.  | Each option entitled the holder to purchase one of our
        common shares at $0.10. These options were exercised in 2004.                                                                                                                                                                                                
|4.  | Mr. Pundit previously served as our Executive Vice-President,
        General Counsel and Secretary.                                                                                                                                                                                                                        
|5.  | Ms. Kuper has served as our Chief Technology Officer
        since January 2005, and prior thereto served as acting Chief Technology
        Officer since September 2004.                                                                                                                                                  
|6.  | Mr. Lopes served as our Chief Financial Officer between
        November 1, 2002 and June 2004. Mr. Amadori has served as our Chief Financial
        Officer since June 29, 2004.                                                                                                                                          
|7.  | Each option entitles the holder to purchase one of our
        common shares at a price of $0.60 per share prior to expiry on November
        24, 2009.                                                                                                                                                                    
|8.  | Each option entitles the holder to purchase one of our
        common shares at a price of $0.80 per share prior to expiry on July 6,
        2011.                                                                                                                                                                         
|9.  | Each option entitles the holder to purchase one of our
        common shares at a price of $0.36 per share prior to April 15, 2012.                                                                                                                                                                                         
|10. | 200,000 options entitle the holder to purchase one of
        our common shares at a price of $0.80 per share, and 100,000 options at
        $0.68 per share. These options were exercised prior to expiry date.                                                                                                           
|11. | Each option entitles the holder to purchase one of our
        common shares at a price of $1.50 per share prior to expiry on August
        28, 2013. These options vest in equal quarterly amounts from August 2008
         May 2009.                                                                                   
|12. | Each option entitle the holder to purchase one of our
        common shares at a price of $1.01 per share prior to expiry on March 3,
        2013.                                                                                                                                                                         
|13. | Each option entitles the holder to purchase one of our
        common shares at a price of $1.12 per share prior to expiry on March 10,
        2013. 100,000 of these options vest in 4 equal quarterly amounts commencing
        in March 2009; the remaining 250,000 options vested upon issuance in March
        2008.
|14. | Each option entitles the holder to purchase one of our
        common shares at a price of $1.50 per share prior to expiry on August
        28, 2013. These options only vest when the Company reaches certain sales
        milestones. At October 31, 2008, none of these options have been vested.                      
|15. | These payments were made to Mr. Dreifus company
        Dreifus Associates Limited (DAL) for consulting services provided.                                                                                                                                                                                                 

38

---

Our Board of Directors compensation policy is as follows.
  Directors do not receive cash compensation for serving as directors. Instead
  they have been awarded stock options over the years. These options are set at
  each annual meeting and approved by the shareholders. None of the non-employee
  directors have agreements with us that provide for benefits upon termination
  of service.

We have adopted a stock option plan. Options are offered to
  directors, executive officers and employees to purchase our common shares at
  an exercise price equal to or above the market price for the common shares at
  the date that the options are granted. 5,300,000 options were granted during
  2003 and were exercised in 2004. In 2004, 7,150,000 options were granted and
  were outstanding at October 31, 2004. These options have vested and are exercisable
  at $0.30 per share. In 2005, 1,800,000 of these options were exercised and
  in 2006 3,550,000 of these options were exercised. In January 2007, 1,000,000
  of these options were exercised. In 2008, 600,000 of these options were exercised
  and at October 31, 2008, 200,000 remain outstanding.

120,000 options were granted in 2004 at an exercise price
  of $0.68. In 2005, 20,000 of these options were exercised and at December
  31, 2005 the remaining 100,000 options expired.

In 2005, we issued 2,500,000 options exercisable at $0.72,
  1,800,000 options exercisable at $0.65, 100,000 options exercisable at $0.91
  and 300,000 options exercisable at $0.80. These options are fully vested
  and expire in 5 years if unexercised. At October 31, 2008, 500,000 options have
  been exercised at $0.72, 620,000 options have been exercised at $0.65
  and 50,000 options have been exercised at $0.91.

In 2006 we issued 300,000 options at $0.60, 50,000 options
  at $0.72 and 4,600,000 options at $0.80. These options are fully vested
  and expire in 5 years if unexercised. At October 31, 2008, 300,000 options at
  $0.80 have been exercised.

In 2007, we issued 350,000 options to an outside director
  at a exercise price of $0.36 per share expiring in April 2012 if exercised.
  We issued 50,000 options to an employee at a exercise price of $0.50 per
  share expiring in May 2012 if exercised. We issued 225,000 options to employees
  and a consultant at a exercise price of $0.60 per share expiring in October
  2012 if exercised. These options remain outstanding at October 31, 2008. We
  also issued 150,000 options to a consulting firm in June 2007 at a exercise
  price of $0.70 per share. The original term was for 12 months but the Board
  of Directors extended the expiry date to November 2008. These options expired
  unexercised in November 2008.

In 2008, we issued 325,000 options at a exercise price of
  $1.01 per share to outside directors expiring in March 2013, if unexercised.
  We issued 20,000 options to consultants at a exercise price of $1.12 per
  share expiring in March 2013 if unexercised. We issued 50,000 options to a consultant
  at a price of $2.31 per share expiring in April 2009 if unexercised. We
  issued 350,000 options to a newly appointed director in March 2008 at a exercise
  price of 1.20 per share; of this total 275,000 vested upon issuance with the
  balance vesting in three equal amounts in the following three quarters; these
  options expire in March 2013, if unexercised.

In 2008, we issued 1,400,000 options to officers, directors
  and employees at a exercise price of $1.50 per share expiring in August
  2013 if unexercised. 200,000 of these options vest only when the Company realizes
  certain revenue milestones which have not been met at October 31, 2008. Of the
  balance of 1,200,000 options, these vest in four equal quarterly amounts of
  300,000 options per quarter commencing in August 2008.

None of the stock options awarded in 2008 have as yet been
  exercised.

C. Board of Directors Practices

Our Board of Directors meets as a full Board of Directors
  on an as required basis during the fiscal year. In 2008 our Board of Directors
  met on February 27, 2008, March 26, 2008, April 17, 2008, June 25, 2008 and
  October 30, 2008.

Our Audit Committee of the Board of Directors has met on a
  quarterly basis during fiscal 2008 for the purpose of approving the quarterly
  financial statements. In addition, our Audit Committee receives regular periodic
  reports from management.

All matters pertaining to our financing, contractual arrangements
  and Board of Directors and management compensation are approved by the Board
  of Directors. All Board of Directors meeting minutes and directors resolutions
  are maintained on an up-to-date basis.

Our Compensation Committee met on several occasions in 2008.
  Our Compensation Committee approves all management compensation and all stock
  option grants for recommendation to the Board of Directors.

39

---

Our Disclosure Committee met as required in 2008 to review
  our various press release disclosures and to monitor our general practices relating
  to our disclosure requirements

Our Audit Committee appointed one of its members, Andrew Brandt
  (who is also Chair of our Compensation Committee) to work directly with the
  Company's CFO, our outside counsel and independent counsel whom we engaged to
  oversee the Company's process of responding to the claims and allegations of
  SOX violations made by Ms. Cynthia Kuper. This matter was resolved in November
  2008 when Ms. Kuper retracted her allegations and the regulators dismissed the
  claims and allegations as unfounded.

The members of the Board of Directors are appointed to a one-year
  term at our annual meeting.

Audit Committee

The Board of Directors has appointed an Audit Committee consisting
  of three independent directors. The members of the Audit Committee are Andrew
  Brandt, Oliver Nepomuceno and David Sharpless (Chairman) each of whom shall
  serve in such capacity until its next annual meeting. The Audit Committee is
  responsible for the integrity of our internal accounting and control systems.
  The committee receives and reviews our financial statements and makes recommendations
  thereon to the Board of Directors prior to its approval by the full Board of
  Directors. The Audit Committee communicates directly with our external auditors
  in order to discuss audit and related matters whenever appropriate. In 2008
  the Audit Committee met December 17, 2007, February 15, 2008, February 27, 2008,
  March 26, 2008, June 17, 2008 and September 22, 2008.

Compensation Committee

The Board of Directors has appointed a Compensation Committee.
  Our executive compensation is administered by the Compensation Committee which
  meets on executive compensation matters as and when required. Our Compensation
  Committee includes Andy Brandt, an outside director as Chairman, Oliver Nepomuceno,
  an outside director and Henry Dreifus, a director. In 2008 the Compensation
  Committee met April 9, 2008, May 13, 2008, May 20,2008, July 3, 2008 and November
  12, 2008.

Disclosure Committee

In 2008, the Board of Directors has appointed a Disclosure
  Committee whose primary responsibility is to ensure timely and accurate disclosure
  of all relevant information in accordance with the various securities regulations.
  Our Disclosure Committee includes Larry Blue, an outside director, who serves
  as Chair, David Sharpless, an outside director (and Chair of our Audit Committee)
  and Jason Baun, the Companys Chief Information Officer.

Technical Advisory Committee

We formed a Technical Advisory Committee in July 2007 to provide
  guidance and leadership on the strategic development plans for our technology.
  Our Technical Advisory Committee includes Larry Blue, an outside director as
  Chair, Henry Dreifus, director and Steven Van Fleet, a director and the President
  of MAST INC., our wholly-owned subsidiary.

D. Employees

We have nine officers and employees of which four serve in
  a management capacity and five serve in an administrative capacity. This includes
  a Chairman of the Board of Directors, a Chief Executive Officer and President,
  a Chief Financial Officer, and the President of our wholly-owned subsidiary
  MAST INC., five four support staff, all (except for the President of MAST INC.)
  of whom work from our executive offices in Toronto, Canada. All research and
  development is outsourced to several different groups.

We consider our relations with our employees to be satisfactory.
  We had 8 employees as of October 31, 2008 and 2007.

40

---

D. Share Ownership

NAME
      SHARES OWED
      OPTIONS HELD
      OPTION EXERCISE PRICE
      EXPIRY DATE
      % OF TOTAL1Joseph Fuda 
        Chief Executive 
        Officer and Director
      191,500
      1,450,000 
        900,000 
        100,000
      $0.72 
        $0.80 
        $1.50
      5/27/2010 
        7/6/2011 
        08/28/2013
      3.18% 
        (2,641,500)Salvatore Fuda 
        Chairman of the Board of Directors and Director
      615,0002
      1,180,000 
        1,000,000
      $0.65 
        $0.80
      6/16/2009 
        7/6/2011
      3.36% 
        (2,795,000)Henry Dreifus 
        Director
      -
      250,000 
        100,000 
        200,000
      $1.20 
        $1.20 
        $1.50
      3/12/2013 
        03/12/2013 
        08/28/2013
      0.66% 
        (550,000)Andrew Brandt 
        Director
      110,000
      290,000 
        85,000
      $0.80 
        $1.50
      7/6/2011 
        08/28/2013
      0.58% 
        (485,000)David Sharpless 
        Director
      100,000
      300,000 
        75,000 
        85,000
      $0.80 
        $1.01 
        $1.50
      7/6/2011 
        03/03/2013 
        08/28/2013
      0.67% 
        (560,000)Steven Van Fleet 
        Director
      -
      350,000 
        300,000 
        300,000 
        100,000 
        500,000
      $0.36 
        $0.72 
        $0.80 
        $1.01 
        $1.50
      4/15/2012 
        5/27/2010 
        7/6/2011 
        03/03/2013 
        28/28/2013
      1.86% 
        (1,550,000)Dan Amadori 
        Chief Financial Officer
      326,801
      177,199 
        400,000 
        100,000
      $0.72 
        $0.80 
        $1.50
      5/27/2010 
        7/6/2011 
        08/28/2013
      1.21% 
        (1,004,000)Jason Baun 
        Investor Relations
      -
      50,000 
        50,000 
        200,000 
        100,000 
        15,000
      $0.91 
        $0.63 
        $0.80 
        $0.60 
        $1.50
      6/17/2009 
        12/2/2010 
        7/6/2011 
        10/25/2012 
        Aug/28/2013
      0.50% 
        (415,000)Larry Blue 
        Director
      -
      300,000 
        300,000 
        75,000 
        85,000
      $0.60 
        $0.80 
        $1.01 
        $1.50
      11/3/2009 
        7/6/2011 
        03/03/2013 
        08/28/2013
      0.91% 
        (760,000)Oliver Nepomuceno 
        Director
      953,572
      300,000 
        75,000 
        75,000
      $0.80 
        $1.01 
        $1.50
      7/6/2011 
        03/03/2013 
        08/28/2013
      1.69% 
        (1,403,572)Stephen Fleming 
        Director of Subsidiary
      200,000
      100,000
      $0.30
      7/18/2009
      0.36% 
        (300,000)




|1 | Calculated based on shares owned plus options held as
        a percentage total of shares outstanding plus options held.                        
|- | -------------------------------------------------------------------------------------------------------------------------------------------------
|2 | These shares are held by a corporation wholly owned
        by a trust established for the benefit of members of Salvatore Fuda's
        family.

ITEM 7.

MAJOR SHAREHOLDERS
  AND RELATED PARTY TRANSACTIONS

A.

Major Shareholders

No shareholder holds greater than 5% of the common shares outstanding.
  As of the date of this Annual Report approximately 73% of the issued and outstanding
  common shares are held by Canadian investors and approximately 27% of the issued
  and outstanding shares are held by U.S. investors.

41

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B.

Other Related
  Party Transactions

During the fiscal year ended October 31, 2007, we paid $15,000,
  as compared to $40,000 in 2006, to a law firm in which Manoj Pundit, an
  officer of the Company (until February 2008 when he resigned), is a partner.
  No payments were made in 2008.

In June 2008, we entered into a six-month agreement with Dreifus
  Associates Limited (DAL) whose major shareholder Henry Dreifus, is a Company
  director. DAL provides a wide range of technical and business development support
  to the Company. Our monthly cost under the agreement is approximately $40,000.
  In addition, we have granted Henry Dreifus 350,000 stock options at a exercise
  price of $1.20 per share in March 2008 coincident with his appointment as
  a Director of the Company. 275,000 of these options vested at issue date, the
  balance vests in three equal quarterly installments of 25,000 options commencing
  in June 2008. The expiry date for these options is March 2013. In August 2008,
  we issued 200,000 stock options to Henry Dreifus at our exercise price of $1.50
  per share expiring in August 2003 if unexercised. These options vest only when
  the Company has achieved certain revenue milestones

ITEM 8.

FINANCIAL
  INFORMATION

A.

Consolidated
  Statements

See Item 17  Financial Statements.

B.

Dividend Policy

We have never paid a dividend on our securities. We do not
  anticipate paying dividends in the foreseeable future.

C.

Significant
  Changes

There has been no significant change in our financial position
  since October 31, 2008.

D.

Legal Proceedings

The Company originally hired Cynthia Kuper as a consultant
  in mid 2004. The Company entered into an employment agreement with Ms. Kuper
  in January 2005 for a two year term. Under the terms of the employment agreement,
  either party could terminate the agreement without cause by providing four months
  written notice. In late 2006, the Company extended the original agreement, effective
  January 2007, for an additional two year term.

On November 18, 2007, the Company served Ms. Kuper with the
  required four months written notice to terminate the employment agreement without
  cause.

On February 19, 2008, the Company received, via regular mail,
  a letter from the U.S. Department of Labor, Occupational Safety and Health Administration
  (OSHA). In the letter, OSHA advised that Ms. Kuper was alleging
  discriminatory employment practices in violation of Section 806 of the Sarbanes-Oxley
  Act of 2002.

In the claim which Ms. Kuper submitted, she alleged that she
  discovered that the Company had violated certain rules and regulations of the
  Securities and Exchange Commission, that the Company had been unlawfully paying
  excessive compensation to certain executives, directors, officers and employees
  by engaging in a practice of awarding excess stock options. Additionally, Ms.
  Kuper claimed to have discovered that the granting of said stock options were
  intended to artificially inflate the agents market capitalization and
  mislead the public as to the true financial state of the Company.

In response, in February 2008 the Company vigorously denied
  Ms. Kupers claims and indicated that they were malicious and frivolous.
  It referred the matter to the Audit Committee and to the entire Board of Directors
  for full review and evaluation. The Company also engaged legal counsel to fully
  and appropriately deal with these allegations. The Company conducted a complete
  investigation with respect to Ms. Kupers performance during her tenure
  as Chief Technology Officer.

The Company initially agreed to mediate the dispute and a
  date was set for mediation. The Company decided, however, not to proceed with
  mediation and instead submitted, through counsel, a substantial position statement
  with supporting exhibits to OSHA in May 2008 in response to Ms. Kuper's claims.
  Ms. Kuper responded to the Companys position statement in June 2008 and
  the Company in turn submitted a further response to OSHA in July 2008.

42

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In August 2008 OSHA dismissed Ms. Kuper's claims as without foundation.
  Ms. Kuper appealed OSHAs ruling in August 2008. We continued to deal with
  OSHA through counsel and, in September 2008, counsel for Ms. Kuper initiated
  settlement discussions. In November we settled the matter and Ms. Kuper retracted
  her allegations. The matter has since been dismissed with prejudice to Ms. Kuper
  by OSHA.

The Company paid a total of $80,166, which consisted of $54,962
  made payable to Ms. Kuper and constituting the balance of funds due to her under
  the original notice terms of her contract, which we had previously put in trust
  with counsel, and $25,204 for fees and costs. These funds were released to Ms.
  Kupers counsel once her retraction letter was received by OSHA and once
  the matter was finally dismissed with prejudice to Ms. Kuper.

In total we incurred approximately $125,000 of legal fees in
  connection with dealing with these allegations. Ms. Kuper and the Company have
  now signed a mutual release with respect to any potential future claims or actions.

ITEM 9. THE OFFER AND LISTING

The table below sets forth the high and low sales prices for
  common shares in U.S. Dollars as reported for the periods specified. Our fiscal
  year ends October 31. Our common shares are not traded in Canada.

Our common shares are traded in the United States and are quoted
  on the NASD's OTC Bulletin Board. The common shares are quoted under the symbol
  MMTIF.OB.

|Period               | High | Low 
|-------------------- | ---- | ----
|                     |      |     
|Last six months:     |      |     
|February 2009        | 0.80 | 0.62
|January 2009         | 0.99 | 0.62
|December 2008        | 0.90 | 0.60
|November 2008        | 0.95 | 0.70
|October 2008         | 1.30 | 0.31
|September 2008       | 1.96 | 1.02
|August 2008          | 1.66 | 1.05
|Last eight quarters: |      |     
|Q1 2009              | 0.80 | 0.62
|Q4 2008              | 1.30 | 0.31
|Q3 2008              | 1.80 | 0.93
|Q2 2008              | 2.46 | 1.52
|Q1 2008              | 0.65 | 0.55
|Q4 2007              | 0.72 | 0.55
|Q3 2007              | 0.48 | 0.35
|Q2 2007              | 0.63 | 0.36
|Q1 2007              | 0.51 | 0.39
|Last five years:     |      |     
|2008                 | 2.60 | 0.31
|2007                 | 0.85 | 0.35
|2006                 | 1.33 | 0.43
|2005                 | 1.15 | 0.37
|2004                 | 1.17 | 0.15

On February 13, 2009, the last reported sale price for our common
  shares on the NASD OTC Bulletin Board was $0.75

43

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ITEM 10. ADDITIONAL INFORMATION

A. Share Capital

Our authorized capital consists of an unlimited number of
  common shares, of which 82,936,667 shares were issued and outstanding as of
  October 31, 2008, and 2,000,000 special, redeemable, voting preference shares,
  referred to herein as special shares, none of which were outstanding, as of
  October 31, 2008.

