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

Commission File No. 0-26005
___________

MICROMEM TECHNOLOGIES INC

Ontario, Canada

777 Bay Street, Suite 1910,
Toronto, Ontario M5G 2E4, Canada
Tel: (416) 364-6513
Fax: (416) 360-4034

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

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

58,063,437 Common Shares

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 which financial statement item the
Registrant has elected to follow:

Item 17X     Item 18



|           | 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                                                   | 7   
|Item 5.    | Operating and Financial Review and Prospects                                 | 16  
|Item 6.    | Directors, Senior Management and Employees                                   | 24  
|Item 7.    | Major Shareholders and Related Party Transactions                            | 29  
|Item 8.    | Financial Information                                                        | 29  
|Item 9.    | The Offer and Listing                                                        | 30  
|Item 10.   | Additional Information                                                       | 31  
|Item 11.   | Quantitative and Qualitative Disclosures about Market Risk                   | 38  
|Item 12.   | Description of Securities Other Than Equity Securities                       | 38  
|           |                                                                              |     
|           | Part II                                                                      |     
|           |                                                                              |     
|Item 13.   | Defaults, Dividend Arrearages and Delinquencies                              | 38  
|Item 14.   | Material Modifications to the Rights of Security Holders and Use of Proceeds | 39  
|Item 15.   | Controls and Procedures                                                      | 39  
|           |                                                                              |     
|           | Part III                                                                     |     
|           |                                                                              |     
|Item 16.   | Not Applicable                                                               | 39  
|Item 16A   | Audit Committee Financial Expert                                             | 39  
|Item 16B   | Code of Ethics                                                               | 39  
|Item 16C   | Principal Accountant Fees and Services                                       | 40  
|Item 16D   | Exemptions from the Listing Standards for Audit Committees                   | 40  
|Item 17.   | Financial Statements                                                         | 40  
|Item 19.   | Exhibits                                                                     | 71  
|Signatures | 72                                                                          





PART I

INTRODUCTION

Abbreviations

Reference throughout this document to Micromem Technologies
Inc. ("Micromem") and/or its affiliates may be made through abbreviated forms of
their respective names. See "Item 4. Information on the Company - C.
Organizational Structure" for a summary of these abbreviated names.

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 the Company and the industry in which the
Company operates, management's beliefs, and assumptions made by 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. The Company's 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
"Description of Business" 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 selected consolidated
financial data of the Company in United States dollars as of and for each of the
five fiscal years ended October 31, 2004, 2003, 2002, 2001 and 2000. The
selected consolidated financial data has been derived from the audited
consolidated financial statements of the Company. All information contained in
the following table should be read in conjunction with the audited consolidated
financial statements of the Company and the notes thereto and "Item 5 -
Operating and Financial Review and Prospects", included elsewhere in this Form.

Selected balance sheet information



|Years ended October 31,
|-----------------------
|                       
|Working capital        
|Capital Assets         
|Total Assets           
|Shareholders' equity   

1



Selected statement of operations and deficit information

|Years ended October 31,                                
|-------------------------------------------------------
|                                                       
|Interest &
    other income                            
|Research and development                               
|General and administrative
    expenses                
|Write-down of royalty rights                           
|Write-down of patents and
    trademarks               
|Loss (gain) on disposal of
    assets                  
|Loss before income taxes                               
|Provision for income taxes (recovery)                  
|Net loss                                               
|Loss per share-basic & diluted                         
|Weighted average number of basic
    and diluted shares

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.

Currency and Exchange Rates

The financial statements of the Company are all expressed in
United States dollars. All other financial data appearing in this Form 20-F are
expressed in United States dollars ("US $"), 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
average monthly rate of exchange which rates 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 (the "Noon Buying Rate"), as expressed in the
amount of U.S. Dollars equal to one Canadian dollar.



2004
    2003
    2002
    2001
    2000High for period
    0.8432
    0.7738
    0.6654
    0.6711
    0.6984Low for period
    0.7288
    0.6350
    0.6179
    0.6293
    0.6527End of period
    0.8319
    0.7738
    0.6339
    0.6294
    0.6568Average for period
    0.7717
    0.7200
    0.6368
    0.6493
    0.6779




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.



January
 2005
    December 
    2004
    November 2004
    October 
    2004
    September 
    2004
    August 
    2004High
    1.2470
    1.2467
    1.2274
    1.2755
    1.3140
    1.3340Low
    1.2055
    1.1919
    1.1808
    1.2240
    1.2715
    1.3008






2



On February 24, 2005, the noon buying rate for one Canadian
dollar as quoted by the Bank of Canada was US $0.8054

B.     Capitalization and Indebtedness

Not Applicable.

C.     Reasons for the Offer and Use of Proceeds

Not Applicable.

D.     Risk Factors

The Company and the Company's investors face a number of
significant risks, which are described below.



Going Concern



There is substantial doubt about the Company's ability to
continue as a going concern because of the substantial losses incurred in the
development stage. In addition the Company is still in the development stage and
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 sources
will be available in the future. As such, the realization of the Company's
assets and discharge of its liabilities is subject to significant uncertainty.



The Company's ability to continue as a going concern is
dependent upon completing the development of its technology for a particular
application, achieving profitable operations, obtaining additional financing and
successfully bringing its technologies to the 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.



The Company Currently Has No Operating Revenue



The Company has no revenues and there is no certainty that it
will generate revenues in the near future. If the Company fails to enter into
any license agreements it will have no revenues and even if it enters into such
agreements the amount of the revenues it receives will depend on the terms it is
able to get from each licensee and the ability of each licensee to compete in
its particular market.



The Company's Technology is under Development



The Company's technology is currently under development and
is therefore not yet proven to be commercially viable. In order that the Company
may be able to procure revenue generating licensing arrangements, significant
development work remains to be completed.



The Company will face intense competition when its
technologies are developed to a point at which they may be sold and/or licensed.
The Company will be required to introduce its technologies 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, and have
significantly greater financial and other 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.

The success of the Company's Technology will be determined by
the following factors for which it has not yet been tested or measured: (i) the
ability of manufacturers to incorporate the technology into existing
manufacturing capabilities without significant retooling and material costs;
(ii) price competitiveness; and (iii) availability and costs of raw materials.

3



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



Products Using the Technology Have Not Yet Been Manufactured



The Company's success depends on whether its technology can
be manufactured in large quantities at competitive prices. Failure to be able to
manufacture large quantities at competitive prices will seriously hurt the
Company's ability to generate revenues.



Competitors are seeking to develop Other Magnetic based
Memory Technologies

MRAM is a very crowded and competitive space. The Company
understands that many other companies have intensive R&D efforts under way in
connection with non-volatile random access memory (RAM). Much work is being done
in the magnetic RAM space at companies such as NVE, Cypress, Freescale,
Phillips, Motorola and others. Other R&D efforts at IBM, Hewlett Packard and
Nantero are focused on non-magnetic based non-volatile RAM. While these
companies may be considered competitors of Micromem, they focus on high density
RAM applications, whereas Micromem's market entry point is aiming at low density
applications. The low density MRAM space is much less competitive. The companies
and institutions the Company sees as more direct competitors are Honeywell,
Naval Research Laboratories, Ramtron and NVE. All of these companies have
substantial resources at their disposal.

The Company 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 the following:

• Functionality 
        • Technology 
        • Performance 
        • Reliability 
        • System scalability 
        • Price 
        • Quality 
        • Product availability 
        • Customer service 
        • Brand recognition

The Company must address each of these factors effectively in
order to successfully compete. If the Company is unable to adapt its products
and services to changes in these competitive factors, it may never gain market
share.



Failure To Receive Continued Financing Will Cause the
Business to Suffer



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



> Because Much of the Company's Success and Value Depends
>     On Its Ownership and Use of Intellectual Property, the Company's Failure to
>     Protect That Property Could Adversely Affect Its Future Growth and Success



4



The Company's success will depend on its ability to protect
its intellectual property. The Company relies primarily on patent, copyright,
trademark and trade secret laws, as well as nondisclosure agreements and other
methods to protect its proprietary technologies and processes. Despite its
efforts to protect its proprietary technologies and processes, unauthorized
parties may attempt to copy or otherwise obtain and use its products or
technology without authorization, develop similar technology independently or
design around its patents. Policing unauthorized use of the Company's products
is expensive and difficult, and the Company cannot be certain that the steps it
has taken will prevent misappropriation or infringement of its intellectual
property.



> Intellectual Property Claims Against the Company, No
>     Matter How Groundless, Could Cause Its Business To Suffer



The Company's future success and competitive position depend
in part on its ability to retain exclusive rights to its technology, including
any improvements that may be made on that technology from time to time by the
Company or on its behalf. While the technology is patented or subject to pending
patent applications in the U.S.A. and the Company knows of no challenge that has
been made either against the technology or against the Company's rights to it,
and has 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 the Company, no matter how groundless, the result
would be significant expense, adversely affecting further development, licensing
and sales, and diverting the efforts of its technical and management personnel
and, in the event of an adverse outcome, substantial damages and possible
restrictions on the further development licensing and use of the technology.



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



No Foreseeable Dividends



Micromem has never paid a dividend on its securities.
Micromem does not anticipate paying dividends in the foreseeable future.



Issuance of Additional Securities and Dilution



The board of directors of Micromem has the authority to issue
additional Common Shares or other securities of the Company without the prior
consent or vote of the Company's shareholders. The issuance of additional Common
Shares may have the effect of diluting the proportionate equity interest and
voting power of holders of Shares.



Dependence on Key Personnel



The senior managers and employees of the Company are
Salvatore Fuda, who serves as the Chairman, Joseph Fuda, who serves as the Chief
Executive Officer, and Dr. Cynthia Kuper who recently joined the Company as
Chief Technology Officer. Dr. Harry Ruda, and a number of researchers forming
the team that he oversees, are key technical personnel, engaged pursuant to
research collaboration agreements between the Company and the University of
Toronto. The Company's success will depend on its ability to retain certain of
its senior management and key technical personnel. It will also depend, to a
large extent, on its ability to attract and retain additional highly skilled
personnel in the future.



The Company may be materially affected by global economic and political
conditions

The Company's ability to generate revenue may be adversely
affected by the prevailing uncertainty of the global economy. During 2004 and
2003, the Company implemented various cost-saving measures. The Company cannot
provide any assurance that its cost-saving measures will be successful or
sufficient to allow the Company to commence generating revenues in future
periods because revenues will be dependent, among other things, upon completion
of the development of the Company's technologies and procuring of revenue
generating contracts.

The Company's
financial condition and results of operations could also be materially affected
by unstable global political conditions. Terrorist attacks or acts of war could
significantly disrupt the Company's operations and the operations of the
Company's future customers, suppliers, distributors, or resellers. The

5



Company cannot predict the potential impact on its financial
condition or results of operations should such events occur.



> The Company may be materially affected by rapid technological change and
>     evolving industry standards

Short product life cycles are inherent in high-technology
industries due to rapid technological change and evolving industry standards.
The Company's future financial condition and results of operations depend on its
ability to respond effectively to these changes. The Company cannot provide any
assurance that it will be able to successfully develop, manufacture, and market
innovative new products or adapt its current products to new technologies or new
industry standards. In addition, 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 to
predict the rate adoption of its ferromagnetic memory technology.

> The Company may be materially affected by
> risks associated with new product development

New product research and development is complex and requires
the investigation and evaluation of multiple alternatives, as well as planning
the design and manufacture of those alternatives selected for further
development. Research and development efforts could be adversely affected by any
of the following:

• Hardware and software design flaws
    
        • Product development delays 
        • Changes in data storage technology
    
        • Changes in operating systems
    
        • Changes in industry standards

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. The Company has experienced product development delays in
the past that adversely affected its financial position.

> The Company may be materially affected by the risks associated with
>     developing and protecting intellectual property

The Company depends on its ability to develop new
intellectual property that does not infringe on the rights of others. The
Company cannot provide any assurance that it will be able to continue to develop
such new intellectual property.

The Company relies on a combination of U.S. patent,
copyright, trademark, and trade secret laws to protect its intellectual property
rights. The Company enters into confidentiality agreements relating to its
intellectual property with its employees and consultants.

Due to financial constraints, the Company has determined not
to file patent and trademark registration applications with foreign governments;
this may expose its technologies to infringement in foreign jurisdictions.

Despite all of the Company's efforts to protect its
intellectual property rights, unauthorized parties may attempt to copy or
otherwise obtain or use its intellectual property. Monitoring the unauthorized
use of the Company's intellectual property is difficult, particularly in foreign
countries. The Company cannot provide any assurance that it will be able to
adequately protect its intellectual property.

> The Company may be materially affected if it is unable to attract,
>     retain, and motivate key employees

The Company's future success depends in large part on its
ability to attract, retain, and motivate its key employees. The Company faces
significant competition for individuals who possess the skills required to
design, develop, manufacture, and market the Company's technologies. An
inability to successfully attract, retain, and motivate these employees in the
future could have an adverse effect on the Company's future financial condition
and results of operations.



6



Volatility of Common Share Price and Volume

Shareholders of Micromem may be unable to sell significant
numbers of common shares of Micromem on the NASD OTC-BB (where the common shares
are currently traded) without a significant reduction in the price of the
shares.

Furthermore, there can be no assurance that the Company will
be able to meet the listing requirements of, or achieve listing on, any other
stock exchange. The market price of the common shares of the Company may be
affected significantly by factors such as fluctuations in the Company's
operating results, announcements of technological innovations or new products by
the Company or its competitors, action by governmental agencies against the
Company or the industry in general, developments with respect to patents or
proprietary rights, public concern as to the safety of products developed by the
Company or others, the interest of investors, traders and others in public
companies such as the Company 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
performances, underlying asset values or prospects of such companies.

> Foreign Exchange Risks

Because the Company has historically raised funding in U.S.
dollars, and its costs are denominated in Canadian dollars it is subject to
foreign exchange risks. A decrease in the value of either of the U.S. dollar
relative to the Canadian dollar could affect its costs and potential
profitability. The Company does not currently hold forward exchange contracts or
other hedging instruments to exchange foreign currencies for U.S. dollars to
offset currency rate fluctuations.

> Trading Activity in the Company's Stock may be Reduced

Broker-dealer practices in connection with transactions in
"penny stocks" are regulated by penny stock rules adopted by the Securities and
Exchange Commission. Penny stocks, like shares of the Company, generally are
equity securities with a price of less than $5.00 (other than securities
registered on some national securities exchanges or quoted on Nasdaq). The penny
stock rules require a broker-dealer, prior to a transaction in a penny stock not
otherwise exempt from the rules, to deliver a standardized risk disclosure
document that provides information about penny stocks and the nature and level
of risks in the penny stock market. The broker-dealer also must provide the
customer with current bid and offer quotations for the penny stock, the
compensation of the broker-dealer and its salesperson in the transaction, and,
if the broker-dealer is the sole market maker, the broker-dealer must disclose
this fact and the broker-dealer's presumed control over the market, and monthly
account statements showing the market value of each penny stock held in the
customer's account. In addition, broker-dealers who sell these securities to
persons other than established customers and "accredited investors" must make a
special written determination that the penny stock is a suitable investment for
the purchaser and receive the purchaser's written agreement to the transaction.
Consequently, these requirements may have the effect of reducing the level of
trading activity, if any, in the secondary market for a security subject to the
penny stock rules, and investors in our common stock may find it difficult to
sell their shares.



ITEM 4.         INFORMATION ON THE COMPANY

A.     History and Development of the 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. Formerly known as AvantiCorp International
Inc., Micromem changed its name to Micromem Technologies Inc. on January 14,
1999. Micromem was incorporated under the laws of the Province of Ontario,
Canada, on October 21, 1985 as Mine Lake Minerals Inc. It subsequently changed
its name to Avanti Capital Corp. on June 23, 1988 and to AvantiCorp
International Inc. on April 30, 1992 before becoming Micromem Technologies Inc.
on January 14, 1999 in connection with its acquisition of Pageant Technologies
Incorporated ("Pageant International").

7



Purchase of Pageant International

On January 11, 1999, Micromem completed the acquisition of
100% of the capital stock of Pageant International, in exchange for 32,000,000
Common Shares and warrants for the purchase of an additional 1,000,000 Common
Shares (the "Warrants"), representing 88.94% of the outstanding Common Shares of
Micromem (89.24% assuming exercise of all 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 the 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 (the "VEMRAMPatents"). The VEMRAM technology also includes
certain improvements to the VEMRAM Patents, many of which are the subject of
pending patent applications. 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 ("Estancia"),
pursuant to a Joint Ownership and Licensing Agreement dated September 17, 1997
(the "JointOwnership and Licensing Agreement") which Ataraxia Corp.
assigned to Pageant International on October 22, 1997 with the written consent
of Estancia. 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 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 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 50% of the proceeds from such transaction. This
provision made it clear that in the event of the sale of all of the VEMRAM
technology rights, 50% of the proceeds would go to Estancia, reflecting its 50%
undivided interest in the technology, rather than 40% reflecting its royalty
rights under the VEMRAM License. Estancia is controlled by John Zammit. Mr. Zammit
has no direct control relationship with Micromem, and the management of Micromem
is not aware that Mr. Zammit has any indirect control relationship with Micromem
or any control relationship, direct or indirect, with Ataraxia Corp.