Additionally the Company has 10,930,000 stock options outstanding
  with a weighted average exercise price of $.85 (2007: 10,325,000 options
  outstanding with a weighted average exercise price of $.53) and a total
  of 637,128 outstanding warrants to acquire common shares with a weighted average
  exercise price of $1.04 (2007: 4,471,328 outstanding warrants with a weighted
  average exercise price of $.41).

B. Memorandum and Articles of Incorporation

Articles of Incorporation Incorporation Details and Objects of Micromem Technologies Inc.

Micromem Technologies Inc. was incorporated under the laws
  of the Province of Ontario, Canada, on October 21, 1985 as Mine Lake Minerals
  Inc. We subsequently changed our name to Avanti Capital Corp. by filing Articles
  of Incorporation of Amendment on June 23, 1988 and to AvantiCorp International
  Inc. on April 30, 1992 before becoming Micromem Technologies Inc. on January
  14, 1999. The Articles of Incorporation of Incorporation place no restrictions
  on the nature of the business to be carried on by Micromem.

Summary of Directors Powers and Authorities

The rights, duties, powers and authorities of our Board of
  Directors are set out in the Articles of Incorporation and By-laws and the statutory
  provisions of the Business Corporations Act (Ontario). The following
  is a selected summary of the Articles of Incorporation, By-laws and applicable
  provisions of the Business Corporations Act (Ontario) as they relate to selected
  rights, duties, powers and authorities of our Board of Directors.

The Articles of Incorporation provide for a minimum of three
  and a maximum of 12 directors. The Business Corporations Act (Ontario) prescribes
  that an offering corporation must have a minimum of three directors, a majority
  of whom are Canadian residents and at least one third of whom are not officers
  or employees of us or our affiliates. The Board of Directors may, between annual
  shareholders meetings, appoint one or more additional directors to serve until
  the next annual shareholders meeting provided that the number of directors so
  added may not exceed by one-third (1/3) the number of directors required to
  have been elected at the last annual meeting of shareholders.

The Chairman of the Board of Directors or any one director
  may call a meeting upon the provision of forty-eight hours notice to each director
  in the manner prescribed in our By-laws. Any such notice shall include the items
  of business to be considered at the meeting. A majority of the directors constitute
  a quorum provided that half of those directors present are Canadian residents.
  Business cannot be transacted without a quorum. A quorum of directors may vote
  on any matter of business properly brought before the meeting provided that
  where a director is a party to a material contract or proposed material contract
  or has a material interest in the matter to be considered, such director must
  disclose his or her interest at the earliest possible date, request the conflict
  be noted in the minutes of the meeting, and with a few limited exceptions enumerated
  in the By-laws, refrain from voting on the matter in which the director has
  a material interest. There is no limitation on the Board of Directors to vote
  on matters of their remuneration provided such remuneration is disclosed in
  the financial statements and annual shareholder proxy materials.

The Board of Directors has broad borrowing powers and may,
  without authorization from the shareholders:

- borrow money on the credit of Micromem;
- issue, re-issue, sell or pledge debt obligations of Micromem;
- subject to restrictions respecting financial assistance prescribed in the
    Business Corporations Act (Ontario), give a guarantee on behalf of Micromem
    to secure the performance of an obligation of any person; and
- mortgage, hypothecate, pledge or otherwise create a security interest in
    all or any property of Micromem, owned or subsequently acquired, to secure
    any obligation of Micromem.

44

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A person is qualified to be or stand for election as a director
  provided such person is at least 18 years of age, is not a bankrupt and is not
  found to be of unsound mind by a court in Canada or elsewhere. There is no requirement
  for a director to hold common shares.

Securities of Micromem

Holders of our common shares will be entitled to receive notice
  of, attend and vote at all meetings of the shareholders of Micromem. Each common
  share carries one vote at such meetings. In the event of the voluntary or involuntary
  liquidation, dissolution or winding-up of Micromem, after payment of all outstanding
  debts, the remaining assets of Micromem available for distribution will be distributed
  to the holders of our common shares. Dividends may be declared and paid on our
  common shares in such amounts and at such times as the directors shall determine
  in their discretion in accordance with the Business Corporations Act (Ontario).
  There are no pre-emptive rights, conversion rights, redemption provisions or
  sinking fund provisions attaching to the common shares. Common shares are not
  liable to further calls or to assessment by Micromem; provided, however, that
  pursuant to the provisions of the Business Corporations Act (Ontario), Micromem
  has a lien on any common share registered in the name of a shareholder or the
  shareholder's legal representative for a debt owed by the shareholder to Micromem.

Holders of special shares are entitled to receive notice of,
  attend and vote at all meetings of the shareholders of Micromem. Each special
  share carries one vote at such meetings. In the event of the voluntary or involuntary
  liquidation, dissolution or winding-up of Micromem, after payment of all outstanding
  debts, the holders of the special shares shall be entitled to receive, before
  any distribution of any part of the assets of Micromem among the holders of
  any other shares, the amount paid up on the special shares. The special shares
  are redeemable at the option of Micromem for the amount paid up on the shares.
  Dividends may not be declared or paid on the special shares and transfer of
  the Special Shares is restricted without the approval of the Directors of Micromem
  and the prior written consent of the Ontario Securities Commission. The number
  of special shares that may be issued and outstanding at any time is limited
  to 500,000. There are no pre-emptive rights, conversion rights or sinking fund
  provisions attaching to the special shares. Special shares are not liable to
  further calls or to assessment by Micromem; provided, however, that pursuant
  to the provisions of the Business Corporations Act (Ontario), Micromem has a
  lien on any special shares registered in the name of a shareholder or the shareholder's
  legal representative for a debt owed by the shareholder.

45

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Rights and Privileges of Shareholders

Only the registered holders of our common shares and special
  preference shares on the record date are entitled to receive notice of and vote
  at annual and special meetings of shareholders. Where the items of business
  affect the rights of shareholders other than the holders of common shares, a
  special majority of two-thirds of the votes cast by the affected shareholders
  at the meeting called for such purpose is required to approve the item of business.
  Beneficial holders of common shares and special shares are also entitled to
  receive proxy materials in respect of meetings of shareholders in accordance
  with Canadian Securities Administrators National Instrument 54-101, provided
  that such proxies are limited in scope to instructing the registered shareholder
  (usually a brokerage house) on how to vote on behalf of the beneficial shareholder.
  There are no restrictions on the number of shares that may be held by non-residents
  other than restrictions set out in the Investment Canada Act (Canada).
  See "Additional Information - D. Exchange Controls".

There are no provisions in the By-laws regarding public disclosure
  of individual shareholdings. Notwithstanding this, applicable Canadian securities
  legislation requires certain public disclosure of persons owning or acquiring
  common shares in excess of 10% of a corporation's issued and outstanding share
  capital.

C. Material Contracts

|1. | Equipment Transfer Agreement dated March
        1, 2003 (now expired), by and between Micromem and the Governing Council
        of the University of Toronto, pursuant to which we conveyed equipment
        having an estimated value of $200,000 (CDN $297,600) to the University
        of Toronto for incorporation into the University's magnetic memory facility
        for the research and development and fabrication of magnetic memory.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|2. | Collaborative Research Agreement dated December
        10, 2002 (now expired), by and among Micromem, Communications and Information
        Technology Ontario, the University of Toronto and Dr. Harry Ruda, Professor
        of Physics at the University of Toronto, pursuant to which:                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                        



|3. | Research Collaboration Agreement, dated
        October 24, 2002 (now expired), by and among Micromem, Materials and Manufacturing
        Ontario, the University of Toronto and Dr. Harry Ruda, Chair Professor
        in Nanotechnology, pursuant to which:
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                



|4. | A second two-year research collaboration
        agreement dated November 12, 2003 (now expired), by and among Materials
        and Manufacturing Ontario and the University of Toronto, pursuant to which:
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                             
|   | 1.                                                                                                                                                                                                          
|   |                                                                                                                                                                                                             
|   | 2.                                                                                                                                                                                                          

| |    |                                                                                                                                                                                                                                                               
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 3. | the combined cash contributions of we and Materials
        and Manufacturing Ontario, $230,060 (CDN $332,000), will be used to cover
        the operating expenses of the research collaboration over a term of two
        years;                          
| |    |                                                                                                                                                                                                                                                               
| | 4. | Materials and Manufacturing Ontario's funding of $117,800
        (CDN $170,000) (or $58,900 (CDN $85,000) per year) will be paid directly
        to the University of Toronto and therefore is not reflected in Micromem's
        financial statements; and
| |    |                                                                                                                                                                                                                                                               
| | 5. | Micromem maintains its ownership of its portfolio of
        patents and intellectual property that was developed prior to or outside
        the scope of the agreement.                                                                                     

46

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|5. | Asset Purchase Agreement, dated December 10,
        2000, by and among Micromem, Pageant International, Estancia Limited and
        Richard M. Lienau, pursuant to which:
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                            
|   |                                                                                                                                                                            
|   |                                                                                                                                                                            
|   |                                                                                                                                                                            



|6. | Technology Development Agreement, dated March
        9, 2001, as amended on April 23, 2002, by and among Pageant International,
        Estancia Limited and Richard M. Lienau, pursuant to which:
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                    
|   |                                                                                                                                                                                                    
|   |                                                                                                                                                                                                    
|   |                                                                                                                                                                                                    



|7. | Infrastructure Agreement by and between Micromem and
        the University of Toronto, dated November 1, 2002, pursuant to which Micromem
        agreed to provide funding to the University of Toronto in the amount of
        $249,463 (CDN $360,000) for the assembly of a magnetic memory facility
        to be used for research collaborations between Micromem and the University
        of Toronto.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|8. | Revised License Agreement between the University of
        Toronto, the Materials and Manufacturing Ontario and Communications and
        Information Technology Ontario as detailed above in Section 5 under the
        commentary on Commitments (point 4).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|9. | In January 2005, we entered into a consulting agreement
        with Cynthia Kuper for her services as Chief Technology Officer. The agreement
        extended for 2 years with a cancellation clause which could be executed
        by us at any time with 4 months notice provided. The base remuneration
        stipulated in the contract is $260,000 per year. We also granted the Chief
        Technology Officer certain stock options.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | In October 2005, the Company extended the consulting
        agreement for two more years commencing in January 2007 on the same terms,
        conditions and cancellation clauses. On November 18, 2007 the Company
        served Ms. Kuper with the required four months written notice of termination
        of her employment agreement. As discussed in the Risk Section of this
        report, on Page 11, Ms. Kuper filed a claim against the Company in February
        2008 citing wrongful dismissal and made a number of allegations against
        the Company. The Company vigorously denied Ms. Kupers claims which
        it considered malicious and groundless. As reported in this Annual Report,
        we have resolved the matter of our ex CTO's claims and allegations of
        SOX violations as reported last year. These claims were retracted by Ms.
        Kuper and the matter was ultimately dismissed by OSHA with prejudice to
        Ms. Kuper.

47

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|10. | On May 29, 2005, we entered into a new employment
        agreement with the Chairman of the Board of Directors. The agreement commenced
        on January 1, 2005 and expires on September 30, 2009. Under the terms
        of the agreement, the Chairman of the Board of Directors has been retained
        to provide certain management services to us. We have agreed to provide
        compensation based on a percentage of the increase of the market capitalization
        on a year-over-year basis commencing as of December 31, 2005 subject to
        a minimum annual compensation amount of $150,000 (Canadian funds 
        approximately $158,000 in U.S. funds at current exchange rates). At
        our option, we can pay either cash or issue common shares as compensation
        providing that the cumulative maximum number of shares that we can issue
        under the agreement is 2 million common shares. The Company has reported
        461,000 of costs associated with this contract in 2008, $309,000 in
        2007 and $133,600 in each of the 2005 and 2006 fiscal years.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|11. | In May 2007, we entered into a contract
        with Strategic Solutions a California based engineering consulting firm.
        The contract covered a term of one year and stipulated monthly payments
        of $16,000. Additionally, we issued 150,000 options to acquire common
        shares at a price of $0.70 per share with a one year term.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | In March 2008, we revised the terms of the
        contract with Strategic Solutions and assigned more responsibility and
        tasks to them. We stipulated monthly payments of $45,600 for a ten
        month period through December, 2008. In May 2008, we extended the expiry
        date on the 150,000 options granted previously to November 2008. These
        options expired unexercised in 2009. We continue to work with Strategic
        Solutions on a month to month basis.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|12. | In June 2008, we entered into a six-month
        agreement with Dreifus Associates Limited (DAL) whose major shareholder
        Henry Dreifus, is a Company director. DAL provides a wide range of technical
        and business development support to the Company. Our monthly cost under
        the contract is approximately $40,000. In addition, we have granted
        Henry Dreifus 350,000 stock options at a exercise price of $1.20 per
        share in March 2008 coincident with his appointment as a Director of the
        Company. 275,000 of these options vested at issue date, the balance vests
        in 3 equal quarterly installments of 25,000 options commencing in June
        2008. The expiry date for these options is March 2013. In August 2008,
        we issued 200,000 stock options to Henry Dreifus at our exercise price
        of $1.50 per share expiring in August 2013 if unexercised. These options
        vest only when the Company has achieved certain revenue milestones.                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|13. | In May 2008 the Company executed the following
        employment contracts with key officers:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | (a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | (b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | (c)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|14. | In September 2008, the Company entered into
        a 12 month agreement with the Investor Relations Group (IRG) of New York
        City. Under the terms of the contract, the Company pays a monthly amount
        of $13,500 in cash and issues 25,000 common shares to IRG monthly.
        The agreement can be terminated at any time with 30 days notice.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

48

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D.

Exchange Controls

As of the date hereof, we are not aware of any governmental
  laws, decrees or regulations in Canada that restrict the export or import of
  capital, including, but not limited to, foreign exchange controls, or that affect
  the remittance of dividends or other payments to nonresident holders of our
  common shares.

We are not aware of any limitations under the laws of Canada
  or the Province of Ontario, or in the Articles of Incorporation or any other
  of our constituent documents on the right of nonresidents of Canada or persons
  who are not Canadian citizens to hold and/or vote common shares.

E.

Taxation

Certain Canadian Income Tax Consequences

This discussion under this heading summarizes the principal
  Canadian federal income tax consequences of acquiring, holding and disposing
  of common shares for a shareholder who is not a resident of Canada but is a
  resident of the United States and who will acquire and hold a common share as
  capital property for the purposes of the Income Tax Canada, also referred to
  as the Canadian Tax Act. This summary does not apply to a shareholder who carries
  on business in Canada through a permanent establishment situated in Canada or
  performs independent personal services in Canada through a fixed base in Canada
  if the shareholder is effectively connected with such permanent establishment
  or fixed base. This summary is based on the provisions of the Canadian Tax Act
  and the regulations thereunder and on an understanding of the administrative
  practices of Canada Customs & Revenue Agency, and takes into account all
  specific proposals to amend the Canadian Tax Act or regulations made by the
  Minister of Finance of Canada as of the date hereof. It has been assumed that
  there will be no other relevant amendments of any governing law although no
  assurance can be given in this respect. This discussion is general only and
  is not a substitute for independent advice from a shareholder's own Canadian
  and US tax advisors.

The provisions of the Canadian Tax Act are subject to income
  tax treaties to which Canada is a party, including the Canada-United States
  Income Tax Convention (1980), as amended.

Dividends on common shares and Other Income

Under the Canadian Tax Act, a non-resident of Canada is generally
  subject to Canadian withholding tax at the rate of 25 percent on dividends paid
  or deemed to have been paid to him or her by a corporation resident in Canada.
  We are responsible for the withholding of tax at the source. The Canada-United
  States Income Tax Convention (1980) limits the rate to 15 percent if the shareholder
  is a resident of the United States and the dividends are beneficially owned
  by and paid to such shareholder, and to 5 percent if the shareholder is also
  a corporation that beneficially owns at least 10 percent of the voting stock
  of the payor corporation.

The amount of a stock dividend (for tax purposes) would generally
  be equal to the amount of our paid up or stated capital and increased by reason
  of the payment of such dividend. We will furnish additional tax information
  to shareholders in the event of such a dividend. Interest paid or deemed to
  be paid on our debt securities held by non-Canadian residents may also be subject
  to Canadian withholding tax, depending upon the terms and provisions of such
  securities and any applicable tax treaty.

The Canada-United States Income Tax Convention (1980) generally
  exempts from Canadian income tax dividends paid to a religious, scientific,
  literary, educational or charitable organization or to an organization constituted
  and operated exclusively to administer a pension, retirement or employee benefit
  fund or plan, if the organization is a resident of the United States and is
  exempt from income tax under the laws of the United States.

Dispositions of Common Shares

Under the Canadian Tax Act, a non-resident of Canada is subject
  to Canadian tax on taxable capital gains, and may deduct allowable capital losses,
  realized on a disposition of "taxable Canadian property". common shares will
  constitute taxable Canadian property of a shareholder at a particular time if
  the shareholder used the shares in carrying on business in Canada, or if at
  any time in the five years immediately preceding the disposition 25 percent
  or more of the issued shares of any class or series in the capital stock of
  Micromem belonged to one or more persons in a group comprising the shareholder
  and persons with whom the shareholder did not deal at "arm's length and
  in certain other circumstances.

The Canada-United States Income Tax Convention (1980) relieves
  United States residents from liability for Canadian tax on capital gains derived
  on a disposition of shares unless: the value of the shares is derived principally
  from "real property" in Canada, including the right to explore for or exploit
  natural resources and rights to amounts computed by reference to production,
  the shareholder was resident in Canada for 120 months during any period of 20
  consecutive years preceding, a and at anytime during the 10 years immediately
  preceding, the disposition and the shares were owned by them when they ceased
  to be resident in Canada, or the shares formed part of the business property
  of a "permanent establishment" that the holder has or had in Canada within the
  12 months preceding the disposition.

49

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Certain United States Federal Income Tax Consequences

The following is a general summary of certain United States
  federal income tax consequences, under current law, generally applicable to
  a US Holder (as defined below). This summary does not address all potentially
  relevant United States federal income tax matters and it does not address consequences
  peculiar to persons subject to special provisions of United States federal income
  tax law, such as those described below as excluded from the definition of a
  US Holder. United States alternative minimum tax considerations are not addressed
  in this summary. In addition, this summary does not cover any state, local or
  foreign tax consequences, nor any U.S. federal gift, estate or generation-skipping
  transfer tax consequences. (Certain, but not all, foreign tax consequences are
  described above under Taxation - Certain Canadian Income Tax Consequences.)

The following summary is based upon the Internal Revenue Code
  of 1986, as amended (the Code), Treasury Regulations, published
  Internal Revenue Service (IRS) rulings, published administrative
  positions of the IRS, and court decisions that are currently applicable, any
  of which could be materially and adversely changed, possibly on a retroactive
  basis, at any time. This summary does not consider the potential effects, both
  adverse and beneficial, of any recently proposed legislation which, if enacted,
  could be applied (possibly on a retroactive basis) at any time (including, without
  limitation, changes in applicable tax rates).

This summary is for general information only and it is not
  intended to be, nor should it be construed to be, legal or tax advice to any
  holder or prospective holder of common shares, and no opinion or representation
  with respect to the United States federal income tax consequences to any such
  holder or prospective holder is made. Accordingly, holders and prospective holders
  of common shares should consult their own tax advisors about the federal, state,
  local, and foreign tax consequences of purchasing, owning and disposing of common
  shares of the Company.

CIRCULAR 230 DISCLOSURE

ANY TAX STATEMENT MADE HEREIN REGARDING ANY U.S. FEDERAL
  TAX IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY ANY TAXPAYER
  FOR PURPOSES OF AVOIDING ANY PENALTIES. ANY SUCH STATEMENT HEREIN IS WRITTEN
  IN CONNECTION WITH THE MARKETING OR PROMOTION OF THE TRANSACTION TO WHICH THE
  STATEMENT RELATES. EACH TAXPAYER SHOULD SEEK ADVICE BASED ON THE TAXPAYERS
  PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR.

US Holders

As used herein, a US Holder means an owner of
  common shares who is a citizen or individual resident (as defined under United
  States tax laws) of the United States; a corporation or other entity taxable
  as a corporation created or organized in or under the laws of the United States
  or of any political subdivision thereof; an estate the income of which is taxable
  in the United States irrespective of source; or a trust if (a) a court within
  the United States is able to exercise primary supervision over the trust's administration
  and one or more United States persons have the authority to control all of the
  substantial decisions of the trust or (b) the trust was in existence on August
  20, 1996 and has properly elected to continue to be treated as a United States
  person. This summary does not address the tax consequences to, and US
  Holder does not include, tax-exempt persons or organizations; qualified
  retirement plans, individual retirement accounts and other tax-deferred accounts;
  financial institutions; insurance companies; real estate investment trusts;
  regulated investment companies; entities subject to the U.S. corporate conversion
  rules; broker-dealers; U.S. tax expatriates; non-resident alien individuals
  or entities; persons or entities that have a functional currency
  other than the US dollar; persons who hold common shares as part of a straddle,
  hedging or conversion transaction; and persons who acquire their common shares
  as compensation for services. This summary is limited to US Holders who own
  common shares as capital assets and who hold the common shares directly (e.g.,
  not through an intermediary entity such as a corporation, partnership, LLC or
  trust). This summary does not address the consequences to a person or entity
  of the ownership, exercise or disposition of any options, warrants or other
  rights to acquire common shares.

50

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Distributions to US Holders Who Own Common Shares

Subject to the discussion below concerning the potential status
  of the Company (or any of its subsidiaries that are classified as corporations
  for United States federal income tax purposes (Related Entities))
  as a passive foreign investment company (PFIC), the
  gross amount of any distribution by the Company (including any Canadian taxes
  withheld therefrom) with respect to common shares generally should be included
  in the gross income of a US Holder as foreign source dividend income to the
  extent such distribution is paid out of current or accumulated earnings and
  profits of the Company, as determined under United States federal income tax
  principles. To the extent that the amount of any distribution exceeds the Company's
  current and accumulated earnings and profits in that taxable year, the distribution
  is treated as a tax-free return of capital to the extent of the US Holder's
  adjusted tax basis in the common shares. Thereafter, to the extent that such
  distribution exceeds the US Holder's adjusted tax basis in the common shares,
  it is taxed as a capital gain.

Dividends received by non-corporate US Holders may be subject
  to United States federal income tax at lower rates (generally 15%) than other
  types of ordinary income in taxable years beginning on or before December 31,
  2010, if certain conditions are met. These conditions include neither the Company
  nor a Related Entity being classified as a PFIC (discussed below), the Company
  being a qualified foreign corporation, the US Holder's satisfaction
  of a holding period requirement, and the US Holder not treating the distribution
  as investment income for purposes of the investment interest deduction
  rules.

In the case of US Holders that are corporations, distributions
  from the Company generally are not eligible for the dividends received deduction.

Dispositions of Common Shares of the Company

Subject to the discussion below regarding PFICs, gain or loss,
  if any, realized by a US Holder on the sale or other disposition of common shares
  generally is subject to United States federal income taxation as capital gain
  or loss in an amount equal to the difference between the US Holder's adjusted
  tax basis in the common shares and the amount realized on the disposition. Net
  capital gain (i.e., capital gain in excess of capital loss) recognized by a
  non-corporate US Holder upon a sale or other disposition of common shares that
  have been held for more than one year is generally subject to a maximum United
  States federal income tax rate of 15%, under present law. Deductions for capital
  losses are subject to limitations.

US Anti-Deferral Regimes

There are two regimes applicable to foreign corporations under
  United States federal income tax law that potentially may apply to the Company
  - the controlled foreign corporation (CFC) regime and
  the PFIC regime.

Generally, a foreign corporation is not a CFC unless more
  than fifty percent (by vote or value) of its stock is owned by U.S. Shareholders
  (generally, United States persons who have ten percent or more of the votes
  of the foreign corporation). This classification generally results in the inclusion
  of certain income of the CFC in the U.S. Shareholders' income as a deemed dividend.
  If the Company were a CFC, the United States federal tax consequences summarized
  herein could be materially and adversely different.

PFIC status is not conditioned on a certain level of ownership
  of the foreign corporation by United States persons, however. The Company or
  any Related Entity would be considered a PFIC if during any taxable year, 75%
  or more of its gross income consists of certain types of passive
  income, or if the average value during a taxable year of its passive assets
  (generally, assets that generate passive income) is 50% or more of the average
  value of all assets held by it. Passive income generally includes items such
  as dividends, interest, rents and royalties, although there are various look
  through rules that treat dividends from related persons, for example,
  as non-passive under certain conditions.

If the Company is classified as a PFIC, a US Holder is subject
  to increased United States federal income tax liability in respect of gain recognized
  on the disposition of his, her or its common shares or upon the receipt of certain
  distributions, unless such person makes a qualified electing fund
  election to be taxed currently on his, or her or its pro rata portion
  of the Company's income and gain (whether or not such income or gain is distributed
  in the form of dividends or otherwise), and the Company provides certain annual
  statements which include the information necessary to determine inclusions and
  assure compliance with the PFIC rules. As an alternative to the foregoing rules,
  a US Holder may make a mark-to-market election to include in income
  each year as ordinary income an amount equal to the increase in value of his,
  her or its common shares for that year or to claim a deduction for any decrease
  in value (but only to the extent of previous mark-to-market gains).

51

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The CFC and PFIC rules are very complex. The Company offers
  no opinion or representations as to its status as a CFC or PFIC for the current
  or any prior or future tax years. US Holders should consult their own U.S. tax
  advisors with respect to the CFC and PFIC issues and their applicability to
  such Holders particular situation.

Foreign Tax Credit

A US Holder who pays (or has withheld from distributions)
  Canadian income tax with respect to the ownership or disposition of the common
  shares may be entitled, at the option of the US Holder, to either a deduction
  or a tax credit for such foreign tax paid or withheld. Generally, it will be
  more advantageous to claim a credit because a credit reduces United States Federal
  income taxes on a dollar-for-dollar basis, while a deduction merely reduces
  the taxpayers income subject to tax. This election is made on a year-by-year
  basis and applies to all foreign taxes paid by (or withheld from) the US Holder
  during that year.

There are significant and complex limitations that apply to
  the credit, among which is the general limitation that the credit cannot exceed
  the proportionate share of the US Holders United States Federal income
  tax liability that the US Holder's foreign source income bears to his or its
  worldwide taxable income. In the determination of the application of this limitation,
  the various items of income and deduction must be classified into foreign and
  domestic sources. Complex rules govern this classification process. In addition,
  this limitation is calculated separately with respect to specific baskets
  of income. Foreign taxes assigned to a particular basket generally cannot offset
  United States tax on income assigned to another basket. Unused foreign tax credits
  can generally be carried back one year and carried forward ten years. The
  availability of the foreign tax credit and the application of the limitations
  on the credit are fact specific and US Holders should consult their own U.S.
  tax advisors regarding their ability to utilize foreign tax credits in light
  of their individual circumstances.

Currency Fluctuations

For United States federal income tax purposes, the amount
  received by a US Holder as payment with respect to a distribution on, or disposition
  of common shares, if paid in Canadian dollars, is the US dollar value at the
  date of the payment, regardless of whether the payment is later converted into
  US dollars. In such case, the US Holder may recognize additional ordinary income
  or loss as a result of currency fluctuations between the date on which the payment
  is made and the date the payment is converted into US dollars.

F. Dividends and Paying Agents

Not applicable.

G. Statement by Experts

Not Applicable.

H. Documents on Display

We have filed the documents referred to herein and other information
  with the SEC, the Ontario Securities Commission and the Alberta Securities Commission.
  You may inspect and copy such material at the public reference facilities maintained
  by the SEC 100 Fifth Street, N.E., Washington, D.C. 20549. You may also obtain
  copies of such material from the SEC at prescribed rates by writing to the Public
  Reference Section of the SEC, 100 Fifth Street, N.E., Washington, D.C. 20549.
  Please call the SEC at 1-800-SEC-0330 for further information on the public
  reference rooms.

The SEC maintains an Internet website at www.sec.gov
  that contains reports, proxy statements, information statements and other material
  that are filed through the SEC's Electronic Data Gathering, Analysis and Retrieval
  (EDGAR) system. Documents filed with the Ontario Securities Commission
  and the Alberta Securities Commission can be accessed through an Internet website
  at www.sedar.com that contains reports,
  proxy statements, information statements and other material that are filed through
  the System for Electronic Document Analysis and Retrieval (SEDAR).

Additional information is also available on our website at
  www.micromeminc.com. Such information on
  our website is not part of this Form 20-F.

I. Subsidiary Information

Not Applicable.

52

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ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES
  ABOUT MARKET RISK

Not Applicable.

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY
  SECURITIES

Not Applicable.

PART II

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

Not Applicable.

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF
  SECURITY HOLDERS AND USE OF PROCEEDS

Not Applicable.

ITEM 15. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures 
  Our management, with the participation of our Chief Executive Officer and Chief
  Financial Officer, evaluated the effectiveness of our disclosure controls and
  procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
  Exchange Act of 1934, as amended, referred to herein as the Exchange Act) as
  of October 31, 2008. Based on management's evaluation in 2008, our Chief Executive
  Officer and Chief Financial Officer concluded that, as of October 31, 2008,
  except as set forth below, our disclosure controls and procedures were effective
  in that they were designed to ensure that material information relating to us
  is made known to our Chief Executive Officer and Chief Financial Officer by
  others within our organization, as appropriate to allow timely decisions regarding
  required disclosures, and effective, in that they did ensure that information
  required to be disclosed by us in our reports that we file or submit under the
  Exchange Act is recorded, processed, summarized and reported within the time
  periods specified in the SEC's rules and forms.

Managements Annual Report on Internal Control Over
  Financial Reporting 
  Pursuant to the Sarbanes Oxley Act of 2002, the Company became an "accelerated
  filer" in 2008 and this resulted in the Company having to prepare managements
  report on internal control over financial reporting ("Report") and to have our
  external auditors prepare an attestation report (the Attestation Report).
  The Attestation Report is set forth below.

In the 2005 fiscal year, the Company engaged an independent
  accounting firm to complete a "Level 1" review of the Companys internal
  control procedures. This review served to provide an in-depth description of
  our overall procedures and policies relating to our internal financial and operational
  controls. Between 2005-2007 management has updated that analysis as part of
  our annual financial statement audit. In prior years our auditors have identified
  certain weaknesses in our internal controls and, as required, we have reported
  these as part of our Annual Reports on Form 20-F filed with the SEC.

In 2008 we engaged the same firm of independent accountants
  to complete an update of their 2005 report and to conduct a "Level 2" review
  of our procedures and controls. This review included documentation and testing
  of existing procedures to determine their effectiveness and to assess whether
  "Material Weaknesses" existed in these procedures and controls. The recommendations
  and conclusions put forward by the independent accountants were in accordance
  with the Committee of Sponsoring Organizations (COSO) report which is the most
  commonly used framework for evaluating internal controls.

The Attestation Report submitted by the independent accountants
  cited two Material Weaknesses as of the final report date of November 10, 2008
  and these are discussed below along with managements comments on compensatory
  procedures that it has in place to mitigate the risks associated with these
  Material Weaknesses:

Material Weakness #1: The Company does not have a formal schedule
  of authority for approval of various expenditures based on the nature of the
  transaction.

53

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Independent Accountants recommendations: Create the formal
  schedule of authority providing financial and non-financial limits and list
  all individuals who have authority to approve transactions in contract management,
  travel and entertainment, purchases/payables/payments, investments/cash management,
  and sales/receivables/receipts.

Management's response:

| | (a) | We have engaged an outside human relations firm to provide
        detailed job descriptions for all employees (October 2008).                                                                                                                                          
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                         
| | (b) | We have assigned exclusive responsibility to the Compensation
        Committee of the Board of Directors to approve all forms of compensation
        for officers, directors and employees based on the recommendation of senior
        management.                  
| |     |                                                                                                                                                                                                                                                                         
| | (c) | All material contracts that are negotiated by management
        with outside service providers are reviewed by our Audit Committee and
        reported to the Board of Directors.                                                                                     
| |     |                                                                                                                                                                                                                                                                         
| | (d) | Accounts payable and cash management are monitored /
        managed on a daily basis by the Controller, the Office Manager, the CFO
        and the Companys President given the traditionally weak working
        capital position that the Company has encountered.
| |     |                                                                                                                                                                                                                                                                         
| | (e) | The improvements that the Company intends to introduce
        in 2009 include:                                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                         
| | (f) | Adoption by the Board of Directors of a formal set of
        guidelines for travel and entertainment expenses.                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                         
| | (g) | Codification of approval levels for various expenditures
        by members of the management team including those expenditures that will
        require Audit Committee approvals.                                                                                    
| |     |                                                                                                                                                                                                                                                                         
| | (h) | Codification of policies with respect to securing third
        party contractual services  legal, accounting, insurance, other
        consulting and product development services.                                                                                   
| |     |                                                                                                                                                                                                                                                                         
| | (i) | Preparation of detailed projected annual cash flow models
        with periodic updates for actual results.                                                                                                                                                             

Material Weakness #2: There is inadequate segregation of duties
  in the travel and entertainment payment cycle, in the payables, purchases and
  cash cycle and in the approval of related party cross charges for common overhead
  expenses.

Accountants recommendations: More effective segregation
  of the duties relating to handling of cheques, posting of payments and posting
  of invoices; CFO to approve travel and entertainment expenses of all senior
  management; transfer of certain cheque signing authorities and reassignment
  of certain accounting responsibilities amongst the accounting staff.

Management's response:

Notwithstanding these control weaknesses as cited, management
  notes that the periodic financial statements are scrutinized on a line by line
  basis by the CFO who in turn reports to the Audit Committee. The Audit Committee
  conducts a regular and extensive review of the Companys financial reports.
  In turn, as appropriate the Chair of the Audit Committee reports to the Board
  of Directors.

In 2009 we will implement the following:

| | (a) | We are developing a formal travel and entertainment
        policy for Board review and approval.                                                          
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                            
| | (b) | We are assessing the best means and methods of reallocating
        certain job responsibilities within the accounting department and office
        staff.

Subsequent to the completion of the report by the independent
  accountants, we began our preparation for the year-end audit conducted by our
  external auditors. This process began in late November with audit fieldwork
  commencing in December 2008.

54

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During the course of the audit, our external auditors and our
  CFO reviewed all of our year-end financial reporting procedures and an additional
  Material Weakness was identified as discussed below.

Material Weakness #3: The Company does not affect a timely and
  complete close of its year-end financial statements prior to the commencement
  of the year-end external audit. The related risk is that there could be reporting
  errors that could be undetected by management.

Examples of this Material Weakness noted during the course of
  the year-end audit include:

| | (a) | management processed a series of journal entries over
        the course of the audit to finalize the financial statements;                                                                                                                                                                                                                                      
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                  
| | (b) | internal documentation with respect to certain share
        capital transactions was incomplete and required revision; and                                                                                                                                                                                                                                      
| |     |                                                                                                                                                                                                                                                                                                                                                                  
| | (c) | management revised certain accounting measurements at
        year-end based on the work completed at that time. These revisions related
        to the application of the Black Scholes option pricing model, additionally,
        there were cutoff issues which management identified at year-end and addressed
        as part of their year-end procedures.

Management's response:

| | (a) | We conducted an exhaustive review of our financial statement
        accounts at year-end, augmenting the detailed analysis which we complete
        on a quarterly basis. This process served to capture all required year-
        end adjusting entries; we note that our external auditors have not proposed
        any adjustments to our financial statements at year-end.                                                                        
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | (b) | Management notes the complexity of certain elements
        of its financial statement reporting including consolidation, income taxes,
        share capital, stock compensation expense and related party transactions.
        In each case management notes that the existing internal procedures and
        reporting practices result in the production of very detailed (in some
        cases, line by line) account analyses and reconciliation.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | (c) | In 2009 we will codify a quarterly and year-end set
        of financial reporting procedures and assign responsibilities to specific
        individuals for their execution.                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | (d) | In 2009 we are planning to introduce the equivalent
        of periodic internal audit procedures relating to key risk areas to augment
        existing control procedures.                                                                                                                                                                                                                                                                              

Management and the Board of Directors, primarily through the
  Audit Committee, have instituted rigorous review procedures on all of our periodic
  filings with the SEC and other securities regulators. We have established a
  Disclosure Committee consisting of outside directors (Messrs. Larry Blue and
  David Sharpless) and our Chief Information Officer (Jason Baun). A charter for
  the Disclosure Committee and a Policy have been developed and have been ratified
  by our Board of Directors. We engage legal counsel and our external investor
  relations consultants, IRG, to provide guidance, commentary on all of our press
  release.

Management's Conclusions

| | (a) | Management acknowledges the material control weaknesses
        cited by the independent accountants during their review and by the external
        auditors in conducting their year-end audit work.                                           
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                  
| | (b) | The work completed by the Companys accounting
        staff as then reviewed by the Companys CFO provides assurance that
        there are no material errors or unrecorded adjustments in the Companys
        year-end financial statements.
| |     |                                                                                                                                                                                                                                                  
| | (c) | Compensating procedures and controls are in place so
        as to mitigate the Material Weaknesses cited in this report.                                                                                                                        

| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (d) | Management has identified improvements that it plans
        to introduce in 2009 which will strengthen our internal controls with
        the objective of eliminating the Material Weaknesses cited.                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | (e) | Management has concluded that our disclosure controls
        and procedures meet required standards. These disclosure controls and
        procedures are designed to provide reasonable assurance that information
        required to be disclosed in its various reports are recorded, processed,
        summarized and reported accurately. In spite of its evaluation, management
        does recognize that any controls and procedures, no matter how well designed
        and operated, can only provide reasonable assurance and not absolute assurance
        of achieving the desired control objectives.

55

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Attestation Report of the Registered Public Accounting Firm



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 
ON INTERNAL CONTROL OVER FINANCIAL REPORTING

To the Shareholders of 
Micromem Technologies Inc. 
(A Development Stage Company)

We have audited Micromem Technologies Incs (the "Company")
internal control over financial reporting as of October 31, 2008, based on
criteria established in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (the COSO
criteria). Micromem Technologies Inc.s management is responsible for
maintaining effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over financial reporting
included in the accompanying Report of Management on Internal Control Over
Financial Reporting. Our responsibility is to express an opinion on the
Companys internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of
the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in
all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness
exists, testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audit also included performing
such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.

A Companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles. A
Companys internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the
assets of the Company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and
expenditures of the Company are being made only in
accordance with authorizations of management and directors of the Company; and
(3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the Companys assets that could
have a material effect on the financial statements.