The acquisition of Pageant International was treated as a
reverse takeover for accounting purposes. A reverse takeover is deemed to have
occurred when a company uses so much of its voting stock to purchase another
company that the former stockholders of the acquired company could be said to
have ended up controlling the company doing the acquiring. 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 Micromem shareholders and therefore have been deemed to have
apparent control. The consolidated financial statements of Micromem are
presented as a continuation of the financial position and results of Pageant
International, even though Micromem remains 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 are
recorded at $100, the historical value at which they were carried on the Pageant
International balance sheet.

Agreement to Purchase Estancia Interests

On December 10, 2000, Micromem and Pageant International
entered into an agreement (the "Purchase Agreement") with Estancia Limited and
Richard M. Lienau ("Lienau") to purchase from Estancia and Lienau all interests
(the "Estancia Interests") in the VEMRAM Patents and the VEMRAM technology and

8



all other rights, interests and entitlements held by Estancia and Lienau as set
forth in the Joint Ownership and Licensing Agreement.



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

| | i.   | $10.0 million was paid on closing (after receipt of
        regulatory approvals), in the form of 2,007,831 common shares of
        Micromem (or $8.0 million worth of Micromem's common shares ("Micromem
        Shares") based on the close price on the closing date, being $3.98 per
        share) and $2.0 million in cash;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | ii.  | $20.0 million, would be paid if and when either: (a)
        certification is received from Honeywell Federal Manufacturing &
        Technologies that fully integrated, randomly addressable memory matrices
        of VEMRAM technology have met certain stipulated performance standards,
        or (b) Micromem or any of its affiliates executes 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; payable in the form of cash and Micromem Shares to be
        determined by Pageant International provided that a minimum of 50% of
        the $20.0 million shall be paid in Micromem Shares valued at the close
        of trading on the date of such certification receipt, sale or licensing;
        and
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | iii. | $20.0 million, would be paid if and when Micromem or
        any of its affiliates executes a definitive agreement for the sale or
        licensing of any technology (including the VEMRAM Technology) owned by
        Micromem 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 Micromem Shares to be determined by Pageant International
        provided that a minimum of 50% of the $20.0 million shall be paid in
        Micromem Shares valued at the close of trading on the date of execution
        of the license.                                                                                                                                                                                                                                         



Notwithstanding the provisions triggering the two $20.0
million payments (the "Trigger Events"), Pageant International had the right to
pay any portion or all of the Purchase Price at any time following the Closing
Date through a combination of cash and a number of common shares of Micromem,
provided that a minimum of 50% of such payment was through the issuance of
common shares of Micromem.



At the closing of the Purchase Agreement, on March 9, 2001,
Estancia was required to and it did enter into a three year technology
development agreement with Pageant International for the provision of the
services of Richard Lienau in respect of the continued development of VEMRAM
technology (the "Technology DevelopmentAgreement"). The Technology
Development Agreement provided for fees to Estancia 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 to $107,500 during the periods from June 1 to December
2002, and during the extended period.



Pursuant to the Purchase Agreement, because one or both of
the Trigger Events did not occur prior to three years following the Closing
Date, on March 9, 2004, Pageant International was deemed to have conveyed a 40%
undivided interest in the VEMRAM Patents, and to have granted a 32% gross
profits royalty (as described below), to Estancia, 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 would be required to pay Estancia 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 properly documented reasonable
expenses directly related to the obtaining of said royalties.



9



Changes to Board of Directors and Management

On January 11, 1999, immediately following the acquisition of
Pageant International by Micromem, Stephen Fleming, who had been serving as
President and Chief Executive Officer of Pageant USA, was elected to Micromem's
Board to join Salvatore Fuda and Ross McGroarty, who had served as directors
since 1992 and 1988, respectively. The Board then elected Mr. Fuda as Chairman,
Mr. Fleming as President and Chief Executive Officer, and Mr. McGroarty, who had
been serving as President, as Executive Vice President and Secretary of Micromem.
Subsequently, on March 18, 1999, Robert Patterson, who had been serving as
Chairman of the Board and Vice President of Corporate Development of Pageant
USA, was elected President and Chief Executive Officer of Micromem to replace
Mr. Fleming. On November 15, 1999, Antonio Lopes was appointed Chief Financial
Officer of Micromem. On June 15, 2000, Mr. McGroarty resigned as Executive
Vice-President of Micromem.

At the annual meeting of shareholders of Micromem held on
June 29, 2000, the following individuals were elected as directors of Micromem:
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 Micromem's Chief Financial Officer having ended
on June 5, 2000, Raj Viswanathan was appointed as Chief Financial Officer. The
term of Robert Patterson's employment as Micromem's President and Chief
Executive Officer having ended, Salvatore Fuda was reappointed as Chairman and
he was appointed as Chief Executive Officer on June 29, 2000. Also on June 29,
2000, Manoj Pundit was appointed as Executive Vice-President and General Counsel
of Micromem. On February 21, 2001, Dr. Dale Hensley was appointed as Chief
Operating Officer of Micromem and Pageant USA.

At the annual meeting of shareholders of Micromem held on
March 14, 2001, Andrew Brandt, Stephen Fleming, Salvatore Fuda, Charles Harnick,
George Kennedy, Manoj Pundit and David Sharpless were elected as directors of
Micromem.

At a meeting of the Board of Directors held on March 14,
2001, a resolution was passed appointing Dale Hensley as a director of Micromem.
At a meeting of the Board of Directors held on February 13, 2002, the Board
accepted the resignation of Salvatore Fuda as President and Chief Executive
Officer of Micromem due to health reasons. Salvatore Fuda continues to serve as
Chairman and Director of Micromem. In his place, the Board appointed Joseph Fuda
to serve as President and Chief Executive Officer. Mr. J. Fuda was also
appointed as a director. 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 Chief Operating Officer was
terminated by Micromem and by Pageant USA effective as of September 24, 2002.
Raj Viswanathan resigned as Chief Financial Officer of Micromem on October 31,
2002 and as a director of Pageant USA on September 26, 2002. Dr. Hensley
resigned as a director of Pageant USA on September 26, 2002 and as a director of
Micromem effective October 9, 2002. Antonio Lopes was appointed as Chief
Financial Officer of Micromem with effect from November 1, 2002.

At the annual meeting of shareholders of Micromem 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 as directors of Micromem. The terms of all previously elected
directors ended on such date.

At the annual meeting of shareholders of Micromem 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 as directors of Micromem. The terms of all previously elected
directors ended on such date. Dan Amadori replaced Antonio Lopes as Chief
Financial Officer effective as of the annual meeting date. Messrs. Salvatore
Fuda, Joseph Fuda and Manoj Pundit continue to hold their respective offices, as
described above at the date of this Form 20F.

Dr. Cynthia Kuper has joined the Company as Chief Technology
Officer effective January 28, 2005 after serving as Acting Chief Technology
Officer of the Company since September 2004.

10



B.    Business Overview

> The Company is engaged in the development of memory
>     technologies having the characteristic of non-volatility, which is the
>     ability to retain information after power has been shut off.

The Company's Technology is based on the Company's 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 normal to the magnetic field. The Company's 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; therefore, the memory is non-volatile.



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



Until August 2002, Micromem was pursuing the development of
its two unique memory technologies: (i) a memory design with the magnetic bit
aligned horizontally to the substrate (known as "HEMRAM"); and (ii) a memory
design with the magnetic bit aligned vertically to the substrate ("VEMRAM"); and
since (iii) July 2002, Micromem has participated in further magnetic memory
technology research and development pursuant to its collaboration with the
University of Toronto and Dr. Harry Ruda, (collectively; the "Company's
Technology").



The Company has a portfolio of patents and patent
applications protecting the technologies that it is 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 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.



> Company's Technology



The various characteristics of the Company's Technology can
be better understood by describing the three basic types of memory used by
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

11



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. Basically, 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 the requirement for
significantly higher power than DRAM to store data.

Secondary Storage Devices include Floppy Disks,
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. Hard Disks far exceed floppy disks in storage capacity and have
become the standard for mass storage of data to be written and read by the
processor. Both Floppy Disks and Hard Disks 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.

Micromem's 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. Micromem is developing this form of magnetic
random access memory for low density applications, such as RFID, that can
benefit from non-volatile data storage.

> Competition

The Company is aware of others conducting research and
development 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) and Motorola (Phoenix,
Arizona).

Two main centers of MRAM research are at IBM and Infineon.
IBM and Infineon have alternative MRAM technologies based on the giant magneto
resistance (GMR) principle. GMR memory elements consist of two ferromagnetic
layers separated by a conductive nonmagnetic interlayer. The electrical
resistance is high in the absence of 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. MTJ cells have similar sandwiched
structures but the interlayer is insulating instead of conducting. In contrast
to GMR structures in which the sense current usually flows parallel to the
layers, the current in MTJ flows perpendicularly to the layers of the stack.

Neither the current stages of development of these companies'
non-volatile technologies nor their projected development completion dates are
known with a high degree of certainty.

12



Recent Developments - Research and Development and
Collaboration with University of Toronto and Ontario Centres of Excellence Inc.
("OCE Inc.").



On October 24, 2002, Micromem entered into a 2-year research
collaboration agreement ("U of T Research Collaboration Agreement") with
Materials and Manufacturing Ontario ("MMO"), the University of Toronto, and Dr.
Harry Ruda, Chair Professor in Nanotechnology. Through the collaboration,
Micromem has continued its 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, Micromem and MMO have each
provided CDN $272,000 of funding and the combined CDN $544,000 is used to cover
the operating expenses of the research collaboration over a term of two years.
Under the agreement, Micromem maintains its ownership of its portfolio of
patents and intellectual property to date.



On November 1, 2002 ("effective date"), Micromem 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 ("MMF").
Under the terms of the agreement, Micromem has committed to contribute $249,463
(CDN $360,000) in cash to fund the direct costs of MMF. The sum is payable to
University of Toronto as follows:



| | i.   | $83,154 (CDN $120,000) on execution of agreement,
        which was paid;                                
| | ---- | ---------------------------------------------------------------------------------------------------------
| | ii.  | $83,154 (CDN $120,000) at end of the two months
        following the effective date, which was paid; and
| | iii. | $83,155 (CDN $120,000) at end of the four months
        following the effective date, which was paid.   



On December 10, 2002, the Company entered into a
Collaborative Research Agreement with Communications and Information Technology
Ontario ("CITO"), the University of Toronto and Dr. Harry Ruda, Professor of
Physics at the University of Toronto. Under the terms of the agreement, over a
period of two years the Company is required to contribute $63,750 (CDN $92,000)
and $67,632 (CDN $97,600) of in-kind contribution and, CITO is required to
contribute $215,430 (CDN $308,000) for research into "High Density Magnetic
Memory Device Development". In consideration of such contribution, CITO shall
receive 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, the Company entered into an Equipment
Transfer Agreement with the University of Toronto. Under the terms of this
agreement, the Company conveyed equipment having an estimated value of $200,000
(CDN $297,600) to the University for incorporation into the University's
magnetic memory facility for the research and development and fabrication of
magnetic memory.



On November 12, 2003, the Company entered into a second
2-year research collaboration agreement ("Second U of T Research Agreement")
with Materials and Manufacturing Ontario ("MMO") and the University of Toronto.
Through the collaboration, the Company has continued its involvement in the
research and development of magnetic memory technology, carried out by a highly
skilled research team headed and assembled by Dr. Harry Ruda. Under the
agreement, which has a term of two years commencing on the date of the
agreement, the Company has committed to providing $56,130 (CDN $81,000) per year
in cash and $30,770 (CDN $44,400) per year of in kind contributions and MMO has
committed to providing $58,900 (CDN $85,000) in cash. The combined cash
contributions of the Company and MMO, $230,060 (CDN $332,000), will be used to
cover the operating expenses of the research collaboration over a term of two
years. MMO'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 the Company's financial statements. Under the agreement, the
Company maintains its ownership of its portfolio of patents and intellectual
property that was developed prior to or outside the scope of the agreement.

Each research collaboration agreement contemplates a number
of milestones under a comprehensive research plan. The research is carried out
from research facilities at the University of Toronto. Micromem will 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 may
use the technology for educational and research purposes). MMO and CITO, as the
case may be, will be entitled to receive a royalty on Micromem's

13



manufacturing
revenues from the sale of products incorporating the technology developed under
the collaboration. A separate royalty will be negotiated in the future on
revenues to be generated by Micromem from sub-licenses of the technology
developed under the collaboration.

Each of MMO and CITO is one of four Ontario Centres of
Excellence established by the provincial government to promote commercial
research partnerships between universities and industry. The OCE 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
making Ontario more competitive through innovation in science and technology.



On April 1, 2004, MMO, CITO and two other Centres of
Excellence (CRESTech and PRO) merged to become OCE Inc., a non-for-profit,
member based corporation.



In January 2005 the Company entered into an employment
agreement with an arm's length individual for her services as Chief Technology
Officer of the Company. The agreement has a term of 2 years and may be
terminated by the Company at any time with 4 months notice. The remuneration
stipulated in the contract is $260,000 per year and 300,000 options, each option
enabling the holder to purchase one common share of Micromem at $0.80. In
addition, she was previously granted and she continues to hold 100,000 options
(each of which entitle her to purchase one common share of the Company for
$0.68) in connection with her role as Acting Chief Technology Officer since
September 2004. The Chief Technology Officer, among other things, oversees all
research and development of the Company and is responsible for the development
of a rollout strategy for MRAM technology, for sourcing potential licensees and
adopters of MRAM technology and advising management and the Board of Directors
of the Company on technology issues and patent strategies.



> Recent Developments - Equity Financing Transactions



In August 2003, the Company 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, the Company 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 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 August 2004 the investors exercised 2,031,250 Series A Warrants and the
Company thus issued 2,031,250 common shares and 2,031,250 Series B Warrants and
realized proceeds of $162,500.



In December 2003, the Company 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, the Company 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 entitles the holder to purchase one
Common Share and one Series B Warrant for $0.11 until expiry 12 months from the
date of issue. Each Series B Warrant entitles the holder to purchase one
additional Common Share for $0.11 until expiry 12 months from the date of issue.
In October 2004, the private investors exercised 200,000 Series A Warrants and
the Company 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
exercise the balance of their Series A and B Warrants and the Company thus
issued 400,000 common shares and realized proceeds of $44,000.



In December 2003, the Company 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, the Company 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 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 the
Company 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 the Company thus issued 500,000 common shares and
realized proceeds of $40,000.

14





In December 2004 the Company 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,
the Company 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 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 until expiry 24 months from the date of issue.



In January 2005 the Company 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,
the Company 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 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 until expiry 12 months from the date of issue.



In January 2005, the Company arranged a Unit Private placement to several
investors pursuant to prospectus and registration exemptions set forth in
applicable securities laws. Under the private placement the Company is scheduled
to receive up to approximately $883,000 by February 28, 2005 as subscription
proceeds for the sale of up to 1,346,490 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 until expiry 12
months from the issue date. Each Series B Warrant entitles the holder to
purchase one additional Common Share for $0.65 until expiry 12 months form the
date of issue.

Patents and Trademarks



The Company believes that protection of its intellectual
property is important to its ability to generate revenues from its technologies
in the future. The Company has both issued patents and pending patent
applications and also enters into confidentiality and other agreements with
third parties and its employees for protection of its intellectual property and
trade secrets. The Company intends to continue to actively pursue the protection
of its intellectual property. Management will determine from time to time the
jurisdictions where protection will be sought which determination will be based
on a number of factors including: state of development of the Company's
Technology; importance of a particular market for the Company's Technology;
costs of pursuing patent protection in a jurisdiction; and financial position of
the Company.



The Company's magnetic memory patent portfolio comprises
three separate series of patents and patent applications: (i) those covering
technologies developed pursuant to research collaborations with the University
of Toronto and OCE Inc.; (ii) those covering VEMRAM technology; and (iii) those
covering HEMRAM technology.



Environmental Matters



The Company is subject to various environmental protection
regulations imposed by the government in the jurisdiction where it conducts its
development work. The Company is not aware of any current or pending
environmental protection laws or regulations that would have a material impact
on the Company's capital expenditure requirements or competitive position.