1167 Caledonia Road 
      Toronto, Ontario M6A 2X1 
      Tel: 416 785 5353 
      Fax: 416 785 5663


---

Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Micromem Technologies Inc did not maintain,
in all material respects, effective internal control over financial reporting as
of October 31, 2008, based on the COSO criteria, as indicated by the three
material weaknesses identified and discussed below.

A material weakness is a deficiency, or a combination of
deficiencies, in internal control over financial reporting, such that there is a
reasonable possibility that a material misstatement of the Company's annual or
interim financial statements will not be prevented or detected on a timely
basis.

We have identified the following material weaknesses:

- 





All of which have been described in managements assessment.

We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the consolidated
balance sheets of Micromem Technologies Inc. and subsidiaries as of October 31,
2008 and 2007, and the related consolidated statements of operations,
comprehensive loss and deficit and cash flows for each of the years in the
three-year period ended October 31, 2008, and our report dated February 16,
2009, expressed an unqualified opinion thereon.



|                  | /s/ SCHWARTZ LEVITSKY FELDMAN LLP
|----------------- | ---------------------------------
|                  | SCHWARTZ LEVITSKY FELDMAN LLP    
|Toronto Ontario   | Chartered Accountants            
|February 16, 2009 | Licensed Public Accountants      



| | 1167 Caledonia Road 
    Toronto, Ontario M6A 2X1 
    Tel: 416 785 5353 
    Fax: 416 785 5663
| | -----------------------------------------------------------------------------------------------

---

Changes in Internal Control Over Financial ReportingOther then as stated above, no other changes in our internal controls over
  financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange
  Act, occurred during the fiscal year ended October 31, 2008 that has materially
  affected or is reasonable likely to materially affect, our internal controls
  over financial reporting.

Item 15T. Controls and Procedures

Not applicable

Item 16. (Reserved)

Not Applicable.

Item 16A. Audit Committee Financial Expert

Our Board of Directors has determined that a member of the Board
  of Directors, David Sharpless, is an audit committee financial expert and that
  he is independent, as defined in the Marketplace Rules of the Nasdaq Stock Market.

Item 16B. Code of Ethics

We have adopted a Code of Ethics to impose certain policies relating
  to ethical conduct on all of our Directors and employees, including our Chief
  Executive Officer, Chief Financial Officer, principal accounting officer and
  persons performing similar functions. We undertake to provide a copy of our
  Code of Ethics to any holder of our securities upon request, without charge.

Item 16C. Principal Accountant Fees and Services

On September 28, 2005, the Audit Committee of the Board of Directors
  replaced Grant Thornton LLP, as our independent firm of Chartered Accountants
  and engaged Schwartz Levitsky Feldman LLP as our new independent firm of Chartered
  Accountants.

The following table presents fees for professional audit services
  rendered by our auditors for the audit of our consolidated financial statements
  for the years ended October 31, 2008 and 2007, and fees billed for other services
  rendered by our auditors including our offerings of securities and tax services.

|                                 | 2007    | 2008   
|-------------------------------- | ------- | -------
|                                 |         |        
|Audit Fees                       | $75,000 | $60,000
|Audit Related Fees (SOX related) | -       | 30,000 
|Tax Fees                         | -       | 35,000 
|All Other Fees                   | 18,000  | 5,200  

56

---

Audit Fees

In 2007 we paid a total of $75,000 to Schwartz Levitsky Feldman
  LLP for audit services, which included work related to the annual audit.

In 2008 we paid a total of $60,000 to Schwartz Levitsky Feldman
  LLP for audit services, which included work related to the annual audit.

Audit Related Fees

We paid $30,000 of audit related fees to Schwartz Lewitsky Feldman
  in 2008 relating to our SOX certification audit (nil in 2007).

Tax Fees

We paid 35,000 of tax related fees to Schwartz Levitsky Feldman
  LLP for services in 2008 (nil in 2007).

All Other Fees

Schwartz Levitsky Feldman LLP billed us $8,000 for other services
  during 2007

Grant Thornton LLP billed us $10,000 for other services in 2007.

Collins Barrow LLP billed us $52,000 in 2008 relating to the
  work they completed on our internal control certification.

Item 16D. Exemptions from the Listing Standards for Audit
  Committees

Not applicable.

Item 16E. Purchases of Equity by the Issuer and Affiliated
  Purchasers.

Not applicable.

Item 17. Financial Statements

57

---



INDEPENDENT AUDITORS REPORT

To the Shareholders of 
Micromem Technologies Inc. 
(A Development Stage Company)

We have audited the consolidated balance sheets of Micromem
Technologies Inc. (the "Company") as at October 31, 2008 and 2007, and the
consolidated statements of operations, comprehensive loss and deficit and cash
flows for each of the years in the three-year period ended October 31, 2008.
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 audits.

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

In our opinion, these consolidated financial statements
present fairly, in all material respects, the financial position of the Company
as of October 31, 2008 and 2007 and the results of its operations and its cash
flows for each of the years in the three year period ended October 31, 2008 in
accordance with Canadian generally accepted accounting principles.

Canadian generally accepted accounting principles may vary in
certain significant respects from US generally accepted accounting principles.
Information relating to the nature and effects of such changes is presented in
note 18 to the consolidated financial statements.

The consolidated statement of operations, comprehensive loss
and deficit, cash flows and shareholders deficiency for the cumulative period
from September 3, 1997 to October 31, 2004 were audited by other auditors who
expressed opinions without reservation on those statements in their reports
dated February 11, 2007, December 5, 2003, January 27, 2003, November 16, 2001,
December 13, 2000, February 25, 2000 and December 20, 1999.



|                  | /s/ SCHWARTZ LEVITSKY FELDMAN LLP
|----------------- | ---------------------------------
|                  | SCHWARTZ LEVITSKY FELDMAN LLP    
|Toronto Ontario   | Chartered Accountants            
|February 16, 2009 | Licensed Public Accountants      



| | 1167 Caledonia Road 
    Toronto, Ontario M6A 2X1 
    Tel: 416 785 5353 
    Fax: 416 785 5663
| | -----------------------------------------------------------------------------------------------

F-1

---



COMMENTS BY AUDITORS FOR US READERS ON CANADA  US REPORTING
DIFFERENCES

In the United States, reporting standards for auditors require that the
following information be included in the auditors report:

The addition of an explanatory paragraph (following the
opinion paragraph) when the consolidated financial statements are affected by
conditions and events that cast substantial doubt on the Companys ability to
continue as a going concern, such as those described in note 2 to the
consolidated financial statements. Our report to the shareholders dated February
16, 2009 is expressed in accordance with Canadian reporting standards, which do
not permit a reference to such events and conditions in the auditors report
when these are adequately disclosed in the consolidated financial statements.

In the introductory paragraph of the auditors report, it
would be required to state that the cumulative consolidated statements of
operations, comprehensive loss and deficit, cash flows and shareholders
deficiency for the period from September 3, 1997 to October 31, 2004 were
audited by other auditors whose reports have been furnished to us and reference
would have been made to the opinion of the other auditors, in so far as it
relates to the cumulative consolidated financial information for the Company for
the period from September 3, 1997 through October 31, 2004. Our opinion on the
consolidated financial statements would refer to the reports of the other
auditors for the period from September 3, 1997 to October 31, 2004. Our report
to the shareholders dated February 16 2009 is expressed in accordance with
Canadian reporting standards, which do not permit reference to the reports of
other auditors in our auditors report in the introductory paragraph.

The Standards of the Public Company Accounting Oversight
Board (United States) requires us to evaluate and report on the effectiveness of
internal controls over financial reporting for Micromem Technologies Inc.s as
at October 31, 2008, based on criteria established in "Internal Control 
Integrated Framework" issued by the Committee of Sponsoring Organizations of the
Treadway Commission (the COSO criteria). Although we have issued our report
dated February 16, 2009 that expressed an unqualified opinion for US Reporting,
there is currently no requirement under Canadian reporting standards.



|                  | /s/ SCHWARTZ LEVITSKY FELDMAN LLP
|----------------- | ---------------------------------
|                  | SCHWARTZ LEVITSKY FELDMAN LLP    
|Toronto Ontario   | Chartered Accountants            
|February 16, 2009 | Licensed Public Accountants      



| | 1167 Caledonia Road 
    Toronto, Ontario M6A 2X1 
    Tel: 416 785 5353 
    Fax: 416 785 5663
| | -----------------------------------------------------------------------------------------------

F-2

---

Consolidated Balance Sheet
(Expressed in United States dollars) 
(See Note 2 - Going Concern)

|As at                                                       | October 31, 2008 | October 31, 2007
|----------------------------------------------------------- | ---------------- | ----------------
|                                                            |                  |                 
|                                                            |                  |                 
|Assets                                                      |                  |                 
|Current assets:                                             |                  |                 
|Cash and cash equivalents                                   | $475,235         | $244,575        
|Deposits and other receivables (Note 7)                     | 128,911          | 84,657          
|                                                            | 604,146          | 329,232         
|                                                            |                  |                 
|Property and equipment (Note 8)                             | 26,321           | -               
|Patents and trademarks (Note 9)                             | -                | -               
|Royalty rights (Note 6)                                     | -                | -               
|                                                            | 630,467          | 329,232         
|                                                            |                  |                 
|Liabilities and Shareholders' Equity
    (Deficiency)       |                  |                 
|Current liabilities:                                        |                  |                 
|Accounts payable and accrued liabilities (Note 10)          | 942,225          | 1,861,087       
|                                                            |                  |                 
|Shareholders' Equity (Deficiency):                          |                  |                 
|Share capital: (Note 11)                                    |                  |                 
|Authorized:                                                 |                  |                 
|2,000,000 special preference shares,
    redeemable, voting |                  |                 
|Unlimited common shares without par value                   |                  |                 
|Issued and outstanding:                                     |                  |                 
|82,936,667 common shares ( 2007: 72,946,167)                | 44,380,134       | 37,166,397      
|Contributed surplus (Notes 12)                              | 22,114,421       | 22,691,336      
|Deficit accumulated during the development stage            | (66,806,313)     | (61,389,588)    
|                                                            | (311,758)        | (1,531,855)     
|                                                            | $630,467         | $329,232        

Management Compensation and Related Party Transactions (Note
14) 
Commitments (Note 15) 
Contingencies (Note 16)

"Joseph Fuda" (Signed)Joseph Fuda, Director

"David Sharpless" (Signed)David Sharpless, Director

See accompanying notes.

F-3

---



Consolidated Statements of Operations, Comprehensive Loss
and Deficit(Expressed in United States dollars)

For the period ended October 31, 2008 (with comparative data)

|                                                                              |   |                     |   |   |                     |   |   |                     |   |   | Period from               |  
|----------------------------------------------------------------------------- | - | ------------------- | - | - | ------------------- | - | - | ------------------- | - | - | ------------------------- | -
|                                                                              |   |                     |   |   |                     |   |   |                     |   |   | September 3, 1997         |  
|                                                                              |   | Oct.
      31, 2008 |   |   | Oct.
      31, 2007 |   |   | Oct.
      31, 2006 |   |   | to
      October 31, 2008 |  
|                                                                              |   |                     |   |   |                     |   |   |                     |   |   |                           |  
|                                                                              |   |                     |   |   |                     |   |   |                     |   |   |                           |  
|Interest and other income                                                     | $ | 11,762              |   | $ | 2,586               |   | $ | 9,930               |   | $ | 564,365                   |  
|                                                                              |   |                     |   |   |                     |   |   |                     |   |   |                           |  
|Costs and expenses (income):                                                  |   |                     |   |   |                     |   |   |                     |   |   |                           |  
|Administration                                                                |   | 604,203             |   |   | 223,177             |   |   | 268,241             |   |   | 3,566,043                 |  
|Professional, other
      fees, and salaries (Note 14)                        |   | 3,304,771           |   |   | 1,631,309           |   |   | 3,248,588           |   |   | 41,726,299                |  
|Research and development (Notes 15)                                           |   | 1,063,508           |   |   | 682,331             |   |   | 368,969             |   |   | 8,871,641                 |  
|Travel and
      entertainment                                                |   | 398,474             |   |   | 141,200             |   |   | 195,607             |   |   | 1,972,600                 |  
|Amortization of property and equipment
      (Note 8)                         |   | 5,210               |   |   | -                   |   |   | -                   |   |   | 349,676                   |  
|Foreign exchange loss
      (gain)                                            |   | 52,321              |   |   | 135,947             |   |   | (13,295             | ) |   | 131,801                   |  
|Amortization of patents and trademarks                                        |   | -                   |   |   | -                   |   |   |                     |   |   | 67,596                    |  
|Operating leases                                                              |   | -                   |   |   | -                   |   |   |                     |   |   | 109,412                   |  
|Loss on sale of investment                                                    |   | -                   |   |   | -                   |   |   |                     |   |   | 54,606                    |  
|Write-down of
      investment                                                |   | -                   |   |   | -                   |   |   |                     |   |   | 61,020                    |  
|Write-down of royalty rights (Note 6)                                         |   | -                   |   |   | -                   |   |   |                     |   |   | 10,000,000                |  
|Write-down of patents
      and trademarks (Note 9)                           |   | -                   |   |   | -                   |   |   |                     |   |   | 299,820                   |  
|Interest expense                                                              |   | -                   |   |   | -                   |   |   |                     |   |   | 75,027                    |  
|Loss on sale of property and equipment                                        |   | -                   |   |   | -                   |   |   |                     |   |   | 65,460                    |  
|                                                                              |   | 5,428,487           |   |   | 2,813,964           |   |   | 4,068,110           |   |   | 67,351,001                |  
|                                                                              |   |                     |   |   |                     |   |   |                     |   |   |                           |  
|Loss before income taxes                                                      |   | (5,416,725          | ) |   | (2,811,378          | ) |   | (4,058,180          | ) |   | (66,786,636               | )
|                                                                              |   |                     |   |   |                     |   |   |                     |   |   |                           |  
|Income taxes
      (Note 13)                                                  |   | -                   |   |   | -                   |   |   |                     |   |   | 19,677                    |  
|                                                                              |   |                     |   |   |                     |   |   |                     |   |   |                           |  
|Net loss and comprehensive loss for the year                                  |   | (5,416,725          | ) |   | (2,811,378          | ) |   | (4,058,180          | ) |   | (66,806,313               | )
|                                                                              |   |                     |   |   |                     |   |   |                     |   |   |                           |  
|                                                                              |   |                     |   |   |                     |   |   |                     |   |   |                           |  
|Deficit
    accumulated during the development
      stage, beginning of year |   | (61,389,588         | ) |   | (58,578,210         | ) |   | (54,520,030         | ) |   | -                         |  
|Deficit accumulated during the development
      stage, end of year           |   | ($66,806,313        | ) |   | ($61,389,588        | ) |   | ($58,578,210        | ) |   | ($66,806,313              | )
|                                                                              |   |                     |   |   |                     |   |   |                     |   |   |                           |  
|                                                                              |   |                     |   |   |                     |   |   |                     |   |   |                           |  
|Loss per share - basic and diluted                                            |   | (0.07               | ) |   | (0.04               | ) |   | (0.06               | ) |   | (1.22                     | )
|                                                                              |   |                     |   |   |                     |   |   |                     |   |   |                           |  
|                                                                              |   |                     |   |   |                     |   |   |                     |   |   |                           |  
|Weighted average
      number of shares                                       |   | 78,012,115          |   |   | 70,685,153          |   |   | 66,709,353          |   |   | 54,862,300                |  

See accompanying notes.

F-4

---

MICROMEM TECHNOLOGIES INC. (A DEVELOPMENT STAGE COMPANY)

Consolidated Statement of Cash Flows(Expressed in
United States dollars)

For the period ended October 31, 2008 (with comparative
data)

|                                                                      |   |                     |   |   |                     |   |   |                     |   |   | Period from               |  
|--------------------------------------------------------------------- | - | ------------------- | - | - | ------------------- | - | - | ------------------- | - | - | ------------------------- | -
|                                                                      |   |                     |   |   |                     |   |   |                     |   |   | September 03, 1997        |  
|                                                                      |   | Oct.
      31, 2008 |   |   | Oct.
      31, 2007 |   |   | Oct.
      31, 2006 |   |   | to
      October 31, 2008 |  
|                                                                      |   | (12 mos             | ) |   | (12 mos             | ) |   | (12 mos             | ) |   |                           |  
|                                                                      |   |                     |   |   |                     |   |   |                     |   |   |                           |  
|                                                                      |   |                     |   |   |                     |   |   |                     |   |   |                           |  
|                                                                      |   |                     |   |   |                     |   |   |                     |   |   |                           |  
|Cash flows from operating activities:                                 |   |                     |   |   |                     |   |   |                     |   |   |                           |  
|Net loss and comprehensive loss for the
      period                  |   | ($5,416,725         | ) |   | ($2,811,378         | ) |   | ($4,058,180         | ) |   | ($66,806,313              | )
|Adjustments to
      reconcile loss for                               |   | -                   |   |   | -                   |   |   | -                   |   |   | -                         |  
|the period to net cash used in
      operating activities:            |   | -                   |   |   | -                   |   |   | -                   |   |   | -                         |  
|Amortization of patents and trademarks                                |   | -                   |   |   | -                   |   |   | -                   |   |   | 67,596                    |  
|Amortization of property and equipment                                |   | 5,210               |   |   | -                   |   |   | -                   |   |   | 534,896                   |  
|Stock option expense                                                  |   | 1,041,414           |   |   | 269,216             |   |   | 2,058,560           |   |   | 22,930,411                |  
|Loss on
      sale of investment                                      |   | -                   |   |   | -                   |   |   | -                   |   |   | 54,606                    |  
|Write down of investment                                              |   | -                   |   |   | -                   |   |   | -                   |   |   | 61,020                    |  
|Loss on
      disposal of property and equipment                      |   | -                   |   |   | -                   |   |   | -                   |   |   | 65,460                    |  
|Write-down of royalty rights                                          |   | -                   |   |   | -                   |   |   | -                   |   |   | 10,000,000                |  
|Write-down
      of patents and trademarks                            |   | -                   |   |   | -                   |   |   | -                   |   |   | 299,820                   |  
|Share compensation expense                                            |   | -                   |   |   | -                   |   |   | -                   |   |   | 7,285,696                 |  
|Non-cash
      wages and salaries                                     |   | -                   |   |   | -                   |   |   | -                   |   |   | 34,000                    |  
|Decrease (increase) in deposits and other receivables                 |   | (44,254             | ) |   | (25,919             | ) |   | 26,834              |   |   | (120,314                  | )
|Increase (decrease) in accounts payable
      and accrued liabilities |   | (673,809            | ) |   | 946,724             |   |   | 111,157             |   |   | 1,076,438                 |  
|Net cash used in operating activities                                 |   | (5,088,164          | ) |   | (1,621,357          | ) |   | (1,861,629          | ) |   | (24,516,684               | )
|                                                                      |   |                     |   |   |                     |   |   |                     |   |   |                           |  
|Cash flows from investing activities:                                 |   |                     |   |   |                     |   |   |                     |   |   |                           |  
|Purchase of property and equipment                                    |   | (31,531             | ) |   | -                   |   |   | -                   |   |   | ($761,135                 | )
|Proceeds on disposal of
      property and equipment                  |   | -                   |   |   | -                   |   |   | -                   |   | $ | 134,458                   |  
|Patents and trademarks                                                |   | -                   |   |   | -                   |   |   | -                   |   |   | ($367,416                 | )
|Sale of
      available-for-sale Investment                           |   | -                   |   |   | -                   |   |   | -                   |   | $ | 260,641                   |  
|Royalty rights                                                        |   | -                   |   |   | -                   |   |   | -                   |   |   | ($2,000,000               | )
|Net cash used in investing activities                                 |   | (31,531             | ) |   | -                   |   |   | -                   |   |   | (2,733,452                | )
|                                                                      |   |                     |   |   |                     |   |   |                     |   |   |                           |  
|                                                                      |   |                     |   |   |                     |   |   |                     |   |   |                           |  
|Cash flows from financing activities:                                 |   |                     |   |   |                     |   |   |                     |   |   |                           |  
|Issue of common
      shares                                          |   | 5,350,355           |   |   | 1,459,230           |   |   | 1,625,528           |   |   | 27,144,646                |  
|Subscriptions received                                                |   | -                   |   |   | -                   |   |   | -                   |   |   |                           |  
|Net proceeds
      from shareholder's loan                            |   | -                   |   |   | -                   |   |   | -                   |   |   | 544,891                   |  
|Loan proceeds from Avanticorp
      International Inc.                |   | -                   |   |   | -                   |   |   | -                   |   |   | 112,031                   |  
|Rights issue costs                                                    |   | -                   |   |   | -                   |   |   | -                   |   |   | (76,197                   | )
|Net cash provided
      by financing activities                       |   | 5,350,355           |   |   | 1,459,230           |   |   | 1,625,528           |   |   | 27,725,371                |  
|                                                                      |   |                     |   |   |                     |   |   |                     |   |   |                           |  
|Increase (decrease) in cash and cash equivalents                      |   | 230,660             |   |   | (162,127            | ) |   | (236,101            | ) |   | 475,235                   |  
|                                                                      |   |                     |   |   |                     |   |   |                     |   |   |                           |  
|Cash and cash
      equivalents, beginning of year                    |   | 244,575             |   |   | 406,702             |   |   | 642,803             |   |   | -                         |  
|                                                                      |   |                     |   |   |                     |   |   |                     |   |   | -                         |  
|Cash and cash
      equivalents, end of year                          | $ | 475,235             |   | $ | 244,575             |   | $ | 406,702             |   | $ | 475,235                   |  
|                                                                      |   |                     |   |   |                     |   |   |                     |   |   |                           |  
|Supplemental cash flow information:                                   |   |                     |   |   |                     |   |   |                     |   |   |                           |  
|Interest paid                                                         |   | -                   |   |   | -                   |   |   | -                   |   |   | 76,987                    |  
|Income taxes paid                                                     |   | -                   |   |   | -                   |   |   | -                   |   |   | 66,722                    |  

See accompanying notes.