C.         Organizational Structure



Micromem has a wholly-owned subsidiary Pageant Technologies
Incorporated ("Pageant International"), which was incorporated under the laws of
the Turks & Caicos Islands and continued to Barbados on May 25, 2001. Pageant
International in turn has a wholly-owned subsidiary, Pageant Technologies (USA)
Inc. ("Pageant USA"), a corporation incorporated in the State of Utah, USA.
Micromem has a second wholly-owned subsidiary, Memtech International Inc. ("Memtech
International"), incorporated under the laws of the Bahamas, which in turn has a
wholly-owned subsidiary, Memtech International (USA) Inc. ("Memtech USA"), a
corporation incorporated in the State of Delaware, U.S.A. Micromem had a third
wholly-owned subsidiary, Micromem Technologies B.V., ("Micromem BV"),
incorporated under the laws of the Netherlands on January 16, 2001, which in
turn had a subsidiary, Micromem Technologies S.p.A., ("Micromem Italy"),
a

15



corporation incorporated under the laws of Republic of Italy on January 25,
2001. Micromem Italy was dissolved pursuant to the laws of Italy on December 27,
2002. Micromem BV was dissolved pursuant to the laws of the Netherlands on
August 11, 2003.

Pageant International and Pageant USA will be sometimes
jointly referred to in this Form 20F as "Pageant". Memtech International and
Memtech USA will be sometimes jointly referred to in this Form 20F as "Memtech".
Micromem BV and Micromem Italy will be sometimes jointly referred to in this
Form 20F as "Micromem Europe". Micromem, Pageant International, Pageant USA,
Memtech International, Memtech USA, Micromem BV and Micromem Italy will be
sometimes collectively referred to in this Form 20F as the "Company." The
following chart sets forth the corporate organizational structure at the date of
this Form 20F.

Organization Chart





D.         Property, Plant and Equipment

Micromem maintains its corporate headquarters in Toronto,
Ontario, Canada. The space occupied by Micromem consists of 3,987 square feet of
commercial office space and is occupied by Micromem pursuant to a lease that
expires December 29, 2005.



The research and development team headed by Dr. Harry Ruda
conduct their research and development at facilities at the University of
Toronto, which comprise both (i) equipment and tools and (ii) a new 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 Micromem's research collaboration agreements with the University of Toronto and
an infrastructure agreement between the University of Toronto and Micromem.

ITEM 5.         OPERATING AND FINANCIAL REVIEW AND PROSPECTS

This discussion and analysis of financial condition and
results of operations for the years ended October 31, 2004, 2003, 2002, 2001 and
2000 should be read in conjunction with the consolidated financial statements
and related notes in this report, which are prepared in accordance with Canadian
generally accepted accounting principles (Canadian GAAP) and are stated in
United States dollars. These principles are also in conformity with United
States generally accepted accounting principles (U.S. GAAP) as described in Note
16 to the Company's 2004 consolidated financial statements.



A.     Operating Results

16





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



Selected statement of operations and deficit information

|                               | (all amounts in United States dollars)
|------------------------------ | --------------------------------------
|                               | 2004                                  
|Interest & other income        | $ (4,746)                             
|Loss for the period            | 944,348                               
|Loss per share-basic & diluted | 0.02                                  



Selected balance sheet information

|                     | (all amounts in United States dollars)
|-------------------- | --------------------------------------
|                     | 2004                                  
|Working capital      | $ 34,685                              
|Capital Assets       | 2,925                                 
|Total Assets         | 474,234                               
|Shareholders' equity | 37,610                                

Fiscal 2004 Compared to Fiscal 2003

The Company had no operating revenue in either year. The only
income reported in 2004 was interest income of $4,746 (2003: $20,121).

The Company's business activity in both 2004 and 2003 was the
continued development of its memory technology. The Company signed Research
Collaboration Agreements with Material and Manufacturing Ontario ("MMO") in 2002
- 2003 and with Communications and Information Technology Ontario ("CITO"), the
University of Toronto and Dr. Harry Ruda in 2002. It entered into an
Infrastructure Agreement with the University of Toronto in 2002. In 2004 the
Company continued these business relationships and met its requirements under
the terms of these agreements.

In 2004 the research milestones that were contemplated in the
various agreements have been met on the timetable originally contemplated and in
August 2004, the Company filed a provisional patent application, in the name of
Dr. Harry Ruda, with respect to certain technology developed pursuant to these
initiatives. Additionally the Company entered into negotiations with Dr. Cynthia
Kuper to serve as the Company's Acting Chief Technology Officer. Dr. Kuper
joined the Company as Chief Technology Officer subsequent to October 31, 2004.

Operating Costs and Expenses declined from $1,470,086 in 2003
to $949,094 in 2004. The significant differences included:

|a. | A decrease in wages and salaries expense from $112,437 in
  2003 to $31,563 in 2004, a decrease of 72%. In 2004 the Company recovered more
  of the salary costs it incurs for its three employees from other companies
  that share facilities with the Company.                                                                                                                                                                                                                                               
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|b. | Included in professional fees as reported are management
  and consulting fee payments made to various companies whose shareholders serve
  as officers and directors of the Company. Such payments totaled $72,000 in
  2004 (2003 - $201,000). During 2004, the Company engaged an Acting Chief
  Technology Officer who became employed as the Chief Technology Officer
  subsequent to the year end.                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|c. | Research and development costs decreased from $490,914 in
  2003 to $378,410 in 2004, a decrease of 23%. The costs associated with the
  various research initiatives were lower in 2004. Included in the expense
  reported in 2004 is a provision of $143,000 (2003: $107,000) relating to a
  research program which was terminated in 2002. During 2004, the Company
  continued its research collaboration with the University of Toronto, Dr. Harry
  Ruda and Materials & Manufacturing Ontario and CITO.

17



|d. | Travel and entertainment costs increased to $77,616 in 2004
  from $17,508 in 2003, an increase of 343%. The Company incurred more travel
  expenses, primarily to US destinations in pursuit of additional financing and
  to further its go forward research initiatives.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                            
|e. | In 2003 the Company wrote down the remaining balance it
  reported in patent and trademark costs ($299,820); this expense was
  non-recurring in 2004.                                                                                                                     
|   |                                                                                                                                                                                                                                                                            
|f. | Amortization expense on capital assets and patents and
  trademarks totaled $5,410 in 2004 versus $73,178 in 2003, a decrease of 93%
  reflecting the lower balance reported as such assets in 2004.                                                                       
|   |                                                                                                                                                                                                                                                                            
|g. | During 2004, the Company raised $73,000 in equity funding
  through the issue of common shares and warrants, $264,500 through the exercise
  of previously issued warrants and $530,000 through the exercise of previously
  granted directors and officers stock options. 

The Company reported a net loss of $944,348 (2003:
$1,449,965) for 2004 or $0.02 loss per share (2003: $0.03 per share).

Fiscal 2003 Compared to Fiscal 2002

The Company had no operating revenue, its only activities
being the development of its memory technologies. Its only income during 2003
was $20,121 (2002: $165,892) being principally interest income.



Costs and expenses decreased 50% from $2,934,444 (excluding
the $10 million write down of royalty rights) in 2002 to $1,470,086 in 2003.



During the year, the Company expended $490,914 (2002:
$1,601,624) related to its efforts on research and development of its memory
technologies, representing 33.4% (2002: 54.6%) of total expenditures (excluding
the royalty rights write down). The research and development expenses primarily
consists of payments made under research agreements with the University of
Toronto, Dr. Ruda and the funding agencies (CITO and MMO), as further detailed
below.



The Company paid $87,432 (CDN $136,175) against its
commitment under the two year research collaboration agreement that it entered
into in October 2002.



Additionally, during 2003, the Company secured funding in
connection with the magnetic memory research program from Communications and
Information Technology Ontario (CITO). Under a Collaborative Research Agreement
among Micromem, CITO, the University of Toronto and Dr. Harry Ruda, in the first
year, CITO provided funding of $106,715 (CDN $154,000) and Micromem has
contributed $31,875 (CDN $46,000).



On March 1, 2003, Micromem entered into an agreement with the
University of Toronto whereby, Micromem contributed equipment and supplies with
an estimated value of $200,000. The equipment was previously used by Pageant
Technologies (USA) Inc., at Pageant USA's former Lee's Summit, Missouri lab
facility, and had a book value of $58,302.



The Company has also continued its efforts to reduce
administrative expenses in all areas of operation. The Company continues to
control costs performed by outside service providers by performing the work
in-house. As a result of these efforts, general administration expenses
decreased by 47.2% to $176,361 in 2003 from $333,964 in 2002 and travel and
entertainment decreased by 76.1% from $73,385 in 2002 to $17,508 in 2003.



Professional fees increased by 15.3% to $303,222 in 2003 from
$262,927 in 2002. Wages and salaries decreased 80.0% to $112,437 in 2003 from
$562,532 in 2002 as a result of reduced employee levels. The primary source of
reductions were from salaries to various executives. For the year ended 2003,
the Company paid to the Chief Executive Officer $90,000 (2002 - $100,000),
Executive Vice President $90,000 (2002 - $162,066), Chief Financial Officer
$21,000 (2002 - $1,590), former Chief Operating Officer $nil (2002 - $216,577)
and the former Chief Financial Officer $nil (2002 - $111,583).

18



Amortization of patents and trademarks commenced in 2002
amounting to an expense of $36,258 (2002: $31,338). During 2003, the Company
wrote off $130,839 relating to discontinued Patents and Trademark applications.
The Company also assessed the remaining patent and trademark applications
registered in the United States and Canada and has expensed the residual net
book value of $168,981 to reflect the uncertain nature of future events. The
Company continues to actively pursue and protect its patents registered in the
United States.



The Company had a net loss of $1,449,965 for 2003 or $0.03
loss per share compared to a net loss of $12,733,015 or $0.27 per share for
2002. The effect on loss per share of the royalty write down in 2002 was $0.22
per share.





Unaudited quarterly financial information

|(all amounts in United States dollars)
|--------------------------------------
|Quarter ended,                        
|                                      
|Total Revenue                         
|Net Loss                              
|Loss per share:
    Basic and diluted 

B.     Liquidity and Capital Resources

Liquidity



The Company currently has no cash flow from operations and
will have none until it is in a position to either license or directly produce
and sell products utilizing its memory technologies.



Micromem currently has 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 its cash flow needs until it can generate
revenues.



Micromem has granted to its 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 his options and there can be no assurance that Micromem will realize
any funds.



Capital Resources



Micromem had no material commitments for capital expenditures
as of October 31, 2004 or 2003. In March 2001, Micromem and its wholly owned
subsidiary, Pageant International, completed the Asset Purchase Agreement
described above. The total consideration payable in respect of the purchased
assets under the Asset Purchase Agreement 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 Micromem of 2,007,831 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 shares of Micromem. None of the stipulated milestones were met
and therefore no amounts were been paid toward the balance of the $40 million
purchase price.



As no further payments toward the purchase price were made to
Estancia under the Asset Purchase Agreement, Pageant 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 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.

19





Critical accounting policies



The Corporation's financial statements are prepared in
conformity with Canadian generally accepted accounting principles, which require
management 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, for, pre-paid
and deposits, pre-development costs and capital assets, patent rights and other
assets, the Corporation relies 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.

By nature, asset valuations are subjective and do not
necessarily result in precise determinations. Should the underlying assumptions
change, the estimated net recoverable amounts and net realizable values may
change by a material amount. The Corporation's significant accounting policies
are set forth in Note 3 to its consolidated financial statements, which should
be read in conjunction with management's discussion of the Corporation's
critical accounting policies and estimates set forth below.

Commitments



|A. | Research Collaboration and Infrastructure Agreements:
|-- | -----------------------------------------------------
|   |                                                      
|   | 1.                                                   
|   |                                                      
|   |                                                      
|   |                                                      
|   |                                                      
|   |                                                      
|   |                                                      
|   |                                                      
|   |                                                      
|   | 2.                                                   
|   |                                                      
|   |                                                      
|   |                                                      
|   |                                                      
|   |                                                      
|   | 3.                                                   

20



|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | On December 10, 2002, Micromem entered into a two year
      Collaborative Research Agreement with Communications and Information
      Technology Ontario ("CITO"), U of T and Dr. Harry Ruda. For the first
      year, CITO provided funding of $106,715 (CDN $154,000) and Micromem
      contributed $31,875 (CDN $46,000). For the second year, CITO provided
      funding of a further $107,715 (CDN $154,000) and Micromem provided funding
      of a further $31,875 (CDN $46,000). Micromem has further provided $67,632
      (CDN $97,600) of in-kind contributions to the research collaboration.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | Micromem will have the first right to sublicense any
      new technology developed under Collaborative Research Agreement with CITO,
      with an annual royalty payable to CITO based on a percentage of revenues
      from the sale of products incorporating the technology developed.                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | 4.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | Equipment Transfer Agreement:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | On March 1, 2003, Micromem entered into an agreement
      with U of T whereby Micromem has contributed equipment and supplies with
      an estimated value of $200,000. The equipment was previously used by
      Pageant Technologies (U.S.A.) Inc., at Pageant's former Kansas City,
      Missouri lab facility until its closure in August 2002.                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|B. | Technology development agreement:                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | On March 14, 2001, the Company's subsidiary, Pageant,
    entered into a three-year technology development agreement with Estancia and
    Lienau to continue the development of the Technology. Under the terms of the
    agreement, Pageant committed to pay Estancia $215,000 per year, payable on a
    monthly basis in arrears, and committed to incur expenditures in connection
    with the 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
    May - October 2002, $197,086 during fiscal 2003 and $143,330 during fiscal
    2004.                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | The development efforts under this agreement ceased in
    July 2002. The Company reports approximately $287,000 in accounts payable
    and accrued liabilities with respect to this agreement as of October 31,
    2004 (at October 31, 2003: $143,000).                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|C. | Operating leases:                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | The Company has operating lease commitments which expire in 2006 in
    respect of its head office. The future minimum annual lease payments are
    approximately as follows:                                                                                                                                                                                                                                                                                                   





2005
    93,5002006
    15,500$ 109,000






21



Contingencies:



|A. | Pageant Technologies (U.S.A.) Inc. has been named as a defendant
    in legal actions relating to tenant improvements on a leased property,
    including an action claiming damages of approximately $887,000 alleging
    breach of contract under a construction contract entered into by Clear Blue
    Laboratories, Inc. ("Clear Blue"). The landlord of the leased property is
    also claiming damages from Pageant Technologies (U.S.A.) Inc. Pageant
    Technologies (U.S.A.) Inc. assigned its rights under the lease to Clear
    Blue, however, Pageant Technologies (U.S.A.) Inc. is allegedly obligated to
    pay the lease payments should the assignee default under the contract. The
    landlord is claiming damages of approximately $887,000.                                                                                                                                   
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | The outcome of these actions is uncertain and Pageant
    Technologies (U.S.A.) Inc. is vigorously defending all actions in which it
    is named as a defendant. It is, therefore, not possible to provide an
    estimate of the financial effects, if any, of the actions. No losses related
    to these actions have been accrued in these consolidated financial
    statements. It is possible that the outcome of these claims could represent
    a material amount.                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | In the normal course of business, the Company and its
    subsidiaries are involved in various legal actions. In management's opinion,
    the ultimate disposition of these actions, individually or in aggregate,
    will not have a material adverse effect on the financial condition of the
    Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|B. | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|C. | Under the terms of the Company's Research
    Collaboration Agreements with Materials & Manufacturing Ontario ("MMO") and
    the University of Toronto and the Collaborative Research Agreement with
    Communications and Information Technology Ontario ("CITO"), the Company is
    committed to potential royalty payments in each case when a license
    agreement is finalized with respect to any technology developed under such
    agreements. As and when the research work is completed the Company will have
    the right to enter into a sub-license agreement with MMO and CITO whereby:                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | a.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | b.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | subject to an overall total payment of $500,000. Once the
    overall payments equal $500,000, then the future royalty rate is reduced to
    a stated percentage in each of case (i) and (ii) above.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|D. | On March 9, 2004, pursuant to the Asset Purchase
    Agreement, dated December 10, 2000, between Micromem, Richard Lienau,
    Estancia Limited and Pageant International, as a result of certain
    milestones not being met, Pageant International was deemed to have conveyed
    a 40% undivided interest in the VEMRAM Patents, and to have granted a 32%
    gross profits royalty to Estancia Limited. As a result, the Company would be
    required to pay a royalty of 32% of the gross profit realized from each
    license of the VEMRAM Patents sold or otherwise transferred by Pageant
    International, less expenses agreed to by the parties, and 32% of any unit
    royalties received by Pageant International as a result of the license or
    sale of the VEMRAM Patents less properly documented reasonable expenses
    directly related to the obtaining of said royalties.

22



Translation of Foreign Currencies

The functional currency of the Company 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; and                                                         
|• | Revenue and expenses are translated using the average
        monthly rate of exchange, which rate approximates the rate of exchange
        prevailing at the transaction dates.
|• | Gains and losses resulting from the translation are
        included in the determination of net los for the period.                                                             

Pre-development costs

The Corporation is in the development stage. 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.



Research and Development; Patents and Licenses



The Company's research and development activities have been
related primarily to research and development of a magnetic random access memory
device, and have been funded through research collaboration agreements between Micromem,
OCE Inc. and the University of Toronto. Research and development expenses for
the year ended October 31, 2004 were $378,410, for the year ended October 31,
2003 were $490,914 for the year ended October 31, 2002, were $1,601,624 and for
the year ended October 31, 2001 were $2,212,679.

Trend Information

The digital memory industry and, more broadly, the
semiconductor industry has historically been characterized by wide fluctuations
in demand for, and supply of, semiconductors and memory technologies. In some
cases, industry downturns have lasted more than a year.

Prior experience has shown that restructuring of operations,
resulting in significant restructuring charges, may become necessary if an
industry downturn persists.

Due to improved prospects for the economy of the United
States and of other parts of the world, many industries may be considering
increasing technology purchases and investments. However, the impact of this
potential improvement in the economy on us is difficult to predict, as any
prospects for revenues is dependent upon the successful completion of the
Company's technology development and the incorporation of any technology that
may be developed by us or pursuant to our research collaborations with the
University of Toronto in the future into new products and their introduction
into the market place.

Off-Balance Sheet Arrangements

The Company is not party to any material off-balance sheet
arrangements. In addition, we have no unconsolidated special purpose financing
or partnership entities that are likely to create material contingent
obligations.

23



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, 2004 are set forth below:



|Name             | Age | Position                                                             
|---------------- | --- | ---------------------------------------------------------------------
|                 |     |                                                                      
|Salvatore Fuda   | 69  | Chairman of the Board of
    Directors                               
|Joseph Fuda      | 44  | President, Chief Executive
    Officer and Director                  
|Manoj Pundit     | 40  | Executive Vice-President,
    General Counsel, Secretary and Director
|Andrew Brandt    | 66  | Director                                                             
|Stephen Fleming  | 55  | Director                                                             
|Charles Harnick  | 54  | Director                                                             
|George Kennedy   | 64  | Director                                                             
|David Sharpless  | 54  | Director                                                             
|Steven Van Fleet | 50  | Director                                                             
|Dan Amadori      | 53  | Chief Financial Officer                                              
|Cynthia Kuper    | 32  | Chief Technology Officer                                             

Salvatore Fuda is and has served as Chairman of the Board
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 is and has served as Chairman and director
of Pifher Resources Inc. (TSX Venture Exchange) since June 2002. He is the
father of Joseph Fuda.

Joseph Fuda is and has been President, Chief Executive
Officer and Director since February 13, 2002. Prior thereto he served as
Manager, 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. Mr. J.
Fuda has served as a director of Micromem since February 13, 2002. He is the son
of Salvatore Fuda.

Cynthia Kuper is Chief Technology Officer of the Company
and has served in such capacity since January 2005 and prior thereto, she served
as Acting Chief Technology Officer of the Company since September 2004. She has
17 years of experience in research and development in the areas of carbon
nanotechnologies, solid state materials, molecular biology and genetics. Dr.
Kuper has a B.S. in Chemistry and a Ph.D. in Physical Chemistry from Temple
University. Upon completion of her Ph.D. in 1999 she pursued a post doctoral
fellowship in the laboratories of Nobel laureate Richard Smalley at Rice
University, in the Center for Nanoscale Science and Engineering. In 2000 she
founded a nanotechnology start-up company, Versilant Nanotechnologies, with
initial funding from NASA. Versilant devoted its R&D to enabling areas of carbon
nanotechnology for commercial application of the material. In that same year Dr.
Kuper founded K1 Consulting, a consulting firm providing services to start-ups,
medium sized and large conglomerate companies and investors in nanotechnology.
Dr. Kuper has testified before the United States Senate Armed Services
Subcommittee on Emerging Threats and Capabilities as a subject matter expert in
nanotechnology. She has been featured in many publications, including Newsweek,
Fortune Magazine, and the German venture magazine, Borseonline, as an expert in
her field and a leading businesswoman. In addition, she serves on various boards
including the Nano Business Alliance, Department of Chemical Technology,
Philadelphia Community College, and College of Science and Technology Alumni,
Temple University, where she served as an adjunct instructor in the chemistry
department. She has served as a partner in the Nanobusiness Development Group, a
nanobusiness consultancy firm and now serves as an advisor to 21 Ventures, a
venture capital group focused in emerging technology start-ups. Dr. Kuper also 
co-teaches a first of its kind course at Temple University Fox School of
Business, where she is an IT Fellow and adjunct professor, on new technologies
and business.

24



Manoj Pundit is and has served as Micromem's Executive
  Vice President and General Counsel since July 2000 and joined the Board of
  Directors in March 2001. He has also been a partner, since December 1996, at
  Chitiz Pathak LLP (and predecessor firms), a Toronto law firm serving clients
  in the securities and investment industries, including issuers and dealers and
  private and public mutual funds and hedge funds. Mr. Pundit has served as
  securities counsel in connection with public and private offerings, a wide
  range of securities registration matters and takeover bids. Mr. Pundit holds a
  LL.M. in Taxation from Osgoode Hall Law school and a LL.B. and B.Sc. (Math)
  from the University of Alberta.

Andrew Brandt is and has been Chairman and Chief
Executive Officer of the Liquor Control Board of Ontario ("LCBO") since February
1991. The LCBO is the largest single purchaser of alcohol beverage products in
the world with annual sales exceeding two billion dollars Canadian. Prior to his
appointment to the LCBO, 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.

Stephen B. Fleming is and has served as Managing Director
of Kismet Limited since June 2001; prior thereto he served as Managing Director
of Barefoot Enterprises since April 1999; prior thereto, he served as President
of Pageant Technologies (USA) Inc. from July 1997 to April 1999; prior thereto,
Mr. Fleming was Executive Vice-President of International Ion from August 1994
to April 1997. Previously, Mr. Fleming was responsible for planning MCI's
wireless data products, intelligent network and frame relay international
initiatives, and served as director of engineering for international business
development for Telecom U.S.A. Mr. Fleming has worked with numerous emerging
technology companies in consulting and management capacities. Mr. Fleming has
served as a director of Micromem since January 1999.

Charles Harnick is a founder and a director (since
January 2004) of Suasion Public Affairs Management Inc., a public affairs
management firm; he is also President and Chief Executive Officer of Ontex
Resources Limited

George A. Kennedy is and has served as managing partner
of Source International (an international consulting firm in the Metropolitan
Washington D.C. area) since March 1997. In 2001, he was Director for Planning
and International Development for iGate Inc., a broadband technology company in
Louisville, KY. From 1993 until 1996, Mr. Kennedy served as U.S. Consul General
in Toronto, Canada, and prior thereto he held senior positions with the US
Departments of State and Commerce in Washington D.C. Currently, he is an
Executive Editor of the Black Business Journal of Houston, TX. Mr. Kennedy has
served as a director of Micromem since June 2000.

David Sharpless is Chairman of Hunter, Keilty, Muntz, &
Beatty Limited, a Toronto-based property and casualty insurance broker. He also
serves as Chairman of Maverick Inc., a family investment corporation. From 2000
to September 2001, he was President, International 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, Australia. Prior thereto, Mr. Sharpless was Newcourt
Credit Group Inc.'s Deputy Chairman and was responsible for international
operations for Newcourt Financial. David 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 has been the principal of the R&V Group
LLC, an RFID business consulting and technology development company. The R and V
Group LLC is using state of the art machinery to manufacture RFID labels to EPC
Global standards. 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.

Dan Amadori has served as Chief Financial Officer of
Micromem since June 29, 2004. He has also served as Chief Financial Officer of
Leader Capital since June 2004 and as a Director and Chair of the Audit
Committee of Ontex Resources since September 2003. He is President of Lamerac
Financial Corp., a financial

25



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.

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 the
by-laws of the Micromem 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 Compensation |              
|------------------------------------------------------------------------------- | ---------------------- | ---------------------- | -------------
|                                                                                |                        |                        |              
|Name and
    Principal Position                                                 | Year                   | Salary 
    (US$)      | Bonus (US$)  
|Joseph Fuda
    Chief Executive
    Officer 1                                   | 2004
    2003
    2002 | -
    -
    100,000    | -
    -
    -
|Salvatore Fuda,
    Chairman
    Former Chief Executive Officer and President 1 | 2004
    2003
    2002 | -
    -
    -          | -
    -
    -
|Manoj Pundit,
    Executive Vice President and General Counsel 4                | 2004
    2003
    2002 | -
    -
    162,066    | -
    -
    -
|Andrew Brandt
    Director                                                      | 2004
    2003
    2002 | -
    -                | -
    -      
|Stephen Fleming
    Director                                                    | 2004
    2003
    2002 | -
    -                | -            
|Charles Harnick
    Director                                                    | 2004
    2003
    2002 | -
    -                | -            
|George A Kennedy
    Director                                                   | 2004
    2003
    2002 | -
    -                | -            

26



|David Sharpless
    Director                        | 2004
    2003
    2002 | -
    -             | -             | -             | 400,000 2
    
    400,000 3
    
    - | -             | -             | -                                
|--------------------------------------------------- | ---------------------- | ------------------- | ------------- | ------------- | --------------------------------------- | ------------- | ------------- | ---------------------------------
|Steven Van Fleet
    Director                       | 2004
    2003
    2002 | -
    -
    -       | -
    -
    - | -
    -
    - | 300,000 2
    
    300,000 3
    -      | -
    -
    - | -
    -
    - | -
    -
    -                    
|Dan Amadori
    Chief Financial
    Officer 9       | 2004
    2003
    2002 | -
    -
    -       | -
    -
    - | -
    -
    - | 300,000 2
    
    -
    -              | -
    -
    - | -
    -
    - | 6,000
    -
    -                
|Cynthia Kuper 6
    Acting Chief Technology Officer | 2004
    2003
    2002 | -
    -
    -       | -
    -
    - | -
    -
    - | 100,000 5
    -
    -                   | -
    -
    - | -
    -
    - | 10,000
    -
    -               
|Antonio Lopes
    Former Chief Financial Officer 9  | 2004
    2003
    2002 | -
    -
    -       | -
    -
    - | -
    -
    - | -
    300,000 3
    -                   | -
    -
    - | -
    -
    - | 14,000
    20,789
    1,590
    -
|Dale Hensley
    Former Chief Operating Officer 7   | 2004
    2003
    2002 | -
    -
    216,577 | -
    -
    - | -
    -
    - | -
    -
    500,000 8                   | -
    -
    - | -
    -
    - | -
    -
    -                    
|Raj Viswanathan
    Former Chief Financial Officer9 | 2004
    2003
    2002 | -
    -
    111,583 | -
    -
    - | -
    -
    - | -
    -
    400,00010                   | -
    -
    - | -
    -
    - | -
    -
    -                    



|Notes: |                                                                                                                                                                                                                                                                              
|------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1)    | Salvatore Fuda has served as Chairman since January 11,
    1999. He served as President and Chief Executive Officer from June 2000
    through to February 13, 2002. Joseph Fuda was appointed Chief Executive
    Officer on February 13, 2002.                            
|(2)    | Each option entitles the holder to purchase one common
    share of Micromem at $0.30 prior to expiry on July 18, 2009 and is fully
    vested.                                                                                                                              
|(3)    | Each option entitled the holder to purchase one common
    share of Micromem at $0.10 prior to expiry on July 1, 2008.                                                                                                                                                       
|(4)    | Mr. Pundit serves as Executive Vice-President, General
    Counsel and Secretary of the Corporation.                                                                                                                                                                         
|(5)    | Each option entitles the holder to purchase one common
    share of Micromem at $0.68 prior to expiry on December 31, 2005 and is fully
    vested.                                                                                                                          
|(6)    | Dr. Kuper has served as Chief Technology Officer of the
    Company since January 2005, and prior thereto served as Acting Chief
    Technology Officer since September 2004.                                                                                                
|(7)    | Dr. Hensley was employed as Chief Operating Officer from
    February 21, 2001 to September 24, 2002. For the fiscal years ended October
    31, 2001 and 2002, Dr. Hensley was an officer of the Corporation for
    approximately eight months and 11 months, respectively.
|(8)    | Each option entitled the holder to purchase one common
    share of Micromem prior to expiry.                                                                                                                                                                                
|(9)    | Mr. Viswanathan was employed as Chief Financial Officer
    between June 5, 2000 and October 31, 2002. Mr. Lopes served as Chief
    Financial Officer between November 1, 2002 and June 2004. Mr. Amadori has
    served as Chief Financial Officer since June 29, 2004.    
|(10)   | Each option entitled the holder to purchase one common
    share of Micromem prior to expiry.                                                                                                                                                                                



The aggregate direct compensation paid or accrued on behalf
of all other directors as a group during 2004 was nil (2003: $1,940). This
amount includes directors' fees and expenses for non-employee directors. None of
the non-employee directors have agreements with Micromem that provide for
benefits upon termination of service.

27



Micromem has adopted a stock option plan. Options are offered
to directors, executive officers and employees to purchase 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 are
outstanding at October 31, 2004. These options have vested and are exercisable
at $0.30 per share. Additionally 120,000 options were granted in 2004 and were
outstanding at October 31, 2004. These options have vested and are exercisable
at $0.68 per share.

C.     Board Practices

Committees of the Board

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, Charles Harnick and David Sharpless to serve in such capacity
until the next annual meeting. The Audit Committee is responsible for the
integrity of the Micromem's internal accounting and control systems. The
committee receives and reviews the financial statements of Micromem and makes
recommendations thereon to the Board prior to its approval by the full Board.
The Audit Committee communicates directly with Micromem's external auditors in
order to discuss audit and related matters whenever appropriate.

Compensation Committee

Micromem's board of directors also appointed a Compensation
Committee after October 31, 2004. Micromem's executive compensation is
administered by the Compensation Committee which meets on executive compensation
matters as and when required.

D.     Employees

The company has eight officers and employees of which four
are in a management capacity, one is in an R&D capacity and three are in an
administrative capacity. This includes a Chairman, a Chief Executive Officer and
President, an Executive Vice-President and General Counsel, a Chief Financial
Officer, a Chief Technology Officer and three support staff, all of whom work
from Micromem's executive offices in Toronto, Canada. All research and
development is carried out by Dr. Harry Ruda and a research team employed by the
University of Toronto under the research collaboration agreements between
Micromem and the University of Toronto.

Micromem considers its relations with its employees to be
good.



E.    Share Ownership

|Name                                                                    | Shares Owned | Options Held | Options Exercise Price | Expiration Date
|----------------------------------------------------------------------- | ------------ | ------------ | ---------------------- | ---------------
|Joseph Fuda
    Chief
    Executive Officer and Director                | 202,780      | 1,800,000    | $0.30                  | 7/19/2009      
|Salvatore Fuda
    Chairman and Director                                | 2,455,2921   | 1,800,000    | $0.30                  | 7/19/2009      
|Manoj Pundit
    Executive Vice-President, General Counsel and Director | 2,478        | 1,000,000    | $0.30                  | 7/19/2009      

28



|Andrew Brandt
    Director                  | 3,000 | 400,000             | $0.30           | 7/19/2009               
|------------------------------------------- | ----- | ------------------- | --------------- | ------------------------
|Stephen Fleming
    Director                | -     | 300,000             | $0.30           | 7/19/2009               
|Charles Harnick
    Director                | 800   | 400,000             | $0.30           | 7/19/2009               
|George A. Kennedy
    Director              | -     | 300,000             | $0.30           | 7/19/2009               
|David Sharpless
    Director                | -     | 400,000             | $0.30           | 7/19/2009               
|Steven Van Fleet
    Director               | -     | 300,000             | $0.30           | 7/19/2009               
|Dan Amadori
    Chief
    Financial Officer | -     | 300,000
    50,000  | $0.30
    $0.91 | 7/19/2009               
|Cynthia Kuper
    Chief Technology Officer  | -     | 100,000
    300,000 | $0.68
    $0.80 | 10/06/2009
    1/09/2007
|Jason Baun
    Investor Relations           | -     | 50,000              | $0.91           | 7/19/2009               

Notes:

|1. | 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                                                                                                                                                                                                                                         
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                            
|   | There are no shareholders who hold a number of common shares of Micromem
    that is greater than 5% of the common shares outstanding.                                                                                                                     
|   |                                                                                                                                                                                                                                                            
|B. | Related Party Transactions                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                            
|   | During fiscal year ended October 31, 2004, the Company
    paid CDN $74,901 to a law firm in which Manoj Pundit, a director and officer
    of the Company, is a partner.                                                                                  
|   |                                                                                                                                                                                                                                                            
|C. | Interests of Experts and Counsel                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                            
|   | Manoj Pundit, a partner of Chitiz Pathak LLP, who serves
    as legal counsel to the Company, holds 2,478 common shares of Micromem and
    1,000,000 options of Micromem, each option entitling him to purchase one
    common share of Micromem at $0.30.