F-5

---

MICROMEM TECHNOLOGIES INC. (A DEVELOPMENT STAGE COMPANY)

Consolidated Statements of Shareholders' Equity
(Deficiency)(Expressed in United States dollars)

|For the period ended October 31, 2008 (with comparative data)         | 
|--------------------------------------------------------------------- | 
|                                                                      | 
|Micromem share capital, October 31, 1998                              | 
|Exercise of directors stock options                                  | 
|Pageant share capital, October 31, 1998                               | 
|Net loss for the year                                                 | 
|Common shares of Pageant, December 4, 1998                            | 
|Assigned fair value
      of net assets                               | 
|                                                                      | 
|Exercise of common share purchase warrants for cash                   | 
|Private placement of common shares for cash,
      May 17, 1999       | 
|Shareholder loan forgiven                                             | 
|Exercise of stock options for cash                                    | 
|Net loss for the year                                                 | 
|Balance, October 31, 1999                                             | 
|                                                                      | 
|Exercise of common share purchase warrants
      for cash             | 
|Exercise of stock options for cash                                    | 
|Deferred share compensation                                           | 
|Private placement of common shares for cash, February 10, 2000        | 
|Common shares issued pursuant to compensation
      agreements,       | 
|March 15, 2000                                                        | 
|Stock options issued to directors/consultants                         | 
|Net loss for the year                                                 | 
|Balance, October 31, 2000                                             | 
|                                                                      | 
|Exercise of common share purchase warrants
      for cash             | 
|Common shares issued under rights offering November 20, 2000          | 
|Exercise of stock options for cash                                    | 
|Deferred share compensation                                           | 
|Stock-based compensation                                              | 
|Exercise of directors stock options for cash, January
      17, 2001 | 
|Common shares issued pursuant to compensatory
      stock options,    | 
|Adjustment-share compensation expenses                                | 
|Common shares issued pursuant to compensation
      agreement,        | 
|January 23, 2001                                                      | 
|Private placement of common shares for cash,
      March 21, 2001     | 
|Common shares issued under asset purchase agreement to                | 
|Estancia Limited, March 14, 2001                                      | 
|Compensation shares due but not issued                                | 
|Stock options issued to directors/consultants                         | 
|Net loss for the year                                                 | 
|Balance, October 31, 2001                                             | 
|                                                                      | 
|Stock options issued to directors/consultants                         | 
|Shares issued pursuant to compensatory agreement, March 26,           | 
|2002                                                                  | 
|Net loss for the year                                                 | 
|Balance, October 31, 2002                                             | 
|                                                                      | 
|Private placement of common shares for cash,
      August 13, 2003    | 
|Net loss for the year                                                 | 
|Stock options issued to directors/consultants                         | 
|Balance, October 31, 2003                                             | 

F-6

---

MICROMEM TECHNOLOGIES INC. (A DEVELOPMENT STAGE COMPANY)

MICROMEM TECHNOLOGIES INC.(A DEVELOPMENT
STAGE COMPANY)

Consolidated Statements of Shareholders' Equity
(Deficiency)(Expressed in United States dollars)

|                                                                       |  | Number
      of 
      Shares |  |  | Share
      
      Capital |   |  | Contributed
      
      Surplus |   |  | Deferred
      Share 
      Compensation |  |  | Deficit
      
      Accumulated during 
      Development stage |  
|---------------------------------------------------------------------- |  | ----------------------------- |  |  | -------------------------- | - |  | -------------------------------- | - |  | ---------------------------------------- |  |  | ---------------------------------------------------------------- | -
|                                                                       |  |                               |  |  |                            |   |  |                                  |   |  |                                          |  |  |                                                                  |  
|Balance, October 31, 2003                                              |  | 48,732,187                    |  |  | 31,236,287                 |   |  | 17,038,400                       |   |  | -                                        |  |  | (48,170,249                                                      | )
|                                                                       |  |                               |  |  |                            |   |  |                                  |   |  |                                          |  |  |                                                                  |  
|Private placement                                                      |  | 800,000                       |  |  | 73,000                     |   |  | -                                |   |  | -                                        |  |  | -                                                                |  
|Exercise of common share warrants                                      |  | 3,231,250                     |  |  | 264,500                    |   |  | -                                |   |  | -                                        |  |  | -                                                                |  
|Exercise of options for cash                                           |  | 5,300,000                     |  |  | 530,000                    |   |  | -                                |   |  | -                                        |  |  | -                                                                |  
|Stock options issued to consultant                                     |  | -                             |  |  | -                          |   |  | 1,379,970                        |   |  | -                                        |  |  | -                                                                |  
|Net loss for the year                                                  |  | -                             |  |  | -                          |   |  | -                                |   |  | -                                        |  |  | (2,314,298                                                       | )
|Balance at October 31, 2004                                            |  | 58,063,437                    |  |  | 32,103,787                 |   |  | 18,418,370                       |   |  | -                                        |  |  | (50,484,547                                                      | )
|                                                                       |  |                               |  |  |                            |   |  |                                  |   |  |                                          |  |  |                                                                  |  
|Exercise of common share purchase warrants for cash                    |  | 2,431,250                     |  |  | 206,500                    |   |  | -                                |   |  | -                                        |  |  | -                                                                |  
|Private placement of common shares for cash                            |  | 2,342,334                     |  |  | 1,472,500                  |   |  | -                                |   |  | -                                        |  |  | -                                                                |  
|Exercise of stock options                                              |  | 1,820,000                     |  |  | 553,600                    |   |  | -                                |   |  | -                                        |  |  | -                                                                |  
|Settlement of accounts payable for common shares                       |  | 62,428                        |  |  | 43,700                     |   |  | -                                |   |  | -                                        |  |  | -                                                                |  
|Stock options issued to consultants/employees                          |  | -                             |  |  | -                          |   |  | 1,721,742                        |   |  | -                                        |  |  | -                                                                |  
|Legal expenses relating to private placements                          |  | -                             |  |  | (75,000                    | ) |  | -                                |   |  | -                                        |  |  | -                                                                |  
|Net loss                                                               |  | -                             |  |  | -                          |   |  | -                                |   |  | -                                        |  |  | (4,035,483                                                       | )
|Transfer to contributed surplus (restatement)                          |  | -                             |  |  | (264,000                   | ) |  | 264,000                          |   |  | -                                        |  |  | -                                                                |  
|Balance at October 31, 2005                                            |  | 64,719,449                    |  |  | 34,041,087                 |   |  | 20,404,112                       |   |  | -                                        |  |  | (54,520,030                                                      | )
|                                                                       |  |                               |  |  |                            |   |  |                                  |   |  |                                          |  |  |                                                                  |  
|Exercise of stock options                                              |  | 3,550,000                     |  |  | 1,064,980                  |   |  | -                                |   |  | -                                        |  |  | -                                                                |  
|Stock options issued to consultants/employees                          |  | -                             |  |  | -                          |   |  | 2,058,560                        |   |  | -                                        |  |  | -                                                                |  
|Private placement of common shares for cash                            |  | 150,000                       |  |  | 75,000                     |   |  | -                                |   |  | -                                        |  |  | -                                                                |  
|Exercise of common share purchase warrants
      for cash              |  | 771,850                       |  |  | 485,548                    |   |  | -                                |   |  | -                                        |  |  | -                                                                |  
|Net loss                                                               |  | -                             |  |  | -                          |   |  | -                                |   |  | -                                        |  |  | (4,058,180                                                       | )
|Transfer to contributed surplus (restatement)                          |  | -                             |  |  | 1,026,738                  |   |  | (1,026,738                       | ) |  | -                                        |  |  | -                                                                |  
|Balance at October 31, 2006                                            |  | 69,191,299                    |  |  | 36,693,353                 |   |  | 21,435,934                       |   |  | -                                        |  |  | (58,578,210                                                      | )
|                                                                       |  |                               |  |  |                            |   |  |                                  |   |  |                                          |  |  |                                                                  |  
|Exercise of stock options                                              |  | 1,700,000                     |  |  | 552,000                    |   |  | -                                |   |  | -                                        |  |  | -                                                                |  
|Transfer from Contributed surplus                                      |  | -                             |  |  | 340,122                    |   |  | (340,122                         | ) |  | -                                        |  |  | -                                                                |  
|Price adjustment on outstanding warrants                               |  | -                             |  |  | (1,326,308                 | ) |  | 1,326,308                        |   |  | -                                        |  |  | -                                                                |  
|Stock options issued to consultants/employees                          |  | -                             |  |  | -                          |   |  | 86,787                           |   |  | -                                        |  |  | -                                                                |  
|Stock options issued to Directors                                      |  | -                             |  |  | -                          |   |  | 96,945                           |   |  | -                                        |  |  | -                                                                |  
|Warrants issued to consultants                                         |  | -                             |  |  | -                          |   |  | 85,484                           |   |  | -                                        |  |  | -                                                                |  
|Exercise of common share purchase warrants for cash                    |  | 477,500                       |  |  | 191,000                    |   |  | -                                |   |  | -                                        |  |  | -                                                                |  
|Private placement of common shares for cash                            |  | 1,577,368                     |  |  | 716,230                    |   |  | -                                |   |  | -                                        |  |  | -                                                                |  
|Net loss                                                               |  | -                             |  |  | -                          |   |  | -                                |   |  | -                                        |  |  | (2,811,378                                                       | )
|Balance at October 31, 2007                                            |  | 72,946,167                    |  |  | 37,166,397                 |   |  | 22,691,336                       |   |  | -                                        |  |  | (61,389,588                                                      | )
|                                                                       |  |                               |  |  |                            |   |  |                                  |   |  |                                          |  |  |                                                                  |  
|Warrants issued to consultants                                         |  | -                             |  |  | -                          |   |  | 23,814                           |   |  | -                                        |  |  | -                                                                |  
|Private placement of common shares for cash                            |  | 4,152,296                     |  |  | 2,980,031                  |   |  | -                                |   |  | -                                        |  |  | -                                                                |  
|Exercise of stock options                                              |  | 1,440,000                     |  |  | 1,010,500                  |   |  | -                                |   |  | -                                        |  |  | -                                                                |  
|Exercise of common share purchase warrants for cash                    |  | 3,671,318                     |  |  | 1,493,527                  |   |  | -                                |   |  | -                                        |  |  | -                                                                |  
|Transfer from contributed surplus for stock
      options exercised    |  | -                             |  |  | 537,494                    |   |  | (537,494                         | ) |  | -                                        |  |  | -                                                                |  
|Transfer from contributed surplus for warrants exercised               |  | -                             |  |  | 1,411,792                  |   |  | (1,411,792                       | ) |  | -                                        |  |  | -                                                                |  
|Stock options issued to directors/consultants                          |  | -                             |  |  | -                          |   |  | 1,017,600                        |   |  | -                                        |  |  | -                                                                |  
|Settlement of accounts payable for common shares                       |  | 30,000                        |  |  | 59,100                     |   |  | -                                |   |  | -                                        |  |  | -                                                                |  
|Cashless exercise of warrants for common shares
      (Note 11(g)(ii)) |  | 646,886                       |  |  | -                          |   |  | -                                |   |  | -                                        |  |  | -                                                                |  
|Warrants issued for private placement                                  |  | -                             |  |  | (330,957                   | ) |  | 330,957                          |   |  | -                                        |  |  | -                                                                |  
|Common share issued for services                                       |  | 50,000                        |  |  | 52,250                     |   |  | -                                |   |  | -                                        |  |  | -                                                                |  
|Net loss                                                               |  | -                             |  |  | -                          |   |  | -                                |   |  | -                                        |  |  | (5,416,725                                                       | )
|                                                                       |  |                               |  |  |                            |   |  |                                  |   |  |                                          |  |  |                                                                  |  
|Balance at October
      31, 2008                                      |  | 82,936,667                    |  |  | 44,380,134                 |   |  | 22,114,421                       |   |  | -                                        |  |  | (66,806,313                                                      | )

See accompanying notes.

F-7

---

MICROMEM TECHNOLOGIES INC. (A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Expressed in United States dollars)

October 31, 2008 and 2007


1. Nature of business:

Micromem Technologies Inc. (Micromem or the Company) is a
corporation incorporated under the laws of the Province of Ontario, Canada. By
Articles of Amendment dated January 14, 1999, the Company changed its name from
Avanticorp International Inc. to Micromem Technologies Inc. On January 11, 1999,
the Company acquired all of the outstanding shares of Pageant Technologies Inc.
(Pageant), a company subsisting under the laws of Barbados. This acquisition
was recorded as a reverse takeover under Canadian generally accepted accounting
principles (Canadian GAAP) which, in the case of the Company, conforms with
United States generally accepted accounting principles (U.S. GAAP).

The Company currently operates as a developer of non-volatile
magnetic memory technology and has developed magnetic sensor technology
applications. The Company has not generated revenue through October 31, 2008 and
is devoting substantially all of its efforts to the development of its
technologies. Accordingly, for financial reporting purposes, the Company is a
development stage enterprise.

2. Going concern:

These consolidated financial statements have been prepared on
the going concern basis, which presumes that the Company will be able to
realize its assets and discharge its liabilities in the normal course of
business for the foreseeable future.

The Company has incurred substantial losses to date. It will be
necessary to raise additional funds for the continuing development, testing and
commercial exploitation of its technologies. The sources of these funds have not
yet been identified and there can be no certainty that additional funds will be
available in the future.

Certain principal conditions and events are prevalent which
indicate that there is doubt about the Companys ability to continue as a going
concern for a reasonable period of time. These include:

|a. | Recurring operating losses
|-- | --------------------------
|b. | Shareholders deficiency  
|c. | Working capital deficiency

Management has initiated certain plans which it believes will
mitigate and alleviate these conditions and events, including exploring
alternative sources of financing, so as to be able to continue its research,
development and commercialization efforts.

F-8

---

MICROMEM TECHNOLOGIES INC. (A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Expressed in United States dollars)

October 31, 2008 and 2007


The Company continues to pursue its development initiatives in
order to develop its technologies for commercial applications and continues to
raise financing for operations as outlined in Note 11.

The Companys ability to continue as a going concern is in
doubt and it is dependent upon completing the development of its technologies
for specific applications, achieving profitable operations, obtaining additional
financing and successfully bringing its technologies to market. The outcome of
these matters cannot be predicted at this time. The consolidated financial
statements have been prepared on a going concern basis and do not include any
adjustments to the amounts and classifications of the assets and liabilities
that might be necessary should the Company be unable to continue in business. If
the going concern assumption were not appropriate for these consolidated
financial statements then adjustments would be necessary to the carrying value
of assets and liabilities, the reported expenses and the balance sheet
classifications used.

3. Summary of significant accounting
policies:

These consolidated financial statements have been prepared in
  accordance with Canadian GAAP and are stated in United States dollars. These
  principles are also in conformity in all material respects with U.S. GAAP (Note
  18). The most significant accounting policies are as follows:

|a. | Principles of consolidation:
      These consolidated financial statements include the accounts
        of the Company and its wholly-owned subsidiaries:
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                          
|   | i.                                                                                                                                                       
|   |                                                                                                                                                          
|   | ii.                                                                                                                                                      

| |      |                                                                                                                                                                                                                                                                                                                                         
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | iii. | On October 30, 2008, the Company incorporated 7070179
        Canada Inc. as a wholly- owned subsidiary. On October 31, 2008, the Company
        assigned its rights, title and interests in certain patents which it previously
        held directly to 7070179 Canada Inc. in exchange for common shares of
        this subsidiary.