ITEM 8.         FINANCIAL INFORMATION

|A. | Consolidated Statements              
|-- | -------------------------------------
|   |                                      
|   | See "Item 17 - Financial Statements."

Dividend Policy

Micromem has never paid a dividend on its securities.
Micromem does not anticipate paying dividends in the foreseeable future.

29



Significant Changes

Except as otherwise disclosed in this report, there has been
no significant change in Micromem's financial position since October 31, 2004.

C.    Legal Proceedings

The Company's subsidiary, Pageant Technologies (USA) Inc.
("Pageant USA"), has been named as a defendant in legal actions relating to
tenant improvements on a leased property, including an action claiming damages
of approximately $880,000 alleging breach of contract under a construction
contract entered into by Clear Blue Laboratories, Inc. ("Clear Blue"). The
landlord of the property is also claiming damages from Pageant USA. Pageant USA
assigned its rights under the lease to Clear Blue, however, Pageant USA is
allegedly obligated to pay the lease payments should the assignee default under
the contract. The landlord is claiming damages of approximately $887,000.

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. Micromem's
fiscal year ends October 31. The Common Shares are not traded in Canada.

Micromem's 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: |  |       |  |     
|January 2005         |  | 0.56  |  | 0.17
|December 2004        |  | 0.23  |  | 0.15
|November 2004        |  | 0.22  |  | 0.13
|October 2004         |  | 0.18  |  | 0.08
|September 2004       |  | 0.22  |  | 0.13
|Last eight quarters: |  |       |  |     
|Q4 2004              |  | 0.99  |  | 0.54
|Q3 2004              |  | 1.17  |  | 0.21
|Q2 2004              |  | 0.39  |  | 0.22
|Q1 2004              |  | 0.56  |  | 0.15
|Q4 2003              |  | 0.23  |  | 0.08
|Q3 2003              |  | 0.26  |  | 0.07
|Q2 2003              |  | 0.31  |  | 0.09
|Q1 2003              |  | 0.14  |  | 0.08
|Last four
    years: |  |       |  |     
|2004                 |  | 1.17  |  | 0.15
|2003                 |  | 0.31  |  | 0.05
|2002                 |  | 1.77  |  | 0.05
|2001                 |  | 5.28  |  | 1.28
|2000                 |  | 25.13 |  | 1.69





30



On February 23, 2005, the last reported sale price for the
common shares on the NASD OTC Bulletin Board was $0.90.



ITEM 10.         ADDITIONAL INFORMATION

A.         Share Capital

Not Applicable

B.         Memorandum and Articles of Association

Articles of Incorporation

Incorporation Details and Objects of Micromem

Micromem was incorporated under the laws of the Province of
Ontario, Canada, on October 21, 1985 as Mine Lake Minerals Inc. It subsequently
changed its name to Avanti Capital Corp. by filing Articles 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
Micromem provide that there are 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 the Board of
Directors of Micromem are set out in the Articles of Incorporation (the
"Articles") and by-laws (the "By-Laws") of Micromem and the statutory provisions
of the Business Corporations Act (Ontario) ("OBCA"). The following is a
selected summary of the Articles, By-Laws and applicable provisions of the OBCA
as they relate to selected rights, duties, powers and authorities of the Board
of Directors of Micromem.

The Articles of Micromem provide for a minimum of three and a
maximum of 12 directors. The OBCA 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 Micromem or its
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 the 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, (a) borrow money on the credit of
Micromem; (b) issue, re-issue, sell or pledge debt obligations of Micromem; (c)
subject to restrictions respecting financial assistance prescribed in the OBCA,
give a guarantee on behalf ofMicromem to secure the performance of an
obligation of any person; and (d) 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.

31



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 shares of Micromem.

Securities of Micromem

The authorized capital of Micromem consists of an unlimited
number of common shares "Common Shares"), of which 58,063,467 shares were issued
and outstanding as of October 31, 2004, and 2,000,000 special, redeemable,
voting preference shares ("Special Shares"), none of which were outstanding, as
of October 31, 2004.

Holders of 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 Common Shares. Dividends may
be declared and paid on the Common Shares in such amounts and at such times as
the directors shall determine in their discretion in accordance with the OBCA.
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 OBCA, 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 OBCA, Micromem has a lien on any
Special Share registered in the name of a shareholder or the shareholder's legal
representative for a debt owed by the shareholder to Micromem.

Rights and Privileges of Shareholders

Only the registered holders of 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 common shareholders, 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 preference 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, between
    Micromem and the Governing Council of the University of Toronto, pursuant to
    which the Company conveyed equipment having an estimated value of $200,000 (CDN
    $297,600) to the University for incorporation into the University's magnetic
    memory facility for the research and development and fabrication of magnetic
    memory.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

32



|2. | Collaborative Research Agreement dated December 10, 2002,
    among Micromem, Communications and Information Technology Ontario ("CITO"),
    the University of Toronto and Dr. Harry Ruda, Professor of Physics at the
    University of Toronto, pursuant to which (i) over a period of two years
    Micromem is required to contribute $63,750 (CDN $92,000) and $67,632 (CDN
    $97,600) of in-kind contribution and, CITO is required to contribute
    $215,430 (CDN $308,000) for research into "High Density Magnetic Memory
    Device Development"; and (ii) in consideration of such contribution, CITO
    shall receive 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.                                                                                                                                                                                                                                                                                                                                                           
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|3. | Research Collaboration Agreement, dated October 24, 2002,
    among Micromem, Materials and Manufacturing Ontario ("MMO"), the University
    of Toronto and Dr. Harry Ruda, Chair Professor in Nanotechnology, pursuant
    to which: (i) Micromem has engaged the University of Toronto to conduct
    research and development of magnetic memory technology; and (ii) Micromem
    and MMO will each provide $174,864 (CDN $272,000) of funding and the
    combined $349,728 (CDN $544,000) will be used to cover the operating
    expenses of the research collaboration over a term of two years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|4. | A second 2-year research collaboration agreement ("Second
    U of T Research Agreement") dated November 12, 2003, among Materials and
    Manufacturing Ontario ("MMO") and the University of Toronto, pursuant to
    which (i) through the collaboration, Micromem has continued its involvement
    in the research and development of magnetic memory technology, carried out
    by a highly skilled research team; (ii) Micromem has committed to providing
    $56,130 (CDN $81,000) per year in cash and $30,770 (CDN $44,400) per year of
    in kind contributions and MMO has committed to providing $58,900 (CDN
    $85,000) in cash; (iii) the combined cash contributions of the Company and
    MMO, $230,060 (CDN $332,000), will be used to cover the operating expenses
    of the research collaboration over a term of two years; (iv) MMO'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 (v) Micromem maintains its ownership of
    its portfolio of patents and intellectual property that was developed prior
    to or outside the scope of the agreement.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|5. | Asset Purchase Agreement, dated December 10, 2000, among
    Micromem, Pageant International, Estancia Limited and Richard M. Lienau ("Lienau"),
    pursuant to which: (i) Pageant International purchased from Estancia Limited
    and Lienau all interests in the VEMRAM Patents and the VEMRAM technology and
    all other rights, interests and entitlements held by Estancia and Lienau as
    set forth in the Joint Ownership and Licensing Agreement and a termination
    of such agreement; and (ii) Micromem is required to pay to Estancia Limited
    a purchase price of $50 million, of which $10 million was paid in cash and
    shares at closing and the balance of $40 million being payable in cash and
    shares upon certain stipulated milestones being achieved;                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|6. | Technology Development Agreement, dated March 9, 2001, as
    amended on April 23, 2002, among Pageant International, Estancia Limited and
    Richard Lienau, pursuant to which: (i) Estancia Limited and Richard Lienau
    are required to provide services to Pageant International in respect of the
    continued development of VEMRAM technology; and (ii) Pageant International
    is required to pay monthly fees to Estancia Limited at the rate of $215,000
    per annum over a term of three years and eight months, except that the fees
    payable during the period from June 1 to December 2002 and during the period
    from March 9, 2004 through to November 9, 2004 will be at a rate of $107,000
    per annum;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|7. | Infrastructure Agreement 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

33



D.     Exchange Controls

As of the date hereof, the Company is aware of no
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 Common Shares.

The Company is aware of no limitations under the laws of
Canada or the Province of Ontario, or in the charter or any other constituent
documents of Micromem on the right of nonresidents of Canada or persons who are
not Canadian citizens to hold and/or vote the Common Shares of Micromem.

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 stock of Micromem for a shareholder of Micromem who is not a resident of
Canada but is a resident of the United States and who will acquire and hold a
share of common stock of Micromem as capital property for the purposes of the
Income Tax Canada (Canada) (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 shareholders of Micromem 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 s
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 (the "Convention").



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. Micromem is responsible for withholding of tax at the
source. The Convention 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 by which the paid up or stated capital of
Micromem and increased by reason of the payment of such dividend. Micromem will
furnish additional tax information to shareholders in the event of such a
dividend. Interest paid or deemed to be paid on Micromem's 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 Convention generally exempts from Canadian income tax
dividends paid to a religious, scientific, literary, educational or charitable
organization or to an organization constituted and operated exclusively to
administer a pension, retirement or employee benefit fund or plan, if the
organization is 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". Shares
of common stock of Micromem 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

34



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 and persons
with whom the shareholder did not deal at "arm's length and in certain other
circumstances.



The Convention 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.

Certain United States Federal Income Tax Consequences

The following is a general discussion of certain possible
United States federal income tax consequences, under current law, generally
applicable to a US Holder (as defined below) of the Company's common shares.
This discussion does not address all potentially relevant federal income tax
matters (including but not limited to alternative minimum tax considerations)
and it does not address consequences peculiar to persons subject to special
provisions of federal income tax law, such as those described below as excluded
from the definition of a US Holder. In addition, this discussion does not cover
any state, local or foreign tax consequences. See "Certain Canadian Income
Tax Consequences" above.

The following discussion is based upon the sections of 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 or
all of which could be materially and adversely changed, possibly on a
retroactive basis, at any time. This discussion 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. This discussion 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 the Company's common shares and no opinion or
representation with respect to tax consequences to any such holder or
prospective holders is made.

Accordingly, holders and prospective holders of the Company's
common shares should consult their own tax advisors about the federal, state,
local, and foreign tax consequences of purchasing, owning and disposing of the
Company's common shares.

US Holders

As used herein, a "US Holder" means a holder of the Company's
common shares who is a citizen or individual resident (as defined under U.S. tax
laws) of the United States, or, generally a corporation limited liability
company, or a partnership created or organized in or under the laws of the
United States or of any political subdivision thereof, or a trust whose income
is taxable in the United States irrespective of source. This summary does not
address the tax consequences to, and a US Holder does not include, persons
subject to special provisions of federal income tax law, such as tax-exempt
organizations, qualified retirement plans, individual retirement accounts and
other tax-deferred accounts, financial institutions, insurance companies, real
estate investment trusts, regulated investment companies, broker-dealers,
non-resident alien individuals, persons or entities that have a "functional
currency" other than the US dollar, shareholders who hold common stock as part
of a "straddle", hedging or a conversion transaction and shareholders who
acquired their stock through the exercise of employee stock options or otherwise
as compensation for services. This discussion is limited to US Holders who hold
the common shares as capital assets. This discussion does not address the
consequences to a person or entity holding an interest in a US Holder or the
consequence to a person of the ownership, exercise or disposition of any
warrants, options or other rights to acquire common shares.

35



Distributions on Common Shares

Subject to the discussion below at "Other Considerations", US
Holders receiving dividend distributions (including but not limited to
constructive dividends) with respect to the Company's common shares generally
are required to include in gross income for United States federal income tax
purposes the gross amount of such distributions equal to the US dollar value of
each dividends on the date of receipt (based on the exchange rate on such date)
to the extent that the Company has current or accumulated earnings and profits,
without reduction for any Canadian income tax withheld from such distributions.
Such Canadian tax withheld may be credited, subject to certain limitations,
against the US Holder's United States federal income tax liability or,
alternatively, may be deducted in computing the US Holder's United States
federal taxable income by those who itemize deductions. (See more detailed
discussion at "Foreign Tax Credit" below.) To the extent that
distributions exceed current or accumulated earnings and profits of the Company,
they will be treated first as a return of capital up to the US Holder's adjusted
basis in the common shares and thereafter as gain from the sale or exchange of
the common shares. Preferential tax rates for long-term capital gains are
applicable to a US Holder which is an individual, estate or trust. There are
currently no preferential tax rates for long-term capital gains for a US Holder
which is a corporation.

In the case of foreign currency received as a dividend that
is not converted by the recipient into US dollars on the date of the receipt, a
US Holder will have a tax basis in the foreign currency equal to its US dollar
value on the date of receipt. Generally, any gain or loss recognized upon a
subsequent sale or other disposition of the foreign currency, including an
exchange for US dollars, will be ordinary income or loss.

Dividends paid on the Company's common shares will not
generally be eligible for the dividends received deduction provided to
corporations receiving dividends from certain United States corporations. A US
Holder which is a corporation may, under certain circumstances, be entitled to a
70 per cent deduction of the United States source portion of dividends received
from the Company (unless the Company qualifies as a "foreign personal holding
company" or a "passive foreign investment company," as defined below) if such US
Holder owns common shares representing at least 10 per cent of the voting power
and value of the Company. The availability of this deduction is subject to
several complex limitations which are beyond the scope of this discussion.

Foreign Tax Credit

A US Holder who pays (or has withheld from distributions)
Canadian income tax with respect to the ownership of the Company's 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 tax 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 generally applies to all foreign taxes paid by (or withheld from) the US
Holder during that year. There are significant and complex limitations which
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 income
tax liability that the US Holder's foreign source income bears to his/her or its
worldwide 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 classes of
income such as "passive income," "high withholding tax interest," "financial
services income," "shipping income," and certain other classifications of
income. The availability of the foreign tax credit and the application of the
limitations on the credit are fact specific, and holders and prospective holders
of the Company's common shares should consult their own tax advisors regarding
their own circumstances.

Disposition of Common Shares

Subject to the discussion below at "Other Considerations", a
US Holder will generally recognize gain or loss upon the sale or other
disposition of common shares equal to the difference, if any, between (i) the
amount of cash plus the fair market value of any property received, and (ii) the
shareholder's tax basis in the Company's common shares. This gain or loss will
be capital gain or loss if the common shares are a capital asset in the hands of
the US Holder (and if the stock is not "Section 306 Stock"), which will be a
long-term capital gain or loss if the common shares of the Company are held for
more than one year and which may be

36



entitled to a preferential tax rate. Deductions for net
capital losses generally may be carried over to be used in later tax years until
such net capital loss is thereby exhausted. For US Holders which are
corporations (other than corporations subject to Subchapter S of the Code),
generally an unused net capital loss may be carried back three years from the
loss year and carried forward five years from the loss year to be offset against
capital gains until such net capital loss is thereby exhausted.

Other Considerations

In the following circumstances, the above sections of this
discussion may not describe the United States federal income tax consequences
resulting from the holding and disposition of common shares:

Foreign Personal Holding Company

If at any time during a taxable year more than 50 per cent of
the total combined voting power or the total value of the Company's outstanding
shares is owned, directly or indirectly (including by attribution), by five or
fewer individuals who are citizens or residents of the United States and 60 per
cent or more of the Company's gross income for such year (50 per cent in
subsequent years) was derived from certain passive sources (e.g., dividends,
interests, rents, royalties, etc.), the Company may be treated as a "foreign
personal holding company." In that event, US Holders that hold common shares
would be required to include in gross income for such year their allocable
portions of the Company's taxable income to the extent the Company does not
actually distribute such income.

Foreign Investment Company

If 50 per cent or more of the combined voting power or total
value of the Company's outstanding common shares are held, directly or
indirectly (including through attribution), by citizens or residents of the
United States, United States domestic partnerships or corporations, or estates
or trusts other than foreign estates or trusts (as defined by Code Section
7701(a) (31)), the Company is found to be engaged primarily in the business of
investing, reinvesting, or trading in securities, commodities, or any interest
therein, and certain other conditions are met, the Company may be treated as a
"foreign investment company" as defined in Section 1246 of the Code, causing all
or part of any gain realized by a US Holder selling or exchanging common shares
to be treated as ordinary income rather than capital gain.

Passive Foreign Investment Company

As a foreign corporation with US Holders, the Company could
potentially be treated as a passive foreign investment company ("PFIC"), as
defined in Section 1297 of the Code, depending upon the percentage of the
Company's income which is passive, or the percentage of the Company's assets
which is producing passive income. Generally, on certain distributions and on
disposition, US Holders owning common shares of a PFIC are subject to a special
tax regime imposing the highest U.S. ordinary income tax rate plus an interest
charge based on the value of deferral of tax for the period during which the
common shares of the PFIC are owned. However, if the US Holder makes a timely
election to treat a PFIC as a qualified electing fund ("QEF") with respect to
such shareholder's interest therein, the above-described rules generally will
not apply. Instead, the electing US Holder would include annually in gross
income his/her or its pro rata share of the PFIC's ordinary earnings and net
capital gain regardless of whether such income or gain was actually distributed.
A US Holder making a QEF election can, however, under certain circumstances
elect to defer the payment of United States federal income tax on such income
inclusions subject to an interest charge on the amount of deferred taxes.
Special rules apply to US Holders who own their interests in a PFIC through
intermediate entities or persons. In addition, subject to certain limitations,
US Holders owning (actually or constructively) marketable stock in a PFIC will
be permitted to elect to mark that stock to market annually, rather than be
subject to the tax regime described above. Amounts included in or deducted from
income under this alternative (and actual gains and losses realized upon
disposition, subject to certain limitations) will be treated as ordinary gains
or losses.

The Company has not determined whether it is or has been a
PFIC in earlier years. US Holders of the Company's common shares should consult
with their own tax advisor concerning the possible application of the PFIC
provisions in their circumstances.

37



Controlled Foreign Corporation

If more than 50 per cent of the voting power of all classes
of stock or the total value of the stock of the Company is owned, directly or
indirectly (including through attribution), by citizens or residents of the
United States, United States domestic partnerships and corporations or estates
or trusts other than foreign estates or trusts, each of whom own 10 per cent or
more of the total combined voting power of all classes of stock of the Company
("United States Shareholder"), the Company is a "controlled foreign
corporation". This classification generally results in the inclusion of certain
income of a CFC in the US Shareholders' US income as a deemed dividend. In
addition, under Section 1248 of the Code, gain from the sale or exchange of
stock by a holder of common shares who is or was a United States Shareholder at
any time during the five year period ending with the sale or exchange may be
treated as ordinary dividend income.

F.     Dividends and Paying
Agents

Not Applicable

G.     Statement by Experts

Not Applicable

H.     Documents on Display

Micromem files the documents referred
to herein and other information with the SEC, the Ontario Securities Commission
("OSC") and the Alberta Securities Commission ("ASC"). You may inspect and copy
such material at the public reference facilities maintained by the SEC at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, as well as at the SEC's
regional offices at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661
and the Woolworth Building, 233 Broadway, New York, New York 10279. You may also
obtain copies of such material from the SEC at prescribed rates by writing to
the Public Reference Section of the SEC, 450 Fifth Street, N.W., 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

Information about Micromem is also available on its website
at www.micromeminc.com. Such information on its website is not part of this Form
20-F.

I.     Subsidiary Information

Not Applicable

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

38



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

Not Applicable

ITEM 15.         CONTROLS AND PROCEDURES

The Company's Chief Executive Officer and Chief Financial
Officer have evaluated the effectiveness of its disclosure controls and
procedures within the 90 days prior to the date of filing of this Annual Report
on Form 20-F. The Company operates as a development stage Company and has
historically had only limited accounting personnel and resources with which to
address its internal control procedures.

When our auditors audited our financial statements as of and
for the year ended October 31, 2004, they identified in a letter to our Audit
Committee significant deficiencies in our internal accounting controls. They
concluded that the significant deficiencies, in aggregate, constitute material
weaknesses under standards established by the Public Company Accounting
Oversight Board. Significant deficiencies noted included accounts were not
analyzed or reconciled on a timely basis and there was limited evidence of
review by an individual with direct oversight of the process. They also noted
that: (i) we lacked certain formalized accounting policies and procedures,
including written procedures for the monthly, quarterly, and annual "closing" of
our financial books and records, (ii) staff were not subject to sufficient
review and supervision, and (iii) security practices over information technology
are not sufficiently robust. Following the receipt of this report by the
Company, the Company consulted with its Audit Committee and has determined to
commence taking remedial measures to address these deficiencies. These measures
will include hiring additional staff, and establishing monthly, quarterly, and
annual closing procedures on a go forward basis.

The Company's management intends to take the measures
required to remedy the material weaknesses and reportable conditions in the
Company's internal controls. These control deficiencies are not expected to have
any future material impact on the Company's financial statements. If, however,
the Company fails to continue to adequately staff the Company's accounting and
finance function and maintain adequate internal controls, the Company may not
meet the demands that are placed upon it as a public company, including the
requirements of the Sarbanes-Oxley Act of 2002 and the Company's business would
accordingly face repercussions.



PART III



Item 16.

Not applicable.

Item 16A. Audit Committee Financial Expert



Our Board of Directors has determined that a member of our Board of
Directors, David Sharpless, is an audit committee financial expert.



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.

39



Item 16C. Principal Accountant Fees and Services

The following table presents fees for professional audit services rendered by
our auditors for the audit of our consolidated annual financial statements for
the years ended October 31, 2004 and 2003, and fees billed for other services
rendered by our auditors including our offerings of securities and tax services:

|           | 2004    |  | 2003   
|---------- | ------- |  | -------
|Audit Fees | $50,000 |  | $46,359

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

Not applicable.

PART III

ITEM 17.         FINANCIAL STATEMENTS

The financial statements required by Item 17 appear commencing on the next
page.

40

Independent Auditors' Report
To the Shareholders ofMicromem Technologies Inc.

We have audited the accompanying consolidated balance
        sheet of



We conducted our audit in accordance audit standards
        generally accepted in Canada and 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 the financial statements are free of material misstatement. An
        audit includes consideration of internal control over financial
        reporting as a basis for designing audit procedures that are appropriate
        in the circumstances, but not for the purpose of expressing an opinion
        on the effectiveness of the Company's internal control over financial
        reporting. Accordingly, we express no such opinion. An audit also
        includes examining, on a test basis, evidence supporting the amounts and
        disclosures in the financial statements, assessing the accounting
        principles used and significant estimates made by management, as well as
        evaluating the overall financial statement presentation.  We
        believe that our audit provides a reasonable basis for our opinion.



In our opinion, the consolidated financial statements
        referred to above present fairly, in all material respects, the
        consolidated financial position of

Accounting principles generally accepted in the
        United States of America are consistent with those applicable in Canada
        (see Note 16).



The consolidated financial statements as at October
        31, 2003 and for the year then ended and for the cumulative period from
        September 3, 1997 to October 31, 2003 were audited by other auditors who
        expressed opinions without reservation on those statements in their
        reports dated December 5, 2003, November 16, 2001, December 13, 2000 and
        December 20, 1999.





/s/ GRANT THORNTON LLP

Chartered Accountants

Mississauga, Canada 
        February 11, 2005





Comments by Auditors for U.S. Readers on Canada-U.S. Reporting
        Difference

In the United States, reporting standards for
        auditors require the addition of an explanatory paragraph (following the
        opinion paragraph) when the 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 11, 2005 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.





/s/ GRANT THORNTON LLP

Chartered Accountants

Mississauga, Canada 
        February 11, 2005





MICROMEM TECHNOLOGIES INC.
(

CONSOLIDATED BALANCE SHEET

|                                                        |                  |                 
|------------------------------------------------------- | ---------------- | ----------------
|                                                        |                  |                 
|As at,                                                  | October 31, 2004 | October 31, 2003
|                                                        |                  |                 
|Assets                                                  |                  |                 
|Current
    assets:                                     |                  |                 
|Cash and cash
    equivalents                           | $
    350,504    | $
    79,233    
|Term
    deposits                                       | 87,243           | 219,930         
|Deposits and other receivables (Note 5)                 | 33,562           | 47,207          
|                                                        | 471,309          | 346,370         
|Capital
    assets (Note 6)                             | 2,925            | 3,768           
|Patents
    and trademarks (Note 7)                     | -                | -               
|Royalty rights (Note 4 and Note 10)                     | -                | -               
|                                                        | $ 474,234        | $ 350,138       
|                                                        |                  |                 
|Liabilities and Shareholders' Equity                    |                  |                 
|Current
    liabilities:                                |                  |                 
|Accounts payable and accrued liabilities                | $ 436,624        | $ 245,700       
|                                                        |                  |                 
|Shareholders' equity:                                   |                  |                 
|Share
    capital: (Note 8)                             |                  |                 
|Authorized:                                             |                  |                 
|2,000,000 special preference shares, redeemable, voting |                  |                 
|Unlimited common shares without par value               |                  |                 
|Issued
    and outstanding:                             |                  |                 
|58,063,437 common shares (2003 - 48,732,187)            | 32,103,787       | 31,236,287      
|Contributed surplus (Note 9)                            | 588,911          | 578,891         
|Deficit accumulated during the development stage        | (32,655,088)     | (31,710,740)    
|                                                        | 37,610           | 104,438         
|                                                        |                  |                 
|                                                        | $ 474,234        | $ 350,138       
|                                                        |                  |                 

Commitments (Note 13)
Contingencies (Note 14)

See accompanying notes to the consolidated financial
statements.

1



|MICROMEM TECHNOLOGIES
            INC.
            (A
            DEVELOPMENT STAGE COMPANY)     
|-------------------------------------------------------------------------------------------------
|                                                                                                 
|Consolidated Statements of Operations and Deficit(Expressed
            in United States dollars)
|                                                                                                 
|                                                                                                 
|Twelve-month period ended
            October 31                                                 
|                                                                                                 
|Revenue:                                                                                         
|Interest
            and other income                                                            
|                                                                                                 
|Costs
            and expenses (income):                                                         
|Administration                                                                                   
|Professional fees (Note 8 (b ) and 12 (c))                                                       
|Wages
            and salaries (Note 12 (b))                                                     
|Research
            and development (Notes 6 and 13)                                            
|Travel
            and entertainment                                                             
|Amortization of patents and trademarks                                                           
|Amortization of capital assets (Note 6)                                                          
|Operating leases                                                                                 
|Loss on
            sale of investment                                                           
|Write-down of investment                                                                         
|Write-down of royalty rights (Note 10)                                                           
|Write-down of patents and trademarks
            (Note 7)                                        
|Interest
            expense                                                                     
|Loss on
            sale of capital assets                                                       
|Unrealized foreign exchange loss (gain)                                                          
|                                                                                                 
|                                                                                                 
|Loss before income taxes                                                                         
|                                                                                                 
|Provision for (recovery
            of) income taxes
            (Note 11)                       
|                                                                                                 
|Net loss for the period                                                                          
|                                                                                                 
|Deficit accumulated
            during the                                                       
|development stage,
            beginning of period                                               
|Deficit accumulated
            during the                                                       
|development stage, end of
            period                                                     
|                                                                                                 
|                                                                                                 
|Loss per share - basic
            and diluted (Note 8 (c))                                      
|                                                                                                 
|Weighted average number
            of shares                                                    
|                                                                                                 

See accompanying notes to the consolidated financial
statements.

2



MICROMEM TECHNOLOGIES INC.(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENT OF CASH FLOWS



Twelve-month period ended
      October 31,
      2004
      2003
      2002
      Period from
      September 3, 1997
      to October 31, 2004Cash flows from operating
      activities:Net loss for
      the period
      $ (944,348)
      $ (1,449,965)
      $(12,733,015)
      $(32,655,088)Adjustments to
      reconcile loss for the period to net cash used in operating activities:Amortization
      of patents and trademarks
      -
      36,258
      31,338
      67,596Amortization
      of capital assets
      5,410
      36,921
      170,710
      526,761Loss on sale
      of investment
      -
      -
      -
      49,810Write-down of
      investment
      -
      -
      -
      61,020Loss on
      disposal of capital assets
      -
      58,302
      13,292
      65,460Write-down of
      royalty rights
      -
      -
      10,000,000
      10,000,000Write-down of
      patents and trademarks
      -
      299,820
      -
      299,820Stock option
      expense
      10,020
      -
      -
      10,020Share
      compensation expense
      -
      -
      -
      7,285,696Non-cash wages
      and salaries
      -
      -
      -
      34,000Change in
      non-cash working capital items,Decrease
      (increase) in deposits and other receivables
      13,645
      145,924
      35,012
      (24,965)Increase
      (decrease) in accounts payable and accrued liabilities
      190,924
      54,181
      (138,033)
      330,580Net cash used in operating
      activities
      (724,349)
      (818,559)
      (2,620,696)
      (13,949,290)Cash flows from investing
      activities:Purchase of
      capital assets
      (4,567)
      (2,025)
      (28,580)
      (729,604)Proceeds on
      disposal of capital assets
      -
      1,688
      82,763
      134,458Patents and
      trademarks
      -
      (28,380)
      (6,065)
      (367,416)Sale of
      available-for-sale investment
      -
      -
      -
      260,641Royalty rights
      -
      -
      -
      (2,000,000)Term deposits
      132,687
      (219,930)
      -
      (87,243)Net cash provided by (used in)
      investing activities
      128,120
      (248,647)
      48,118
      (2,789,164)Cash flows from financing
      activities:Issue of
      common shares
      867,500
      162,500
      -
      16,508,233Net proceeds
      from shareholder's Loan
      -
      -
      -
      544,891Loan proceeds
      from Avanticorp International Inc.
      -
      -
      -
      112,031Rights issue
      costs
      -
      -
      -
      (76,197)Net cash provided by (used in)
      financing activities
      867,500
      162,500
      -
      17,088,958Increase (decrease) in cash and
      cash equivalents
      271,271
      (904,706)
      (2,572,578)
      350,504Cash and cash equivalents,
      beginning of period
      79,233
      983,939
      3,556,517
      -Cash and cash equivalents, end
      of period
      $ 350,504
      $ 79,233
      $ 983,939
      $ 350,504Supplemental cash flow
      information:Interest paid
      -
      -
      $ 1,960
      $ 76,987Income taxes
      paid
      -
      -
      11,508
      66,722




See accompanying notes to the consolidated
financial statements

3



MICROMEM TECHNOLOGIES INC.



|Consolidated Statement of Cash Flows (continued)              
|--------------------------------------------------------------
|(Expressed in United States dollars)                          
|                                                              
|Years ended October 31, 2004                                  
|                                                              
|                                                              
|                                                              
|Supplemental information on non-cash investing
    activities:
|                                                              
|                                                              
|                                                              
|                                                              
|                                                              
|                                                              
|                                                              
|                                                              
|                                                              
|                                                              
|                                                              



See accompanying notes to the consolidated financial
statements

4



MICROMEM TECHNOLOGIES INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY



October 31, 2004





|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | Number of Shares                                                                                                                                                                   | Share 
    Capital                                                                                                                                                                           | Contributed
    Surplus                                                                                                                                                     | Deferred Share Compensation                                                                                                               | Deficit
    Accumulated
    During Development 
    Stage                                                                                       
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------
|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
    (Note 3(b) (iv))                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | 3,490,643
    490,000
    -
    -
    -
    32,000,000                                                                                                                             | $ -
    -
    1
    -
    4,999
    549,140                                                                                                                                                  | $ -
    -
    -
    -
    -
    -                                                                                                                                           | $ -
    -
    -
    -
    -
    -                                                                                                         | $ -
    -
    -
    (500,992)
    -
    -                                                                                                       
|Micromem share capital, September
    11, 1999
    Exercise of common share purchase
    warrants for cash
    Private placement of common
    shares for cash, May 17, 1999
    Shareholder loan forgiven (Note
    9)
    Exercise of stock options for
    cash
    Net loss for the year                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | 35,980,643
    
    120,676
    
    350,000
    -
    100,000
    -                                                                                                               | 554,140
    
    164,053
    
    1,050,000
    -
    300,000
    -                                                                                                                          | -
    
    -
    
    -
    544,891
    -
    -                                                                                                                             | -
    
    -
    
    -
    -
    -
    -                                                                                                 | (500,992)
    
    -
    
    -
    -
    -
    (5,207,787)                                                                                     
|Balance, October 31, 1999
    Exercise of common share purchase
    warrants for cash
    Exercise of stock options for
    cash
    Deferred share compensation (Note
    12 (a))
    Private placement of common
    shares for cash, February 10, 2000
    Common shares issued pursuant to
    compensation agreements, March 15, 2000
    Net loss for the year                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | 36,551,319
    