F-9

---

MICROMEM TECHNOLOGIES INC. (A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Expressed in United States dollars)

October 31, 2008 and 2007




|   | All intercompany investments, balances and transactions have been eliminated
      upon consolidation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|b. | Use of estimates:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | The preparation of consolidated financial statements
        in conformity with Canadian GAAP requires management 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
        consolidated financial statements and the reported amounts of income and
        expenses during the reporting period. Actual results could differ from
        those estimates. Examples of where estimates are used include the computation
        of stock option expense calculated in accordance with the Black Scholes
        option-pricing model and in the estimation of accrued liabilities.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|c. | Cash and cash equivalents:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | Cash and cash equivalents consist of all bank accounts
        and all highly liquid investments with original maturities of three months
        or less at the date of purchase.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|d. | Property and equipment:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | Property and equipment are recorded at cost less accumulated
        amortization. Amortization is provided on property and equipment on a
        30% declining balance basis. Property and equipment are reviewed for impairment
        whenever events or changes in circumstances indicate that the carrying
        amount may not be recoverable. When circumstances dictate, an impairment
        loss is calculated as equal to the excess of the carrying value of the
        assets over their undiscounted estimated future net cash flow.                                                                                                                                                               

F-10

---

MICROMEM TECHNOLOGIES INC. (A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Expressed in United States dollars)

October 31, 2008 and 2007




|e. | Patents and trademarks:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | Patents and trademarks are reviewed for impairment on an
      annual basis or whenever events or changes in circumstances indicate that
      the carrying amount may not be recoverable. When circumstances dictate, an
      impairment loss is calculated as equal to the excess of the carrying value
      of the assets over their undiscounted estimated future net cash
    flow.                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|f. | Research and development expenses:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | Research costs are expensed in the period incurred.
      Development expenses are expensed as incurred unless they meet the
      criteria for deferral and amortization under Canadian GAAP which is the
      translation of research findings or other knowledge into a plan for the
      technology prior to commercial production or use. The Company has
      determined that no development costs have met these criteria at the
      financial reporting date.                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|g. | Stock-based compensation:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | The Company has a stock-based compensation plan, which is
      described in Note 11. Stock-based compensation is recognized using the
      fair value method. Under this method, the Black Scholes option-pricing
      model is used to determine periodic stock option expense. Any compensatory
      benefit recorded is recognized initially as deferred share compensation in
      the consolidated statements of shareholders equity and then charged
      against income over the contractual or vesting period.                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | As stock options are exercised, the Company records a
      charge to contributed surplus and a credit to share capital. The amount
      reported in each case is based on the original expense recorded when the
      related options were granted.                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|h. | Income taxes:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | The Company accounts for income taxes by the asset and
      liability method. Under the asset and liability method, future tax assets
      and liabilities are recognized for the future tax consequences
      attributable to differences between the financial statement carrying
      amounts of existing assets and liabilities and their respective tax bases.
      Future tax assets and liabilities are measured using enacted tax rates and
      laws that are expected to apply when the asset is realized or the
      liability settled. To the extent that it is estimated that a future income
      tax asset will not be realized, a valuation allowance is
  provided.

F-11

---

MICROMEM TECHNOLOGIES INC. (A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Expressed in United States dollars)

October 31, 2008 and 2007




|i. | Long-lived assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | The Company records the value of the long-term assets
      acquired at cost. Such rights are reviewed for impairment whenever events
      or changes in circumstances indicate that the carrying value may not be
      recoverable. In such circumstances an impairment loss is calculated as
      equal to the excess of the carrying value of the assets over their
      undiscounted estimated future net cash flows.                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|j. | Foreign currency translation:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | The functional and reporting currency of the Company is
      the United States dollar.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | The Companys wholly-owned foreign subsidiaries are
      integrated foreign operations and, therefore, the Company uses the
      temporal method whereby monetary assets and liabilities are translated
      into United States dollars at the rate of exchange in effect at the
      consolidated balance sheet dates and non-monetary assets and liabilities
      are translated at historical rates. Income and expenses are translated
      using the 3 month average rate of exchange per quarter, which rate
      approximates the rate of exchange prevailing at the transaction dates.
      Gains or losses resulting from translation are included in the
      determination of net loss for the period. Translation differences arising
      on reporting currency adjustments are recorded to equity.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|k. | Earnings or loss per share:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | Basic earnings (loss) per share is computed by dividing
      net earnings (loss) by the weighted average number of common shares
      outstanding for the year. Diluted earnings (loss) per share is computed by
      dividing net income (loss) by the weighted average number of common shares
      outstanding plus common stock equivalents (if dilutive) related to stock
      options and warrants for each year.                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|l. | Unit private placements:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | The Company has adopted the residual value approach in
      accounting for the value assigned to the common shares and the warrants
      which it has made available in a number of Unit private placement
      financings. In that the Unit private placement price is equal to the
      common share price at the issue date of the Unit, the Company has assigned
      100% of the proceeds to the common shares and a nil value to the attached
      warrants.                                                                                                                                                                                                                                                                                                                                                  

F-12

---

MICROMEM TECHNOLOGIES INC. (A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Expressed in United States dollars)

October 31, 2008 and 2007




|m. | Warrant repricing:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | The Company records a non-cash charge to share capital
      and an offsetting credit to contributed surplus at the point in time that
      outstanding common share purchase warrants are repriced. The amount
      reported is calculated based on the Black Scholes option-pricing
    model.                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|n. | Accounting changes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | The Company adopted the new recommendations of the CICA
      Handbook Section 1506, Accounting changes. Under these new recommendations
      voluntary changes in accounting policy are permitted only when they result
      in the financial statements providing reliable and/or relevant
      information.                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | These recommendations also require changes in accounting
      policy to be applied retrospectively unless doing so is impractical,
      require prior period errors to be corrected retrospectively, require
      enhanced disclosures about the effect of changes in accounting policies,
      estimates and errors on the financial statements and require disclosure of
      new primary sources of GAAP that have been issued but not yet
      effective.                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|o. | Capital disclosures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | The Company has adopted CICA Handbook Section 1535,
      Capital Disclosures, which requires disclosure of an entitys objectives,
      policies and processes for managing capital, quantitative data about what
      the entity regards as capital and whether the entity has complied with any
      capital requirements and, if it has not complied, the consequences of such
      noncompliance.                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|p. | Financial Instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | The Company has adopted accounting standards that were
      issued by the Canadian Institute of Chartered Accountants ("CICA"):
      Comprehensive Income (Section 1530"), Hedges (Section 3865"), Financial
      Instruments-Recognition and Measurement ("Section 3855"), Equity ("Section
      3251"), and Financial Instruments - Disclosure and Presentation ("Section
      3861").These Handbook Sections provide comprehensive requirements
      for the recognition and measurement of financial instruments, as well as
      standards on when and how hedge accounting may be applied. These
      accounting policy changes were adopted on a prospective basis with no
      restatement of prior period financial statements.

F-13

---

MICROMEM TECHNOLOGIES INC. (A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Expressed in United States dollars)

October 31, 2008 and 2007




|q. | Comprehensive Income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | Section 1530 requires the presentation of comprehensive
      income, which consists of net income and other comprehensive income
      ("OCI"). Comprehensive income is defined as the change in equity from
      transactions and other events from non-owner sources. OCI refers to items
      recognized in comprehensive income but that are excluded from net income
      calculated in accordance with generally accepted accounting
    principles.                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|r. | Financial Instruments - Recognition and Measurement and
      Disclosure and Presentation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | Section 3855 establishes standards for recognizing and
      measuring financial assets, financial liabilities and non-financial
      derivatives. All financial assets and financial liabilities, including
      derivatives, are measured in the balance sheet at fair value, except for
      loans and receivables, investments held-to maturity and other financial
      liabilities, which are measured at amortized cost. Measurement in
      subsequent periods depends on whether the financial instrument had been
      classified as held-for trading, available-for-sale, held-to-maturity,
      loans and receivables, or other liabilities.                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | Held-for-trading financial investments are measured at
      fair value and all gains and losses are included in net income in the
      period in which they arise. Available-for-sale financial instruments are
      measured at fair value with revaluation gains and losses included in other
      comprehensive income until the assets are removed from the balance sheet.
      All changes in the fair value of derivatives are recognized in earnings
      unless specific hedge criteria are met in accordance with Section 3865
      which requires that a company must formally document, designate and assess
      the effectiveness of transactions that receive hedge accounting.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | As a result of the adoption of these standards, the
      Company classifies cash and cash equivalents as held-for-trading.
      Held-for-trading financial assets are measured at fair value with
      unrealized gains and losses recognized in the Consolidated Statement of
      Operations. Accounts receivable initially measured at fair value and
      subsequently measured at amortized cost using the effective interest rate
      method. Accounts payable and accrued liabilities are initially measured at
      fair value and subsequently measured at amortized cost using the effective
      interest rate method.                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | The Company classifies derivative instruments, such as
      foreign exchange forward contracts, as held for-trading unless the
      instruments meet all the criteria of a hedge. If the criteria is met, then
      any unrealized gains and losses will be reported in other comprehensive
      income.                                                                                                                                                                                                                                                                                                                                                                                         

F-14

---

MICROMEM TECHNOLOGIES INC. (A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Expressed in United States dollars)

October 31, 2008 and 2007




|s. | Financial Instruments  Disclosure                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | CICA Handbook Section 3862, Financial Instruments 
      Disclosure, increases the disclosure currently required that will enable
      users to evaluate the significance of financial instruments for an
      entitys financial position and performance, including disclosures about
      fair value. In addition, disclosure is required of qualitative and
      quantitative information about exposure to risk arising from financing
      instruments, including specified minimum disclosures about liquidity risk
      and market risk. The quantitative disclosures must also include a
      sensitivity analysis for each type of market risk to which an entity is
      exposed, showing how net income and other comprehensive income would have
      been affected by reasonably possible changes in the relevant risk
      variable.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|t. | General Standards on Financial Statement
    Presentation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | CICA Handbook Section 1400, General Standards on
      Financial Statement Presentation, has been amended to include requirements
      to assess and disclose an entitys ability to continue as a going
      concern.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

4. Recent Canadian Accounting Pronouncements
not yet adopted:

The CICA has published new accounting standards that will apply
to fiscal years beginning on or after January 1, 2008. The Company is currently
assessing how the adoption of these new accounting standards will impact its
financial statements.

|a. | CICA Handbook Section 3031 Inventories:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | This new section sets forth the requirements for
      measuring and presenting inventories.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|b. | Business combinations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | In January 2009, the CICA issued Section 1582, Business
      Combinations. This section is effective January 1, 2011 and applies
      prospectively to business combinations for which the acquisition date is
      on or after the first annual reporting period of the Corporation beginning
      on or after January 1, 2011. Early adoption is permitted. This section
      replaces Section 1581, Business Combinations and harmonizes the Canadian
      standards with international financial reporting standards (IFRS). The
      Company does not anticipate that the adoption of this standard will impact
      its financial results.

F-15

---

MICROMEM TECHNOLOGIES INC. (A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Expressed in United States dollars)

October 31, 2008 and 2007




|c. | Goodwill and intangible assets:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | In February 2008, the CICA released Section 3064,
      Goodwill and Intangible Assets, in replacement of Section 3062,
      Goodwill and Other Intangible Assets and Section 3450, Research and
      Development Costs. Amendments were made to other CICA Handbook sections
      for consistency purposes. This new section will apply to financial
      statements for fiscal years beginning on or after October 1,
  2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | Section 3064 establishes the standards for recognizing,
      measuring, presenting an disclosing information applicable to goodwill
      after its initial recognition and to the intangible assets of
      profit-oriented enterprises. With respect to goodwill, Section 3064
      contains the same requirements as former Section 3062.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|d. | International Financial Reporting Standards
  (IFRS):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | In February 2008, the Accounting Standards Board ("AcSB")
      confirmed that the use of IFRS will be required in 2011 for publicly
      accountable enterprises in Canada. In April, 2008, the AcSB issued an IFRS
      Omnibus Exposure Draft proposing that publicly accountable enterprises be
      required to apply IFRS, in full and without modification, on January 1,
      2011. The adoption date of January 1, 2011 will require the restatement,
      for comparative purposes, of amounts reported by the Company for its year
      ended October 31, 2010, and of the opening balance sheet as at November 1,
      2009. The AcSB proposes that CICA Handbook Section, Accounting
      Changes, paragraph 1506.30, which would require an entity to disclose
      information relating to a new primary source of GAAP that has been issued
      but is not yet effective and that the entity has not applied, not be
      applied with respect to the IFRS Omnibus Exposure Draft. The Company is
      continuing to assess the financial reporting impacts of the adoption of
      IFRS and, at this time, the impact on future financial position and
      results of operations is not reasonably determinable or estimable. The
      Company does anticipate a significant increase in disclosure resulting
      from the adoption of IFRS and is continuing to assess the level of
      disclosure required, as well as system changes that may be necessary to
      gather an process the required information.

F-16

---

MICROMEM TECHNOLOGIES INC. (A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Expressed in United States dollars)

October 31, 2008 and 2007


5. Capital Management:

The Companys objectives when managing capital are:

|a. | To build liquidity and shareholders equity, ensuring the
      Companys strategic objectives are met, and
|-- | -----------------------------------------------------------------------------------------------------------
|   |                                                                                                            
|b. | To provide an appropriate return to
  shareholders.                                                        

The Company manages its capital structure within guidelines
approved by the Board of Directors. The Company makes adjustments to its capital
structure based on changes in economic conditions and the Companys planned
requirements. The Company has the ability to adjust its capital structure by
issuing new equity or debt, by selling assets and by making adjustments to its
capital expenditure program.

6. Acquisition of royalty rights and remaining
interest in technology from Estancia Limited:

On December 9, 2000, the Company and its subsidiary, Pageant,
entered into an Asset Purchase Agreement (the Agreement) with Estancia Limited
(Estancia) and Richard Lienau (Lienau). Under the terms of the agreement it
purchased the remaining 50% interest in the patents which the Company did not
own and a 40% gross profit royalty (Estancia Royalty), in respect of certain
ferromagnetic memory technology known as VEMRAM (previously known as MAGRAM) and
covered by U.S. Patent #5,295,097 and the related patent applications (the
Vemram Patents) described in the Agreement and all rights (the Technology)
held by Estancia and Lienau under the Joint Ownership and Licensing Agreement
dated September 17, 1997 among Estancia, Lienau and Pageant. Under the terms of
the Agreement, the Company was required to pay a maximum purchase price of
$50,000,000 to Estancia.

During fiscal 2001, the Company paid $2,000,000 in cash and
issued 2,007,831 shares, being the equivalent of $8,000,000, on approval by its
shareholders in the annual shareholder meeting held on March 14, 2001. The
$10,000,000 paid was initially recorded as royalty rights in fiscal 2001 and was
written down to nil value in fiscal 2002.

On March 9, 2004, the remaining requirements set out in the
Agreement were not met and, in accordance with the terms of the Agreement, the
Companys obligations to pay these amounts terminated. The Company thus had to
revert to Estancia:

|1. | a 40% interest in the Vemram Patents;
|-- | -------------------------------------
|   |                                      

|2. | a 32% interest in the gross profit, less expenses agreed
      to by the parties, for each license of the Vemram Patents sold or
      otherwise transferred by Pageant; and                                 
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                              
|3. | A 32% interest of any unit royalties received by Pageant
      as a result of the license or sale of the Vemram Patents less reasonable
      expenses directly related to the obtaining of said
  royalties.

F-17

---

MICROMEM TECHNOLOGIES INC. (A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Expressed in United States dollars)

October 31, 2008 and 2007


7. Deposits and other receivables:

10/31/07
    
    
    10/31/08Sales tax recoverable
    $
    47,792
    
    $
    72,461Receivable from companies where senior officers and
    directors of the Company exercise significant influence (Note 14 (c))
    
    34,856
    
    
    34,459Prepaid expenses
      
      2,009
      
      
      21,991$
      84,657
      
      $
      128,911


8. Property and equipment:

10/31/07
    
    
    Additions
    
    
    10/31/08Cost:Computers
      and equipment
    $
    41,348
    
    $
    31,531
    
    $
    72,879$
    41,348
    
    $
    31,531
    
    $
    72,87910/31/07
    
    
    Amortization
    
    
    10/31/08ExpenseAccumulated amortization:Computers
      and equipment
    $
    41,348
    
    $
    5,210
    
    $
    46,558$
    41,348
    
    $
    5,210
    
    $
    46,55810/31/07
    
    
    
    
    
    10/31/08Net book value:Computers and
      equipment
    $
    -
    
    
    
    
    $
    26,321$
    -
    
    
    
    
    $
    26,321


F-18

---

MICROMEM TECHNOLOGIES INC. (A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Expressed in United States dollars)

October 31, 2008 and 2007




|9.  | Patents and trademarks:                                                                                                                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                  
|    | The Company continues to actively pursue, protect and
      expand its patents and trademarks registered in Canada and in the United
      States. All current expenditures for patent-related activity have been
      expensed.
|    |                                                                                                                                                                                                                                  
|10. | Accounts payable and accrued
  liabilities                                                                                                                                                                                       



10/31/07
    
    
    10/31/08Compensation to Chairman and to senior
      officers (Note 14)
    $
    625,732
    
    $
    416,171Accounts payable
      and other accruals
    
    1,235,355
    
    
    526,054$
    1,861,087
    
    $
    942,225


Included in accounts payable and accrued liabilities at October
31, 2007 are the following bridge loans:

|a. | $100,000 which the Company secured from an arms length
      party on October 17, 2007. The loan bears interest at 3% per month. In
      November 2007, the loan was settled through the issuance of common
      shares.           
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                       
|b. | $30,000 which the Company secured from a director in
      September 2007. There were no specified repayment terms or interest on the
      loan. In February 2008, this loan was settled through the issuance of
      common shares.

Included in accounts payable and other accruals are the
following amounts due to specific parties:

10/31/07
    
    
    10/31/08a. Professional fees  audit
      and tax
    $
    74,294
    
    $
    128,917b. Professional fees  accounting
    
    -
    
    
    46,340c. Professional fees  legal
    
    27,514
    
    
    111,014d. Consulting fees  related party (Note 14
      (b))
    
    194,347
    
    
    42,072e. Consulting fees 
      engineering
    
    298,739
    
    
    45,600f.
      Termination payments  ex CTO (Note 15 )
    
    -
    
    
    80,171694,894
    
    
    454,114All
      other balances
    
    1,116,193
    
    
    488,111$
    1,861,087
    
    $
    942,225


F-19

---

MICROMEM TECHNOLOGIES INC. (A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Expressed in United States dollars)

October 31, 2008 and 2007


11. Share Capital:

|a. | Authorized and outstanding:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | The Company has two classes of shares as
  follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | i.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | ii.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|b. | Stock option plan:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | The Company has a fixed stock option plan. Under the
      Companys Stock Option Plan (the Plan), the Company may grant options
      for up to 15,000,000 shares of common stock to directors, officers,
      employees or consultants of the Company and its subsidiaries. The exercise
      price of each option is equal to or greater than the market price of the
      Companys shares on the date of grant unless otherwise permitted by
      applicable securities regulations. An options maximum term under the Plan
      is 10 years. Stock options are fully vested upon issuance by the Company
      unless the Board of Directors stipulates otherwise by Directors
      resolution.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | A summary of the status of the Companys fixed stock
      option plan as at October 31, 2008 and changes during the periods ended on
      those dates is as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         



Options
    Weighted Average(000)
    exercise priceOutstanding, October 31, 2006
    11,550
    .53Granted
    775
    .50Expired
    (300)
    .80Exercised
    (1,700)
    .33Outstanding, October 31, 2007
    10,325
    .55Granted
    2,145
    1.39Expired
    (100)
    .72Exercised
    (1,440)
    .70Outstanding October 31, 2008
    10,930
    .85


F-20

---

MICROMEM TECHNOLOGIES INC. (A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Expressed in United States dollars)

October 31, 2008 and 2007


Cash proceeds realized during the year
  ended October 31, 2008 by the Company upon the exercise of a total of 1,440,000
  options by officers and directors totaled $1,010,500 (2007: 1,700,000 options
  exercised for proceeds of $552,000).