    182,087
    100,000
    -
    
    2,000,000
    
    901,110
    -                                                                                            | 2,068,193
    
    274,717
    300,000
    -
    
    5,000,000
    
    4,206,447
    -                                                                                                     | 544,891
    
    -
    -
    2,711,881
    
    -
    
    -
    -                                                                                                          | -
    
    -
    -
    (453,219)
    
    -
    
    -
    -                                                                              | (5,708,779)
    
    -
    -
    -
    
    -
    
    -
    (7,259,356)                                                                        
|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 (Note
    12 (a))
    Stock-based compensation (Note
    8(b))
    Exercise of director's stock
    options for cash, January 17, 2001
    Common shares issued pursuant to
    compensatory stock options, at January 17, 2001 (Note 12 (a))
    Adjustment-share compensation
    Expenses (Note 12(a))
    Common shares issued pursuant to
    compensation agreement, January 23, 2001(Note 12 (a))
    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 (Note 12 (a))
    Net loss for the year | 39,734,516
    
    362,450
    
    304,674
    800,000
    -
    -
    
    714,686
    
    -
    
    -
    
    11,192
    
    2,000,000
    
    2,007,831
    
    -
    - | 11,849,357
    
    554,655
    
    1,119,058
    2,400,000
    -
    -
    
    71,469
    
    1,581,242
    
    -
    
    66,461
    
    4,000,000
    
    8,000,00
    
    -
    - | 3,256,772
    
    -
    
    -
    -
    (453,219)
    34,000
    
    -
    
    (1,581,242)
    
    (677,420)
    
    -
    
    -
    
    -
    
    1,431,545
    - | (453,219)
    
    -
    
    -
    -
    453,219
    -
    
    -
    
    -
    
    -
    
    
    -
    
    -
    
    
    -
    - | (12,968,135)
    
    -
    
    -
    -
    -
    -
    
    -
    
    -
    
    -
    
    
    -
    
    -
    
    
    -
    (4,559,625)
|Balance, October 31, 2001                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | 45,935,349                                                                                                                                                                         | $29,642,242                                                                                                                                                                                  | $2,010,436                                                                                                                                                                  | $ -                                                                                                                                       | $(17,527,760)                                                                                                                                   



See accompanying notes to the consolidated financial
statements

5



MICROMEM TECHNOLOGIES INC.(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY



October 31, 2004







|                                                                                                                                           | Number of Shares                    | Share Capital                        | Contributed
    Surplus               | Deferred Share Compensation | Deficit
    Accumulated
    During Development Stage
|------------------------------------------------------------------------------------------------------------------------------------------ | ----------------------------------- | ------------------------------------ | ------------------------------------- | --------------------------- | ----------------------------------------------------
|Balance, October 31, 2001
    Shares issued pursuant to
    compensatory agreement, March 26, 2002 (Note 12 (a))
    Net loss for the year | 45,935,349
    
    765,588
    -   | $29,642,242
    
    1,431,545
    - | $2,010,436
    
    (1,431,545)
    - | $ -
    
    -
    -        | $(17,527,760)
    
    -
    (12,733,015)           
|Balance, October 31, 2002
    Private placement of common
    shares for cash, August 13, 2003 (Note 8(d))
    Net loss for the year       | 46,700,937
    
    2,031,250
    - | 31,073,787
    
    162,500
    -    | 578,891
    
    -
    -              | -
    
    -
    -          | (30,260,775)
    
    -
    (1,449,965)             
|Balance, October 31, 2003                                                                                                                  | 48,732,187                          | 31,236,287                           | 578,891                               | -                           | (31,710,740)                                        

|                                                                                             |            |              |          |     |              
|-------------------------------------------------------------------------------------------- | ---------- | ------------ | -------- | --- | -------------
|Private Placement of
    common shares for cash, December 2003 (Note 8 (e) ii)               | 500,000    | 40,000       | -        | -   | -            
|Private Placement of
    common shares for cash, December 2003 (Note 8 (e) i)                | 300,000    | 33,000       | -        | -   | -            
|Exercise of common
    share purchase warrants for cash (Note 8(d), August 2004              | 2,031,250  | 162,500      | -        | -   | -            
|Exercise of common
    share purchase warrants for cash (Note 8 (e) ii), June-September 2004 | 1,000,000  | 80,000       | -        | -   | -            
|Exercise of common
    share purchase warrants for cash (Note 8 (e) i), October 2004         | 200,000    | 22,000       | -        | -   | -            
|Exercise of options
    for cash                                                             | 5,300,000  | 530,000      | -        | -   | -            
|Stock options issued to
    consultant (Note 8 (b))                                          |            |              | 10,020   |     |              
|Net loss for the year                                                                        | -          | -            | -        | -   | (944,348)    
|Balance, October 31, 2004                                                                    | 58,063,437 | $ 32,103,787 | $588,991 | $ - | $(32,655,088)

See accompanying notes to the consolidated financial
statements

6

MICROMEM TECHNOLOGIES INC.
(A DEVELOPMENT STAGE COMPANY)

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



October 31, 2004




|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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, as described in Note 3(b), was recorded as a
  reverse takeover under Canadian generally accepted accounting principles
  ("Canadian GAAP").
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | The Company currently operates in a single segment as a
  developer of non-volatile magnetic memory technology. To October 31, 2004, the
  Company has not generated significant revenue and is devoting substantially
  all of its efforts to the development of its technology. 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 technology. The sources of these
  funds have not yet been identified and there can be no certainty that sources
  will be available in the future.                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | The Company continues to pursue its research initiatives as
  outlined in Note 13 in order to develop its technology for commercial
  applications. Subsequent to October 31, 2004 the Company has raised additional
  funds and has hired a new Chief Technology officer for these purposes (Note
  17).                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | The Company's ability to continue as a going concern is in
  substantial doubt and it is dependent upon completing the development of its
  technology for a particular application, achieving profitable operations,
  obtaining additional financing and successfully bringing its technology to the
  market. The outcome of these matters                                                                                                                                                                                                                                                                                         



7

MICROMEM TECHNOLOGIES INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



October 31, 2004




|   |                                                                                                                                                                                                                                                                                                                                                                                                                     
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   | 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 in the carrying value
  of assets and liabilities, the reported expenses and the balance sheet
  classifications used.                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                     
|3. | Summary of significant account 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 United
  States generally accepted accounting principles ("U.S. GAAP") as described in
  Note 16 to the consolidated financial statements. The most significant
  accounting policies are as follows:
|   |                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | a.                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | b.                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                     







8

MICROMEM TECHNOLOGIES INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



October 31, 2004




| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    | During the fiscal year ending October 31, 2003, two of
    the Company's subsidiaries, Micromem Technologies B.V. and Micromem
    Technologies S.p.A.                                                                                                                                                                                                                                                                                                                                         
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |    | were wound up. All significant intercompany balances and
    transactions have been eliminated upon consolidation.                                                                                                                                                                                                                                                                                                                                                                             
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | c. | Basis of presentation:                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |    | On January 11, 1999, the Company issued 32,000,000 common
    shares and 1,000,000 warrants to acquire all of the issued and outstanding
    shares of Pageant. On that date, the total number of the Company shares
    outstanding was 35,980,643 shares. As a result of this transaction, the
    shareholders of Pageant owned 88.9% of the outstanding common shares of the
    Company and, accordingly, the purchase of Pageant was accounted for as a
    reverse takeover transaction.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |    | Application of reverse takeover accounting results in the
    following:                                                                                                                                                                                                                                                                                                                                                                                                                       
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |    | i.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |    | ii.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |    | iii.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |    | iv.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |    | v.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             



9

MICROMEM TECHNOLOGIES INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



October 31, 2004




> Micromem shares issued to that date with an assigned
>         value equal to the share capital of the continuing consolidated entity
>         at that date as computed below.

The transaction was accounted for by the purchase method
    with the results of operations included in the consolidated financial
    statements from the date of acquisition. Details of the Company's net assets
    acquired and the assigned fair value of net assets at acquisition are as
    follows:







|Cash
    Non-cash current assets
    Investments | $ 168,084
    115,629
    371,471
|------------------------------------------------ | ---------------------------------
|Less current liabilities                         | 655,184
    106,044              
|Assigned fair value of net assets                | $ 549,140                        





| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | d. | 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 revenue and
      expenses during the reporting period. Actual results could differ from
      those estimates.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | e. | 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.                                                                                                                                                                                                                                                                                                      
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | f. | Capital Assets:                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |    | Capital assets are recorded at cost less accumulated
      amortization. Amortization is provided on capital assets on a
      straight-line basis for a period of up to three years. Capital assets are
      reviewed for impairment whenever                                                                                                                                                                                                                                     

10



MICROMEM TECHNOLOGIES INC.
      (A DEVELOPMENT STAGE COMPANY)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Expressed in United States dollars)  October 31, 2004


| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    | 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.                                                                                                                                                                                                                                                                                                                                                                                           
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | g. | Patents and trademarks:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    | Effective November 1, 2001, the Company changed its
      accounting policy for patents and trademarks to be recorded at cost less
      accumulated amortization which is provided on a straight-line basis over
      ten years. In prior years the Company accounted for its patents and
      trademarks at cost and amortization was to commence on an appropriate
      basis to charge off the cost over the future benefit period, not exceeding
      the legal life, when sales commence. There was no material impact on prior
      years' consolidated financial statements and accordingly, the comparative
      consolidated financial statements have not been restated.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    | For the year ended October 31, 2002, the change in
      accounting policy resulted in an increase in amortization expense and net
      loss of $31,338 and there was no material impact on net loss per share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    | Patents and trademarks 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 (Note 7).                                                                                                                                                                                                                                                                                                                
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | h. | 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. The Company
      has determined that no development costs have met these criteria at the
      financial reporting date.                                                                                                                                                                                                                                                                                                                                                                 

11

MICROMEM TECHNOLOGIES INC.
(A DEVELOPMENT STAGE COMPANY)

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



October 31, 2004




| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | i. | Stock-based compensation:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |    | The Company has a stock-based compensation plan, which
      is described in Note 8. Stock-based compensation is recognized by the fair
      value method, whereby compensation is recorded to the extent that the
      exercise price is not based on the market value of the Company's common
      shares at the date of grant. 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.                                                                                                                                        
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |    | For all awards of employee stock-based compensation
      granted after January 1, 2002, the Company recognizes employee stock-based
      compensation costs under the intrinsic value-based method and provides pro
      forma disclosure of net income and earnings per share as if the fair
      value-based method has been applied.                                                                                                                                                                                                                                                                                                                                                                           
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | j. | Income taxes:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |    | The Company accounts for income taxes by the liability
      method. Under the 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 substantively 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 not considered to be more likely than
      not that a future income tax asset will be realized, a valuation allowance
      is provided.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | k. | Impairment of long-term 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 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 flows.                                                                                                                                                                                                                                                                                   



12



MICROMEM TECHNOLOGIES INC.
  (A DEVELOPMENT STAGE COMPANY)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Expressed in United States dollars)  October 31, 2004


|   |                                                                                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|-- | ------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   | l.                                                                                          | Foreign currency translation:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                             | The functional currency of the Company is the United
      States dollar. The Company's wholly-owned subsidiaries are integrated
      foreign operations and therefore, the Company uses the temporal method
      whereby monetary assets and liabilities are translated into United States
      (U.S.) dollars at the rate of exchange in effect at the consolidated
      balance sheet dates. Non-monetary assets and liabilities are translated at
      historical rates. Revenue and expenses are translated using the average
      monthly rate of exchange, 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.                                                                                                                         
|   |                                                                                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                             | The Company's monetary assets and liabilities
      denominated in foreign currencies are translated into United States
      dollars at the exchange rate in effect at the consolidated balance sheet
      dates. Non-monetary assets and liabilities that are denominated in
      currencies other than United States dollars are translated into United
      States dollars using the historical rate of exchange in effect on the date
      the transaction occurred. Revenue and expense items are translated using
      the average monthly rate of exchange, which rate approximates the exchange
      rate at the date of the transaction. Resulting exchange gains or losses
      are included in net loss for the period.                                                                                                                                                             
|   |                                                                                            
|4. | 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") to purchase the
  remaining 50% interests 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 as follows:



13

MICROMEM TECHNOLOGIES INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



October 31, 2004








|                                                                                                                                                                                                                                                                                                                                                                                                                     | a.                                                                                                                                                                                                                                                                                                | $10,000,000 was paid on closing (after receipt of
      regulatory approvals), in the form of $8,000,000 in common shares of the
      Company ("Micromem Shares") (based on the price on the closing date) and
      $2,000,000 in cash;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                                     | b.                                                                                                                                                                                                                                                                                                | $20,000,000 if and when either (i) certification is
      received from Honeywell Federal Manufacturing & Technologies ("Honeywell")
      that fully integrated, randomly addressable memory matrices of the
      Technology have met certain stipulated performance standards, or (ii) the
      Company or any of its affiliates executes a definitive agreement for the
      sale or licensing of the Technology 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 Micromem Shares to be determined by Pageant provided that a
      minimum of 50% of the $20,000,000 shall be paid in Micromem Shares valued
      at the close of trading on the date of receipt of such certification, sale
      or licensing; and
|                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                                     | c.                                                                                                                                                                                                                                                                                                | $20,000,000 if and when the Company or any of its
      affiliates executes a definitive agreement for the sale or licensing with
      respect to any technology (including the Technology) owned by the Company
      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 Micromem Shares to be determined by Pageant provided that a minimum of 50%
      of the $20,000,000 shall be paid in Micromem Shares valued at the close of
      trading on the date of execution of such sale or licensing.                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|During fiscal 2001, the Company paid $2,000,000 in cash and
issued 2,007,831 shares, being the equivalent of $8,000,000, the first
installment payable under the terms described above, 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 in fiscal 2002 (Note 10).
|                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                                     | On March 9, 2004 the third anniversary of the closing date,
  the requirements set out in terms (b) and (c) above were not met and, in
  accordance with the terms of the Agreement, the Company's obligations to pay
  these amounts terminated. The Company thus has had to revert to Estancia:
|                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                                     | 1.                                                                                                                                                                                                                                                                                                | a 40% interest in the Vemram Patents;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 



14



MICROMEM TECHNOLOGIES INC.
(A DEVELOPMENT STAGE COMPANY)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Expressed in United States dollars)  October 31, 2004


| |    |                                                                                                                                                                                                        
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.

5.    Deposits and other receivables:





|                                                                                             |  | 2004                               | 2003                              
|-------------------------------------------------------------------------------------------- |  | ---------------------------------- | ----------------------------------
|Sales tax recoverable
    Deposits
    Other receivables with companies under common control |  | $ 2,429
    15,000
    
    16,133 | $ 7,152
    14,536
    
    25,519
|                                                                                             |  | $33,562                            | $ 47,207                          





6.
        Capital assets:





|                                  | 2003     | Additions | 2004    
|--------------------------------- | -------- | --------- | --------
|Cost:
    Computers and equipment | $ 36,781 | $ 4,567   | $ 41,348
|                                  | $ 36,781 | $ 4,567   | $ 41,348







|                                                      | 2003     | Amortization
    Expense | 2004    
|----------------------------------------------------- | -------- | ------------------------ | --------
|Accumulated amortization:
    Computers and equipment | $ 33,013 | $ 5,410                  | $ 38,423
|                                                      | $ 33,013 | $ 5,410                  | $ 38,423







|                                            |         |        
|------------------------------------------- | ------- | -------
|                                            | 2004    | 2003   
|Net book value:
    Computers and equipment | $ 2,925 | $ 3,768
|                                            | $ 2,925 | $ 3,768





15

MICROMEM TECHNOLOGIES INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



October 31, 2004




|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   | Included in research and development expense is nil (2003 -
  nil, 2002 - $130,075) of amortization expense.                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | During fiscal 2003, the Company contributed equipment and
  supplies with a net book value of $58,302 under the "Equipment Transfer
  Agreement" to the University of Toronto ("U of T") (Note 13a(4)). The net book
  value of the contributed equipment has been charged to the period as a
  research and development expense.                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|7. | Patents and trademarks:                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | The Company and its subsidiaries have pending patent
  applications relating to its memory technologies and the costs relating to
  legal and filing fees are capitalized as patents.                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | In 2003 the Company discontinued a number of patent and
  trademark applications primarily outside the United States and the net book
  value of $130,839 relating to these applications was written off in 2003. The
  Company has also assessed the remaining amounts for patents and trademark
  applications registered in Canada and United States and has expensed the
  residual net book value of $168,981 in 2003 to reflect the uncertain nature of
  future events.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | The Company continues to actively pursue and protect its
  patents and trademarks registered in Canada and the United States.                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|8. | Share Capital:                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | a.                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               



16

MICROMEM TECHNOLOGIES INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



October 31, 2004




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 13,000,000 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.