The following options have been granted in the 2007 and 2008
fiscal years:

|Date         | Number            | Strike price per share | Term    | Recipient(s)                 
|------------ | ----------------- | ---------------------- | ------- | -----------------------------
|April 2007   | 350,000           | .36                    | 5 years | Director                     
|June 2007    | 150,000
      (1) | .70                    | 1 year  | Consultants                  
|June 2007    | 50,000            | .50                    | 5 years | Employee                     
|October 2007 | 225,000           | .60                    | 5 years | Employees/consultants        
|Total        | 775,000           |                        |         |                              
|             |                   |                        |         |                              
|March 2008   | 325,000           | 1.01                   | 5 years | Directors                    
|March 2008   | 20,000            | 1.12                   | 5 years | Consultants                  
|March 2008   | 350,000 (2)       | 1.20                   | 5 years | New Director                 
|August 2008  | 1,400,000 (3)     | 1.50                   | 5 years | Director, officers, employees
|April 2008   | 50,000            | 2.31                   | 1 year  | Consultants                  
|Total        | 2,145,000         |                        |         |                              



|(1) | In May 2008, the term of these options was extended to
      November 2008. These options expired unexercised.                                                                                                                                                                                                                                                
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                               
|(2) | A total of 100,000 of the 350,000 stock options which
      were issued in March 2008 at a strike price of $1.20 per share vest on a
      quarterly basis commencing in March 2008. The remaining 250,000 options
      were fully vested as of the issue date.                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                               
|(3) | A total of 200,000 of these options vest only when
      certain performance milestones are achieved by the Company. These
      milestones were not achieved as of October 31, 2008 and no vesting of
      these 200,000 has occurred to that date. The remaining 1.2 million options
      vest on a quarterly basis commencing in August 2008 (Note
  16).

The fair value of all options granted was estimated as of the
date of grant using the Black Scholes option-pricing model with the following
assumptions:

2008
    2007
    2006Expected dividends
    -
    -
    -Volatility factor
    86%-106%
    51% - 97%
    99%-111%Risk free interest rate
    2%-5%
    4.5%  4.75%
    3.25%  4.5%Weighted average expected life
    5 years
    1 to 1.5 years
    1.5 years


F-21



---



MICROMEM TECHNOLOGIES INC. (A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Expressed in United States dollars)

October 31, 2008 and 2007


The current stock compensation expense as reflected in the
financial statements is summarized as:

|Quarter Ending   | Expense  
|---------------- | ---------
|January 31, 2006 | 143,786  
|April 30, 2006   | -        
|July 31, 2006    | -        
|October 31, 2006 | 1,914,774
|                 |          
|January 31, 2007 | -        
|April 30, 2007   | 96,945   
|July 31, 2007    | 33,914   
|October 31, 2007 | 52,873   
|                 |          
|January 31, 2008 | -        
|April 30, 2008   | 637,254  
|July 31 2008     | 25,229   
|October 31, 2008 | 355,117  

The following table summarizes information about stock options
outstanding as at October 31, 2008:

|Options
      Outstanding |                       |                    | Options exercisable                                         
|------------------------- | --------------------- | ------------------ | ------------------------------------------------------------
|                          | Actual exercise price | Number outstanding | Weighted average remaining contractual
      life (in years)
|                          | $ 0.30                | 200,000            | .75 years                                                   
|                          | 0.91                  | 50,000             | 1.3 years                                                   
|                          | 0.72                  | 1,950,000          | 1.0 years                                                   
|                          | 0.65                  | 1,180,000          | 1.5 years                                                   
|                          | 0.60                  | 300,000            | 1.0 years                                                   
|                          | 0.80                  | 4,300,000          | 2.7 years                                                   
|                          | 0.60                  | 225,000            | 4.0 years                                                   
|                          | 1.01                  | 325,000            | 4.5 years                                                   
|                          | 1.12                  | 20,000             | 4.5 years                                                   
|                          | .1.20                 | 350,000            | 4.5 years                                                   
|                          | 1.50                  | 1,400,000          | 4.8 years                                                   
|                          | 2.31                  | 50,000             | .5 years                                                    
|                          | 0.63                  | 50,000             | 2.1 years                                                   
|                          | 0.36                  | 350,000            | 3.5 years                                                   
|                          | 0.70                  | 150,000            | .1 years                                                    
|                          | 0.50                  | 30,000             | 3.5 years                                                   
|TOTAL                     | 0.85                  | 10,930,000         |                                                             

F-22

---



MICROMEM TECHNOLOGIES INC. (A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Expressed in United States dollars)

October 31, 2008 and 2007




|c. | Loss per share                                                                                                                                                                                                                                                                                                                                                                                                                                  
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | The inclusion of the Companys stock options and share
      purchase warrants in the computation of diluted loss per share would have
      an anti-dilutive effect on loss per share and they are therefore excluded
      from the computation. Consequently, there is no difference between basic
      loss per share and diluted loss per share.                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|d. | Warrants                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | Under the residual value accounting policy which the
      Company has adopted, the Company has allocated the closing trading value
      of its shares to the common shares. Since the net proceeds received from
      the issuance of the common shares attached to the First Units equaled the
      closing trading value at the date authorized by the Board of Directors,
      the warrants were allocated nil value, as outlined below.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|e. | Private Placements                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | Under the residual value accounting policy which the
      Company has adopted, the Company has allocated the net proceeds received
      from Unit private placements to the common shares attached to the Units
      since the net proceeds equaled the closing trading value of the shares at
      the date authorized by the Board of Directors. Accordingly, the warrants
      were allocated nil value.                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | i.                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | ii.                                                                                                                                                                                                                                                                                                                                                                                                                                             



Shares Issued
    Proceeds Realized1stQuarter
    1,003,900
    $ 493,6852ndQuarter
    2,450,508
    1,673,7513rdQuarter
    285,000
    368,7504thQuarter
    412,888
    443,844


F-23

---

MICROMEM TECHNOLOGIES INC. (A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Expressed in United States dollars)

October 31, 2008 and 2007




| |  | Common share purchase warrants were attached to
      several of the private placements completed during 2008 as follows:
| |  | -------------------------------------------------------------------------------------------------------------------------
| |  |                                                                                                                          
| |  | a)                                                                                                                       
| |  |                                                                                                                          
| |  | b)                                                                                                                       
| |  |                                                                                                                          
| |  | c)                                                                                                                       
| |  |                                                                                                                          
| |  | In all cases these warrants expire 12 months after
      issue date if unexercised.                                      
| |  |                                                                                                                          

|f. | Bridge Loans:
|-- | -------------
|   |              
|   | i.           
|   |              
|   | ii.          

The fair value of the warrants issued with respect to the
bridge loan was estimated using the Black Scholes option-pricing model with the
following assumptions:

9/07
    1/08Loan
    LoanExpected dividends
    -
    -Volatility factor
    51% - 97%
    51% - 97%Risk-free interest rate
    4.25%
    4.25%Weighted average expected life
    1 year
    1 year


F-24

---

MICROMEM TECHNOLOGIES INC. (A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Expressed in United States dollars)

October 31, 2008 and 2007




|g. | A summary of the outstanding common share purchase
      warrants as of the Companys fiscal year-ends and the changes during the
      periods are as follows:
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



Weightedaverage
    ProceedsWarrants
    exercise price
    RealizedIssued with respect to 2004-2005 Unit
      private placements (i)
    4,048,818
    $0.40Issued with
      respect to financial advisory services agreement in 2005 (ii)
    800,000
    $0.40Balance outstanding at October 31, 2006
    4,848,818
    $0.40Exercised in 2007 (i)
    (477,500)
    $0.40
    $191,000Expired in 2007 (i)
    (150,000)
    $0.40
    -Issued in 2007 (iii)
    250,000
    $0.50Balance outstanding at October 31, 2007
    4,471,318Exercised in 2008 (i)
    (3,421,318)
    $0.40
    $1,368,527(ii)
    (800,000)
    $0.40
    nil(iii)
    (250,000)
    $0.50
    $125,000Issued with respect to 2008 Unit private placement (iv)
    537,128
    $1.14Issued with respect to bridge loan (v)
    100,000
    $0.50Balance outstanding at October 31, 2008
    637,128
    $1.04


F-25

---

MICROMEM TECHNOLOGIES INC. (A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Expressed in United States dollars)

October 31, 2008 and 2007




|   | (i) These warrants were initially issued in 2004-2005 as
      part of Unit private placement financings which the Company completed at
      that time. In 2007, the Company ultimately extended the expiry dates of
      these warrants to June 2008 and revised the strike price in each case to
      $0.40 per warrant. When these warrants were exercised the original charge
      recorded to share capital and the offset to contributed surplus reflecting
      these extensions and price adjustments was then reversed. These charges
      were calculated in accordance with the Black Scholes option pricing
      model.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | (ii) The Company entered into a financial advisory
      services agreement in June 2005 and issued 800,000 common share purchase
      warrants as consideration. The strike price of the warrants was ultimately
      established as $0.40 per warrant with an expiry date of June 2008. The
      agreement provided for the cashless exercise of these warrants. In May
      2008 these warrants were exercised. The price of the Companys common
      shares upon the date of exercise was $2.09 per share and the Company
      issued 646,886 common shares for nil proceeds to discharge the 800,000
      warrants exercised.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | (iii) These warrants were issued in connection with the
      bridge loan financing described above in Note 11(f)(i). When these
      warrants were exercised the charge originally recorded to contributed
      surplus was reversed to share capital.                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | (iv) As outlined above in Note 11(e)(ii).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | (v) As outlined above in Note 11(f)(ii).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|h. | Settlement of Accounts Payable:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | In June 2008 the Company settled certain accounts payable
      outstanding with an arms length research contractor. It provided cash
      consideration of $125,000 and 30,000 common shares valued at $59,100 to
      fully settle the balance due to the contractor.                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|i. | Shares Issued Under Service Contract (Note 15)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | In September 2008 the Company entered into a 12 month
      contract with an arms length contractor. Under the terms of the contract
      the Company pays a monthly cash amount of $13,500. As additional
      consideration the Company has agreed to issue 25,000 common shares per
      month for a total of 300,000 common shares over the term of the contract.
      At October 31, 2008 the Company has issued 50,000 common shares under the
      contract and has recorded a non-cash expense and credit to share capital
      of $52,250 reflecting the market price of the shares at the issue
      dates.             

F-26

---

MICROMEM TECHNOLOGIES INC. (A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Expressed in United States dollars)

October 31, 2008 and 2007


12. Contributed Surplus:

Balance at October 31, 2006 as previously
      reported
    $22,462,672Reclassification
      to share capital relating to exercise of stock options (i)
    (1,026,738)Balance at October 31, 2006 as revised
    $21,435,934Stock compensation expense relating to stock options issued
    183,732Stock options exercised
    (340,122)Common share purchase warrants issued
    85,484Charge relating to repricing of warrants (ii)
    1,326,308Balance at October 31, 2007
    $22,691,336Stock compensation expense relating to
      stock options issued
    1,017,600Stock options exercised
    (537,494)Common share purchase warrants issued
    354,771Common share
      purchase warrants exercised
    (1,411,792)Balance at October 31, 2008
    $22,114,421




(i)
    The Company has restated $1,025,738 from contributed
      surplus to share capital as of October 31, 2006 representing the fair
      value of the stock options exercised in 2005-2006.(ii)
    The Company recorded this charge to contributed surplus
      with an offset to share capital reflecting the repricing of the warrants
      relating to the 2004-2005 Unit private placements described
  above.


The Company has calculated the charges
  to contributed surplus as presented above using the Black Scholes option pricing
  model.

The components of contributed surplus
  as reported at October 31, 2008 include:

2007
    
    
    2008a. Amount relating to loan forgiveness at
      inception of the Company
    $
    544,891
    
    $
    544,891b. Stock options compensation related
    
    20,734,653
    
    
    21,214,759c.
      Common share purchase warrants
    
    1,411,792
    
    
    354,771$
    22,691,336
    
    $
    22,114,421


F-27

---

MICROMEM TECHNOLOGIES INC. (A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Expressed in United States dollars)

October 31, 2008 and 2007


13. Income Taxes:

|a. | The Company has non-capital losses of approximately
      $9,866,000 available to reduce future taxable income, the benefit of which
      has not been recognized in these consolidated financial statements. As of
      October 31, 2008 the tax losses expire as
follows:
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Canada
    Other Foreign
    Total2009
    690,000
    -
    690,0002010
    1,077,000
    -
    1,077,0002011
    847,000
    183,000
    1,030,0002012
    2,666,000
    -
    2,666,0002013
    1,995,000
    -
    1,995,0002014
    2,090,000
    -
    2,090,0002015
    4,000
    -
    4,0002023
    -
    73,000
    73,0002024
    -
    173,000
    173,0002025
    -
    20,000
    20,0002028
    -
    48,000
    48,000$9,369,000
    $497,000
    $9,866,000




|b. | Future income taxes reflect the net tax effect of
      temporary differences between carrying amount of assets and liabilities
      for financial reporting purposes and the amounts used for income tax
      purposes. Significant components of the Companys future tax assets and
      liabilities are as follows:
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



10/31/08
    10/31/07
    10/31/06Unused non-capital losses
    $ 3,255,780
    $4,375,299
    $4,109,291Valuation
      allowance
    (3,255,780)
    (4,375,299)
    (4,109,291)$ -
    $ -
    $ -


F-28

---

MICROMEM TECHNOLOGIES INC. (A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Expressed in United States dollars)

October 31, 2008 and 2007




|c. | The reconciliation of income tax attributable to
      continuing operations computed at the statutory tax rates to income tax
      expense is as follows:
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------



10/31/08
    10/31/07
    10/31/06Consolidated accounting loss before income
      taxes
    (5,416,725)
    (2,811,378)
    (4,058,150)Add non-deductible
      items
    1,067,414
    440,463
    2,098,500Loss for tax purposes
    (4,349,311)
    (2,370,915)
    (1,959,680)Statutory rates
    33%
    36%
    36%Expected tax recovery
    1,435,273
    853,529
    705,484Tax benefit not
      recognized
    (1,435,273)
    (853,529)
    (705,484)-
    -
    -


14. Management compensation and related party
transactions:

|(a) | Chairman:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    | On May 29, 2005, the Company entered into a new
      employment agreement with the Chairman for a period from January 1, 2005
      through September 30, 2009. Under the terms of the agreement, the Chairman
      has been retained to provide certain management services to the Company.
      The Company has agreed to provide compensation based on a percentage of
      the increase of the market capitalization on a year-over year basis
      commencing as of December 31, 2005 subject to a minimum annual
      compensation amount of $150,000 Canadian funds ($125,000 U.S. funds at
      October 31, 2008 exchange rates). At the Companys option it can pay cash
      or issue common shares as compensation providing that the cumulative
      maximum number of shares that it can issue under the agreement is 2
      million common shares. The Company determined that the compensation
      expense in fiscal 2008 was $501,278 Canadian funds ($416,171 U.S. funds at
      current exchange rates) under this agreement (2007: $292,542 Canadian
      funds or $309,232 U.S. funds).
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    | The total compensation paid to the Chairman during the
      year is summarized as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              



Cash
      Compensation
    
    
    Stock Option Expense2008
    $
    416,171
    
    $
    -2007
    
    309,232
    
    
    -2006
    
    133,600
    
    
    416,250


F-29

---

MICROMEM TECHNOLOGIES INC. (A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Expressed in United States dollars)

October 31, 2008 and 2007




|b. | Management and consulting fees:                                                                                                                                                                                                                                                                                                                         
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                         
|   | Included in professional fees as reported are management
      and consulting fees paid or payable to individuals (or companies
      controlled by such individuals) who served as officers and directors of
      the Company. The total compensation paid to such parties during the fiscal
      years ending October 31, 2006 - 2008 is as
follows:



Cash
      Compensation
    
    
    Stock Option Expense2008
    $
    825,748
    
    $
    637,8352007
    $
    563,000
    
    $
    105,0002006
    $
    611,000
    
    $
    1,165,000


The above-noted compensation has been
  included in the Consolidated Statement of Operations, Comprehensive Loss and
  Deficit under the caption Professional, Other fees and Salaries, which total
  amount reported includes:

2008
    
    
    2007
    
    
    2006Professional and other fees
    $
    2,021,786
    
    $
    1,250,984
    
    $
    1,017,859Salaries and wages
    
    241,571
    
    
    111,109
    
    
    172,169Stock compensation expense
    
    1,041,414
    
    
    269,216
    
    
    2,058,560$
    3,304,771
    
    $
    1,631,309
    
    $
    3,248,588




|c. | Cost sharing agreements:                                                                                                                                                                                                                                                                                                                               
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                        
|   | In the normal course of business, the Company has entered
      into cost sharing arrangements with companies where certain senior
      officers and directors exercise significant influence. These transactions,
      which were measured at the exchange amount on the date of the transaction,
      relate to salaries, rent and other expenses.
|   |                                                                                                                                                                                                                                                                                                                                                        
|   | The net expenses reported by the Company in these expense
      categories are summarized as follows:                                                                                                                                                                                                                                                  



Rent
    
    
    Salaries
    
    
    Other
    
    
    Total2008
    $
    30,000
    
    $
    242,000
    
    $
    1,000
    
    $
    273,0002007
    
    20,000
    
    
    121,000
    
    
    3,000
    
    
    147,0002006
    
    1,000
    
    
    154,000
    
    
    3,000
    
    
    158,000


In 2008 the gross amount of these expenses was $447,000 and the
Company rebilled $174,000 of these costs to these related companies. At October
31, 2008 the Company reports $116,000 of balances due from such parties for
these expenses and has reserved $82,000 due to uncertainty of collection.

F-30

---

MICROMEM TECHNOLOGIES INC. (A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Expressed in United States dollars)

October 31, 2008 and 2007


15. Commitments:

|a. | License Agreement:                                                                                                                                                                                     
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                        
|   | In June 2005, the Company signed a license agreement
      (the License Agreement) with the U of T and the Ontario Centres of
      Excellence (including MMO and CITO) (collectively OCE)
whereby:
|   |                                                                                                                                                                                                        
|   |                                                                                                                                                                                                        
|   |                                                                                                                                                                                                        
|   |                                                                                                                                                                                                        
|   |                                                                                                                                                                                                        
|   |                                                                                                                                                                                                        
|   |                                                                                                                                                                                                        
|   |                                                                                                                                                                                                        
|   |                                                                                                                                                                                                        
|   |                                                                                                                                                                                                        
|   |                                                                                                                                                                                                        
|   |                                                                                                                                                                                                        
|   |                                                                                                                                                                                                        
|   |                                                                                                                                                                                                        
|   |                                                                                                                                                                                                        
|   |                                                                                                                                                                                                        
|   |                                                                                                                                                                                                        
|   |                                                                                                                                                                                                        
|   |                                                                                                                                                                                                        
|   |                                                                                                                                                                                                        

F-31

---

MICROMEM TECHNOLOGIES INC. (A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Expressed in United States dollars)

October 31, 2008 and 2007




|   |                                                                                                                                                                                    | At any point after which the Company has paid the UofT
      five hundred thousand Canadian dollars (CDN$500,000), the Company may at
      its option buy out the obligation to pay royalties under the License
      Agreement by paying to the UofT a single lump sum payment equaling the
      greater of five hundred thousand Canadian dollars (CDN$500,000) and an
      amount equal to the total amount of royalties paid by the Company to the
      UofT in the preceding twenty-four months. The Company shall be entitled to
      exercise such option by providing written notice to the UofT along with
      the required payment, after which time the Companys obligation to pay
      royalties as otherwise calculated shall be waived by the UofT.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                    | As a condition to entering the License Agreement the
      Company agreed to a research agreement with a funding commitment of five
      hundred thousand Canadian dollars (CDN $500,000), to continue the further
      research and development of the inventions and the Companys intellectual
      property. In August 2005, the Company made an initial payment of CDN
      $250,000 (approximately $200,000 U.S. funds at the then prevailing
      exchange rates) and, in November 2005, the Company made the second payment
      of CDN $250,000 (approximately $200,000 U.S. funds at the then prevailing
      exchange rates) under the terms of this research agreement.                                                                                
|   |                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|b. | Operating Leases:                                                                                                                                                                 
|   |                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | The Company has operating lease commitments which expire
      in 2010 in respect of its head office. The future minimum annual lease
      payments are approximately as follows:



2009-2010 (annually)
      $113,000


F-32

---

MICROMEM TECHNOLOGIES INC. (A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Expressed in United States dollars)

October 31, 2008 and 2007




|c. | Employment and Consulting Contracts:                                                                                                                                                                                                                                                                                                                              
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                   
|   | The Company has entered into an employment agreement with
      the Chairman through September 30, 2009 as outlined in Note 14 (a) which
      stipulates an annual minimum obligation of $150,000 Canadian funds
      ($125,000 U.S. at current exchange rates). The Company reported $416,171
      of costs with respect to this employment agreement in 2008.
|   |                                                                                                                                                                                                                                                                                                                                                                   
|   | In May 2008, the Company entered into employment
      agreements with the President, the Chief Financial Officer and the
      President of the companys subsidiary, MAST. These agreements stipulate
      obligations as below:                                                                                                                               



Individual
    Term
    Annual ObligationPresident
    24 months
    $160,000 Canadian FundsChief Financial Officer
    24 months
    $150,000 Canadian FundsPresident  MAST
    36 months
    $180,000




|d. | Short term contracts:                                                         
|-- | ------------------------------------------------------------------------------
|   |                                                                               
|   | The Company has entered into short-term consulting
      contracts as follows:
|   |                                                                               
|   | a.                                                                            
|   |                                                                               
|   | b.                                                                            
|   |                                                                               
|   | c.                                                                            

F-33

---

MICROMEM TECHNOLOGIES INC. 
  (A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Expressed in United States dollars)

October 31, 2008 and 2007




|e. | Supplier Commitments:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | In 2008, the Company entered into an agreement with a
      supplier which provides industrial foundry services whereby the Company
      has committed to pay up to $1 million for production services to be
      provided through April 2009. At October 31, 2008 the Company paid $400,000
      under the terms of this supply agreement, and an additional $200,000 was
      paid in November 2008.                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|f. | CTO Contract:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | In January 2005, the Company entered into a consulting
      contract with an arms length individual for her services as Chief
      Technology Officer (CTO) of the Company. The agreement extended for 2
      years with a cancellation clause which could be executed by the Company at
      any time with 4 months notice provided. The base remuneration stipulated
      in the contract was $260,000 per year.                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | In October 2006, the Company extended the consulting
      contract commencing in January 2007 on the same terms, conditions and
      cancellation clauses. In November 2007, the Company served 4 months notice
      to terminate the contract effective March 2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | In February 2008, the former CTO filed a complaint,
      through counsel, with the Department of Labor, Occupational Health and
      Safety Administration ("OSHA"), alleging discriminatory employment
      practices in violation of Section 806 of the Sarbanes Oxley Act of 2002.
      The Company denied the allegations. The Company submitted position
      statements in defense of the allegations in May and July of 2008. In
      August 2008, OSHA ruled in the Company's favor and dismissed the CTO's
      complaint as without foundation. The CTO appealed OSHA's ruling in August
      2008. In November 2008, the former CTO retracted her allegations. OSHA has
      since dismissed the matter with prejudice to the CTO.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | Upon the CTO's retraction and OSHA's dismissal of the
      matter, the Company paid a total of $80,166 which consisted of $54,962
      made payable to the CTO and constituting funds due to the CTO under the
      original notice terms of her contract, and $25,204 for fees and
    costs.                                                                                                                                                                                                                                                                                                                                                                                                                                                     

F-34

---

MICROMEM TECHNOLOGIES INC. (A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Expressed in United States dollars)

October 31, 2008 and 2007


16. Contingencies:

The Company has agreed to indemnify its directors and officers
and certain of its employees in accordance with the Companys by-laws. The
Company maintains insurance policies that may provide coverage against certain
claims.

As outlined in Note 6, certain interests under the Agreement
with Estancia reverted to Estancia on March 9, 2004. On this basis, to the
extent that future revenues are generated by the Company relating directly and
specifically to the Vemram Patents, the Company is obligated to pay Estancia 32%
of the gross profit realized less expenses agreed to by the parties and 32% of
any unit royalties realized less direct expenses.

The Company has issued 200,000 common stock options to a
director which will vest once the Company has realized certain performance
milestones. At October 31, 2008, these milestones have not been achieved and
none of these options have vested (Note 11 (b)).

17. Financial instruments:

|a. | Fair values                                                                                                                                             
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                         
|   | The fair values for all financial assets and liabilities
      are considered to approximate their carrying values due to their
      short-term nature.
|   |                                                                                                                                                         
|b. | Foreign currency balances                                                                                                                               
|   |                                                                                                                                                         
|   | The consolidated financial statements include
      balances/transactions that are denominated in Canadian dollars as
      follows:                    



10/31/08
    
    
    10/31/07Assets
    $
    289,000
    
    $
    303,000Liabilities
    
    829,000
    
    
    1,051,000Expenses
    
    2,111,000
    
    
    1,156,000


18. Reconciliation between Canadian GAAP and
U.S. GAAP:

The Companys consolidated financial statements have been
prepared in accordance with Canadian GAAP which, in the case of the Company,
conform in all material respects with U.S. GAAP except for the allocation of
proceeds received using the relative fair value method of accounting for Unit
private placements.

F-35

---

MICROMEM TECHNOLOGIES INC. (A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Expressed in United States dollars)

October 31, 2008 and 2007




|a. | Research and development expenditures                                                                                                                                                                                                                                                                                                                                                                                                                 
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | Under U.S. GAAP all research and development expenditures
      are expensed as incurred. In that the Company has not deferred any
      research and development expenditures it is in compliance with U.S.
      GAAP.                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|b. | Valuation of Unit private placements                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | The Company has adopted the residual value approach in
      accounting for the value assigned to the common shares and the warrants
      which it has made available in a number of private placement financings.
      Under U.S. GAAP, using standards which are analogous, the valuation of the
      shares and warrants would be determined using the relative fair value
      approach. There is no change in aggregate shareholders equity.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | A reconciliation of these valuation approaches with
      respect to the applicable Unit private placement financings completed by
      the Company is as follows:                                                                                                                                                                                                                                                                                   



2004
    2005
    2008financings
    financings
    financingsResidual value:Financing raised
    $617,000
    $855,500
    $563,840Value assigned to common shares
    $617,000
    $855,500
    $563,840Value assigned to
      attached warrants
    -
    -
    -Relative value:Value assigned to common shares
    $509,000
    $705,000
    $359,146Value assigned to
      attached warrants
    $108,000
    $150,500
    $204,694$617,000
    $855,500
    $563,840


F-36

---

MICROMEM TECHNOLOGIES INC. (A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Expressed in United States dollars)

October 31, 2008 and 2007


A summary of the difference between Canadian and U.S. GAAP in
reporting shareholders equity under these valuation approaches is as follows:

As at October 31, 2007
    Share
    ContributedCapital
    SurplusAs reported using residual valuation under
      Canadian GAAP at October 31, 2007
    $37,166,397
    $22,691,336Adjustment required under relative value
      under U.S. GAAP
    (258,500)
    258,500Restated to U.S.
      GAAP at October 31, 2007
    $36,907,897
    $22,949,836As at October 31, 2008
    Share
    ContributedCapital
    SurplusAs reported using residual valuation under
      Canadian GAAP at October 31, 2008
    $44,380,134
    $22,114,421Adjustment required under relative value
      under U.S. GAAP
    (204,694)
    204,694Restated to U.S.
      GAAP at October 31, 2008
    $44,175,440
    $22,319,115




|c. | U.S. Accounting Policies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | In March 2008, the FASB issued SFAS No. 161, "Disclosures
      about Derivative Instruments and Hedging Activities-an amendment of FASB
      Statement No. 133" ("FAS 161"). FAS 161 changes the disclosure
      requirements for derivative instruments and hedging activities. Entities
      are required to provide enhanced disclosures about (a) how and why an
      entity uses derivative instruments, (b) how derivative instruments and
      related hedged items are accounted for under Statement 133 and its related
      interpretations, and (c) how derivative instruments and related hedged
      items affect an entity's financial position, financial performance, and
      cash flows. The guidance in FAS 161 is effective for financial statements
      issued for fiscal years and interim periods beginning after November 15,
      2008, with early application encouraged. This Statement encourages, but
      does not require, comparative disclosures for earlier periods at initial
      adoption. The Company is currently assessing the impact of FAS
  161.

F-37

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MICROMEM TECHNOLOGIES INC. (A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Expressed in United States dollars)

October 31, 2008 and 2007


In May 2008, the FASB issued SFAS No.
  162, "The Hierarchy of Generally Accepted Accounting Principles" ("SFAS 162").
  SFAS 162 is intended to improve financial reporting by identifying a consistent
  framework, or hierarchy, for selecting accounting principles to be used in preparing
  financial statements that are presented in conformity with U.S. GAAP for nongovernmental
  entities. SFAS 162 is effective 60 days following the Securities and Exchange
  Commission's approval of the Public Company Accounting Oversight Board auditing
  amendments to AU Section 411, "The Meaning of Present Fairly in Conformity with
  Generally Accepted Accounting Principles." The Company does not expect SFAS
  162 to have a material effect on its consolidated financial statements.

In May 2008, the FASB issued Statement
  of Financial Accounting Standards No. 163 ("SFAS 163"), "Accounting for Financial
  Guarantee Insurance Contracts - an interpretation of FASB Statement No. 60."
  SFAS 163 prescribes accounting for insurers of financial obligations, bringing
  consistency to recognizing and recording premiums and to loss recognition. SFAS
  163 also requires expanded disclosures about financial guarantee insurance contracts.
  Except for some disclosures, SFAS 163 is effective for financial statements
  issued for fiscal years beginning after December 15, 2008. The adoption of SFAS
  163 will not have an impact on the results of operations or financial position
  of the Company.

19. Segmented Information:

There is one operating segment of the business being the
development and commercialization efforts with respect to the Company's
proprietary memory and sensor application. There is one market segment being the
North American market for such technology.

20. Subsequent Events:

The following subsequent events are noted:

|a. | Between November 2008 and February 2009 the Company
      completed a series of private placement financings with arms length
      investors pursuant to prospectus and registration exemptions set forth in
      applicable securities laws. The Company secured a total of $794,465 as
      subscription proceeds and issued a total of 1,489,899 common
  shares.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                         
|b. | Officers and directors exercised 32,801 common stock
      options and the Company realized $24,416 of
proceeds.                                                                                                                                                                                                                                                        

|   |                                                                                                                                                                                                                                                                 
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|c. | The Company extended the contracts referred to in Note
      15(d)(a) and Note 15(d)(b) on a month to month basis on similar payment
      terms.                                                                                                               
|   |                                                                                                                                                                                                                                                                 
|d. | The matter disclosed in Note 15(f) pertaining to previous
      allegations of the Companys former CTO were resolved in November 2008
      when the former CTO retracted her allegations and the matter was dismissed
      by OSHA with prejudice to the CTO.

F-38

---

Item 18. Financial Statements

Not applicable.

57

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Item 19. Exhibits

The following exhibits are filed as part of this registration
  statement and attached hereto:

|Exhibit No. 1.1 | Articles of Incorporation of Micromem Technologies Inc.
        and amendments thereto in effect as of January 11, 2000, (Incorporated
        herein by reference to the Company's Form 20-F filed with the Commission
        on January 11, 2000).
|--------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. 1.2 | Articles of Incorporation of Amendment of Micromem Technologies
        Inc. dated as of October 17, 2001 amending the Articles of Incorporation
        of Micromem Technologies Inc. to increase the number of directors to a
        minimum of three and a maximum of ten (Incorporated herein by reference
        to the Company's Form 20-F filed with the Commission on March 26, 2003).                                                                  
|                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|Exhibit No. 1.3 | Articles of Incorporation of Amendment of Micromem Technologies
        Inc. dated as of June 24, 2002 amending the Articles of Incorporation
        of Micromem Technologies Inc. to increase the number of directors to a
        minimum of 3 and a maximum of 12 (Incorporated herein by reference to
        the Company's Form 20-F filed with the Commission on March 26, 2003).                                                                          
|                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|Exhibit No. 1.5 | By-Laws of Micromem Technologies Inc. in effect as of
        January 11, 2002, (Incorporated herein by reference to the Company's Form
        20-F filed with the Commission on January 11, 2000).                                                                                                                                                                                                                                                              
|                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|Exhibit No. 1.6 | Amendment to the By-Laws of Micromem Technologies Inc.
        approved by shareholders on June 29, 2000, deleting the requirement from
        the By-Laws that the President shall be appointed from amongst the directors
        (Incorporated herein by reference to the Company's Form 20-F filed with
        the Commission on March 26, 2003).                                                                                                           
|                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|Exhibit No. 4.1 | Research Collaboration Agreement by and among Micromem
        Technologies Inc., the University of Toronto, Dr. Harry Ruda and Materials
        and Manufacturing Ontario dated October 24, 2002 (referred to in this
        Annual Report at Item 4.B  Business Overview  Recent Developments)
        (Incorporated herein by reference to the Company's Form 20-F filed with
        the Commission on March 26, 2003).                                   
|                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|Exhibit No. 4.2 | Asset Purchase Agreement by and among Micromem Technologies
        Inc., Pageant Technologies Incorporated, Estancia Limited and Richard
        Lienau dated December 10, 2000 (referred to in this Annual Report at Item
        4.A  History and Development of Our Company  Agreement to
        Purchase Estancia Limited Interests), (Incorporated herein by reference
        to the Company's Form 40-F filed with the Commission on February 2, 2001).
|                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|Exhibit No. 4.3 | Technology Development Agreement by and among Pageant
        Technologies Incorporated, Estancia Limited and Richard Lienau dated March
        9, 2001 (referred to in this Annual Report at Item 4.A  History
        and Development of Our Company  Agreement to Purchase Estancia Limited
        Interests), (Incorporated herein by reference to the Company's Form 40-F
        filed with the Commission on February 2, 2001).                        
|                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|Exhibit No. 4.4 | Infrastructure Agreement by and between Micromem Technologies
        Inc. and the University of Toronto dated November 1, 2002 (referred to
        in this Annual Report at Item 4.B  Business Overview  Recent
        Developments) (Incorporated herein by reference to the Company's Form
        20-F filed with the Commission on March 26, 2003).                                                                                                      
|                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|Exhibit No. 4.5 | A second 2-year Research Collaboration Agreement, by
        and among Micromem Technologies Inc., Materials and Manufacturing Ontario
        and the University of Toronto dated November 12, 2003 (referred to in
        this Annual Report at Item 10.C  Material Contracts),
        (Incorporated herein by reference to the Company's Form 20-F filed with
        the Commission on March 19, 2004).                                                  
|                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|Exhibit No. 4.6 | Equipment Transfer Agreement by and between Micromem
        Technologies Inc. and the Governing Council of the University of Toronto
        dated March 1, 2003 (referred to in this Annual Report at Item 10.C 
        Material Contracts), (Incorporated herein by reference to the Company's
        Form 20-F filed with the Commission on March 19, 2004).                                                                                              
|                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|Exhibit No. 4.7 | Collaborative Research Agreement by and among Micromem
        Technologies Inc., Communications and Information Technology Ontario,
        the University of Toronto and Dr. Harry Ruda dated December 10, 2002 (referred
        to in this Annual Report at Item 10.C  Material Contracts),
        (Incorporated herein by reference to the Company's Form 20-F filed with
        the Commission on March 19, 2004).                                     



58

---



|Exhibit No. 4.8  | Revised License Agreement by and between Micromem
        Technologies Inc. and the University of Toronto dated June 13, 2005. (Incorporated
        herein by reference to the Companys Form 20-F with Commission on
        February 28, 2006).
|---------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                 |                                                                                                                                                                                                                                                   
|Exhibit No. 4.9  | Employment Agreement by and between Micromem Technologies
        Inc. and Ms. Cynthia Kuper dated January 28, 2005. (Incorporated herein
        by reference to the Company's Form 20-F filed with the Commission on February
        28, 2006).
|                 |                                                                                                                                                                                                                                                   
|Exhibit No. 4.10 | Employment Agreement by and between Micromem Technologies,
        Inc. and Sam Fuda dated May 29, 2005. (Incorporated herein by reference
        to the Company's Form 20-F filed with the Commission on February 28, 2006).                    
|                 |                                                                                                                                                                                                                                                   
|Exhibit No. 4.11 | Employment Agreement by
        and between Micromem Technologies and Joseph Fuda dated May 28, 2008 (filed
        herewith).                                                                                                                    
|                 |                                                                                                                                                                                                                                                   
|Exhibit No. 4.12 | Employment Agreement by
        and between Micromem Technologies and Dan Amadori dated May 28, 2008 (filed
        herewith).                                                                                                                    
|                 |                                                                                                                                                                                                                                                   
|Exhibit No. 4.13 | Employment Agreement by
        and between Micromem Technologies and Steven Van Fleet dated May 28, 2008
        (filed herewith).                                                                                                               
|                 |                                                                                                                                                                                                                                                   
|Exhibit No. 4.14 | Agreement with Investor
        Relations Group dated September 1, 2008 (filed herewith).                                                                                                                                                         
|                 |                                                                                                                                                                                                                                                   
|Exhibit No. 4.15 | Agreement with Dreifus
        Associates Limited (DAL) dated June 1, 2008 (filed herewith).                                                                                                                                                      
|                 |                                                                                                                                                                                                                                                   
|Exhibit No. 12.1 | Officer's Certification
        pursuant to Section 302 of the Sarbanes Oxley Act, 2002 (filed herewith).                                                                                                                                         
|                 |                                                                                                                                                                                                                                                   
|Exhibit No. 12.2 | Officer's Certification
        pursuant to Section 302 of the Sarbanes Oxley Act, 2002 (filed herewith).                                                                                                                                         
|                 |                                                                                                                                                                                                                                                   
|Exhibit No. 13.1 | Officer's Certification
        pursuant to Section 906 of the Sarbanes Oxley Act, 2002 (filed herewith).                                                                                                                                         
|                 |                                                                                                                                                                                                                                                   
|Exhibit No. 13.2 | Officer's Certification
        pursuant to Section 906 of the Sarbanes Oxley Act, 2002 (filed herewith).                                                                                                                                         
|                 |                                                                                                                                                                                                                                                   
|Exhibit No. 14.1 | Independent Auditors'
        Consent of Schwartz Levitsky Feldman LLP.
    (filed herewith).                                                                                                                                                     

*Portions of this exhibit have been omitted pursuant to a
  request for confidential treatment.

59

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SIGNATURES

The Registrant hereby certifies that it meets all of the requirements
  for filing on Form 20-F and that it has duly caused and authorized the undersigned
  to sign this annual report on Form 20-F on its behalf.

| | MICROMEM TECHNOLOGIES INC.
| | --------------------------
| |                           
| | By:                       
| | Name: Joseph Fuda         
| | Title:                    
| |                           
| | By:                       
| | Name: Dan Amadori         
| | Title:                    

Dated: February 18, 2009

60

---