A summary of the status of the Company's fixed stock option
plan as at October 31, 2004 and 2003 and changes during the years ended on those
dates is as follows:



|                                                                       | 2004                              |                                 | 2003                              |                                          
|---------------------------------------------------------------------- | --------------------------------- | ------------------------------- | --------------------------------- | -----------------------------------------
|                                                                       | Shares in Thousands               | Weighted Average exercise price | Shares in Thousands               | Weighted 
    Average 
    exercise price
|Outstanding, beginning of year
    Granted
    Cancelled
    Exercised | 5,300
    7,270
    -
    (5,300) | $.10
    .31
    -
    .10      | 5,380
    5,300
    (5,380)
    - | $ 4.27
    0.10
    4.27                 
|Outstanding end of year                                                | 7,270                             | $.31                            | 5,300                             | $0.10                                    
|Options exercisable at year end                                        | 7,270                             |                                 | 5,300                             |                                          
|Weighted average price of
    options granted during the year          |                                   | $.31                            |                                   | $0.06                                    



| |                                                                                                          
| | ---------------------------------------------------------------------------------------------------------
| | In June 2004, 5,300,000 options were exercised resulting
    in $530,000 of cash proceeds to the Company.
| |                                                                                                          
| | The following table summarizes information about fixed
    options outstanding as at October 31, 2004:   



|Options Outstanding   |                    |                                                                       | Options exercisable                 
|--------------------- | ------------------ | --------------------------------------------------------------------- | ------------------------------------
|Actual exercise price | Number outstanding | Weighted 
    average 
    remaining contractual life 
    (in years) | Weighted
    Average exercise
 price
|$ 0.30                | 7,150,000          | 4.67 years                                                            | $0.30                               
|0.68                  | 120,000            | 1.16 years                                                            | 0.68                                



17

MICROMEM TECHNOLOGIES INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



October 31, 2004




> The Company does not recognize compensation expense for
>     stock options granted to employees that are exercisable at fair market value
>     at the date of the grant. The table below presents pro forma net loss as if
>     stock options granted to employees had been determined on the fair
>     value-based method. The table includes all stock options granted by the
>     Company.







|                                      | 2004                             | 2003                                 | 2002                               | Period from Sept. 3, 1997 -
    Oct. 31, 2004
|------------------------------------- | -------------------------------- | ------------------------------------ | ---------------------------------- | ---------------------------------------------
|Loss applicable to
    Common shares: |                                  |                                      |                                    |                                              
|As Reported
    Compensation expense  | ($ 944,348)
    
    (1,369,950) | ($1,449,965)
    
    
    (318,000) | ($12,733,015)
    
    (1,832,500) | ($32,655,088)
    
    (17,829,459)          
|Pro forma                             | ($2,314,298)                     | ($1,767,965)                         | ($14,565,515)                      | ($50,484,547)                                







|                                             | 2004  | 2003  | 2002  | Period from Sept. 3,
 1997 -
    Oct. 31, 2003
|-------------------------------------------- | ----- | ----- | ----- | ----------------------------------------------
|Basic and fully diluted loss 
    per share: |       |       |       |                                               
|Reported                                     | (.02) | (.03) | (.27) | (.74)                                         
|Proforma                                     | (.04) | (.04) | (.31) | (1.16)                                        







> The fair value of all options granted during 2004 and
>     2003 were estimated as of the date of grant using the Black Scholes
>     option-pricing model with the following assumptions:





|                        | 2004      | 2003  
|----------------------- | --------- | ------
|Divided yield           | -         | -     
|Expected volatility     | 150%      | 157%  
|Risk free interest rate | 3.25%     | 2.22% 
|Expected option life    | 1.5 Years | 1 Year





> Included in the total of 120,000 options outstanding at
>     an exercise price of $.68 per share are 20,000 options issued to a
>     consultant for services provided during 2004. The Company recorded an
>     expense of $10,020 relating to such options calculated in accordance with
>     the methodology outlined above. This expense is included in professional
>     fees in the consolidated statement of operations.



18

MICROMEM TECHNOLOGIES INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



October 31, 2004




| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | c. | Loss per share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |    | Basic loss per share is calculated by dividing net loss
    by the weighted average number of common shares outstanding during the
    period. Diluted loss per share reflects the dilution that would occur if
    outstanding stock options and share purchase warrants were exercised or
    converted into common shares using the treasury stock method and is
    calculated by dividing net loss applicable to common shares by the sum of
    the weighted average number of common shares outstanding and all additional
    common shares that would have been outstanding if potentially dilutive
    common shares had been issued.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |    | 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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |    | On August 13, 2003, the Company issued 2,031,250 First
    Units at $0.08 each. Each First Unit provides the holder with one common
    share and a warrant for one Second Unit at $0.08 each, exercisable for one
    year. Each Second Unit provides the holder with one common share and a
    warrant for one common share at $0.08 each, exercisable for one year.                                                                                                                                                                                                                                                                        
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |    | In accordance with the CICA's recommendations, a portion
    of the First Unit should be allocated into separate elements within
    shareholders' equity as the First                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    | Units contain two equity elements arising from the common
    share and warrants attached. The Company has allocated the closing trading
    value of its shares as at August 13, 2003 to the common shares. Since the
    net proceeds received from the issuance of the common shares attached to the
    First Units equaled the negotiated trading value at that date as authorized
    by the Board of Directors, the warrants were allocated a nil value.                                                                                                                                                                                
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |    | Between August - October 2004, the holders of the First
    Units exercised the First Unit warrants and the Company thus issued
    2,031,250 common shares and the warrants for the Second Units and realized
    proceeds of $162,500.                                                                                                                                                                                                                                                                                                                                                                                                       



19





MICROMEM TECHNOLOGIES INC.
(

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



October 31, 2004




| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | e.  | Private Placement                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | i)  | In December 2003, the Company 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, the Company 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 entitles the holder to
    purchase one Common Share and one Series B Warrant for $0.11 until expiry 12
    months from the date of issue. Each Series B Warrant entitles the holder to
    purchase one additional Common Share for $0.11 until expiry 12 months from
    the date of issue.    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     | In October 2004 the private investors exercised 200,000
    Series A warrants and the Company thus issued 200,000 common shares and
    200,000 Series B warrants and realized proceeds of $22,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     | Subsequent to October 31, 2004 the private investors
    exercised the remaining Series A warrants and the Series B warrants (Note 17
    (a) (i)).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | ii) | In December 2003, the Company 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, the Company 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 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 the Company 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 the Company thus issued 500,000 common shares and
    realized proceeds of $40,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    



20

MICROMEM TECHNOLOGIES INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



October 31, 2004




| |    |                                                                               
| | -- | ------------------------------------------------------------------------------
| | f. | Outstanding warrants                                                          
| |    |                                                                               
| |    | The outstanding warrants to acquire common shares are
    summarized as below:





|August 13, 2003 financing (Note 8 (d)):                                                                                               |            
|------------------------------------------------------------------------------------------------------------------------------------- | -----------
|Series A warrants outstanding at October 31, 2003                                                                                     | 2,031,250  
|Series A warrants exercised in fiscal 2004                                                                                            | (2,031,250)
|Series B warrants resulting from exercise of Series A
    warrants                                                                    | 2,031,250  
|Outstanding at October 31, 2004                                                                                                       | 2,031,250  
|                                                                                                                                      |            
|December 2003 financing (Note 8 (e) (i)):                                                                                             |            
|Series A warrants issued                                                                                                              | 300,000    
|Series A warrants exercised                                                                                                           | (200,000)  
|Series B warrants resulting from exercise of Series A
    warrants                                                                    | 200,000    
|Outstanding at October 31, 2004                                                                                                       | 300,000    
|Subsequent to October 31, 2004 the private investors
    exercised
    the remaining Series A and Series B warrants (Note 17 (a) (i)) |            
|                                                                                                                                      |            
|December 2003 financing (Note 8 (e) (ii))                                                                                             |            
|Series A warrants issued                                                                                                              | 500,000    
|Series A warrants exercised                                                                                                           | (500,000)  
|Series B warrants resulting from exercise of Series A
    warrants                                                                    | 500,000    
|Series B warrants exercised                                                                                                           | (500,000)  
|Outstanding at October 31, 2004                                                                                                       | -          





21

MICROMEM TECHNOLOGIES INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



October 31, 2004






|9.  | Contributed surplus:                                                                                                                                                                                                                                                                                                                                                                                         
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                              
|    | Included in contributed surplus of $588,991 at October 31,
  2004 (October 31, 2003: $578,891) is an amount of $544,891 representing
  forgiveness of Pageant indebtedness during fiscal 1999 by Ataraxia Corp, the
  former parent company of Pageant. This forgiven debt was treated as
  contributed surplus, a separate component of shareholders' equity, as this
  balance was between related parties.
|    |                                                                                                                                                                                                                                                                                                                                                                                                              
|10. | Restructuring and write-down of royalty rights:                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                              
|    | On July 29, 2002, the Company restructured its operations
  by closing its research and development facility and adopted a plan to focus
  its current resources to outsource its research and development activities as
  described in Note 13(a). No major costs were associated with this
  restructuring.                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                              
|    | As a result of the restructuring, the Company determined
  that there was significant uncertainty that any amounts would be payable to
  Estancia in the foreseeable future in respect of the Estancia Royalty as
  described in Note 4, and accordingly, the Estancia Royalty rights acquired in
  the amount of $10,000,000 were written off in fiscal 2002.                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                              
|11. | Income Taxes:                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                              
|    | The Company has non-capital losses of approximately
  $6,551,000 available to reduce future taxable income, the benefit of which has
  not been recognized in these consolidated financial statements. As at October
  31, 2004, the tax losses expire as follows:                                                                                                                                           





|             | Canada      | Other Foreign | Total      
|------------ | ----------- | ------------- | -----------
|2006         | $ 268,000   | $ -           | $268,000   
|2007         | 1,632,000   | -             | 1,632,000  
|2008         | 1,363,000   | -             | 1,363,000  
|2009         | 1,062,000   | -             | 1,062,000  
|2010         | 932,000     | 265,000       | 1,197,000  
|2011         | -           | 207,000       | 207,000    
|2014         | 727,000     | -             | 727,000    
|2023         | -           | 73,000        | 73,000     
|2024         | -           | 22,000        | 22,000     
|Total losses | $ 5,984,000 | $567,000      | $ 6,551,000



22

MICROMEM TECHNOLOGIES INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



October 31, 2004




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





|                                                 | 2004        | 2003         
|------------------------------------------------ | ----------- | -------------
|Consolidated accounting loss before income taxes | $ (944,348) | $ (1,449,965)
|Statutory rates                                  | 36%         | 38%          
|                                                 |             |              
|Expected income tax recovery                     | (339,965)   | (550,987)    
|Tax benefit not recognized                       | 339,965     | 550,987      
|                                                 | $ -         | $ -          







Future income taxes reflect the net tax effect of temporary
  differences between the 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 as
  at October 31 are as follows:







|                                                        | 2004        | 2003       
|------------------------------------------------------- | ----------- | -----------
|                                                        |             |            
|Unused capital losses                                   | $ 47,566    | $ 47,566   
|Unused non-capital losses                               | 2,244,996   | 1,975,066  
|Alternative minimum tax credit                          | 142,091     | 142,091    
|Research and development credit                         | 118,720     | 118,720    
|Tax basis of capital assets in excess of carrying value | 13,680      | 109,789    
|Total future tax assets                                 | 2,567,053   | 2,393,232  
|Valuation allowance                                     | (2,567,053) | (2,393,232)
|Net future tax assets                                   | $ -         | $ -        





23

MICROMEM TECHNOLOGIES INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



October 31, 2004








|12. | Management compensation and related party transactions:
|--- | -------------------------------------------------------
|    |                                                        
|    | a.                                                     
|    |                                                        
|    |                                                        
|    |                                                        
|    |                                                        
|    |                                                        
|    |                                                        
|    |                                                        
|    |                                                        



24

MICROMEM TECHNOLOGIES INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



October 31, 2004






|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |     | Company that would be outstanding on the close of
          business on January 2, 2001, at a price of $0.10 per incentive share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |     | Pursuant to this agreement, deferred share
          compensation for the Chairman for the period from January 2, 2000 to
          January 2, 2001 in the amount of $2,711,811, representing an estimate
          of the intrinsic value of the options to be granted on January 2,
          2001, was recorded as contributed surplus within shareholders' equity.
          Of this amount, $2,258,592 was recorded as compensation expense in the
          year-ended October 31, 2000. On January 17, 2001, the Chairman
          exercised his options and 714,686 common shares of the Company were
          issued with an aggregate value of $1,581,242 which was recorded as
          share capital. The difference between the actual value of the shares
          and the estimate recorded in 2000 of $677,420 was recorded as a
          recovery of compensation expense in the year ended October 31, 2001.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | iv. | On January 29, 1999 and March 10, 1999, the Company
          entered into two consulting agreements with the Chairman and a company
          controlled by the former President, respectively. Consideration for
          services rendered by the Chairman and the former President were
          settled by issue of common shares. The Company issued 454,292 shares
          to the Chairman and 448,452 shares to a company controlled by the
          former President during fiscal 2000. The balance of 11,192 shares
          ($66,461) due to a company controlled by the former President were
          issued in fiscal 2001.                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|b. | In the normal course of business, the Company has entered
    into transactions with other companies under common control. These
    transactions relate to salaries, rent and other expenses which are shared
    amongst the companies. For the fiscal year ending October 31, 2004, Micromen
    paid a total of approximately $92,000 in rent, $116,000 in salaries and
    $5,000 of other expenses and recovered a total of $182,000 of these costs
    from other companies under common control (2003: rent



25

MICROMEM TECHNOLOGIES INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



October 31, 2004




|    |              |                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- | ------------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |              | payment of $126,000, salary payments of $28,000, other
    payments of $5,000 recoveries of $47,000).                                                                                                                                                               
|    |              |                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | c.           | Included in professional fees as reported are management
    and consulting fee payments made to various companies whose shareholders
    serve as officers and directors of the Company. Such payments totaled
    approximately $72,000 in 2004 (2003 - $201,000).
|    |              |                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|13. | Commitments:
|    |              |                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | a.           | Research Collaboration and Infrastructure Agreements:                                                                                                                                                                                                               
|    |              |                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |              | 1.                                                                                                                                                                                                                                                                   | Materials and Manufacturing Ontario:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |              |                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |              |                                                                                                                                                                                                                                                                      | On October 24, 2002, Micromem entered into a two year
      Research Collaboration Agreement with Material and Manufacturing Ontario
      ("MMO"), a not-for-profit organization funded by the provincial
      government, the University of Toronto ("U of T") and a researcher employed
      by U of T to fund the research on Magnetic Structure development for Hall
      effect memory devices.                                                                                                                                  
|    |              |                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |              |                                                                                                                                                                                                                                                                      | Under the terms of the agreement, the Company has
      committed to contribute $87,432 (Cdn $136,175) and $18,000 (Cdn $28,000)
      in cash and in-kind contribution, respectively, per year to fund the
      research. As at October 31, 2004, the Company has met all of its
      obligations under this agreement.                                                                                                                                                                                                                
|    |              |                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |              |                                                                                                                                                                                                                                                                      | On November 12, 2003, Micromem entered into a second
      research collaboration agreement with MMO and the U of T for research and
      development associated with magnetic memory devices. Under the second
      agreement, in the first year and upon renewal in the second year, MMO will
      grant $58,900 (equivalent to Cdn. $85,000) in cash funding and Micromem
      will contribute $56,130 (equivalent to Cdn. $81,000 in cash funding and
      additionally will make $30,770 (equivalent to Cdn. $44,400) of in-kind



26

MICROMEM TECHNOLOGIES INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



October 31, 2004




| |  |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |    | contributions, all towards the research collaboration,
      each year. At October 31, 2004, the Company has met all of its obligations
      under the agreement. Micromem will have sublicensing rights for the use of
      any new technology developed ("Technology Developed") under this research
      with an annual royalty payable in perpetuity to MMO based on a percentage
      of revenues from the sale of products incorporating the Technology
      Developed.                                                                                                                                                                                                            
| |  |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | 2. | University of Toronto:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  |    | On November 1, 2002, the Company entered into an
      Infrastructure Agreement with U of T to fund the assembly of a magnetic
      memory facility ("MMF") for research, development and fabrication of
      magnetic memory. U of T has agreed to use the MMF in connection with,
      among other things, research to be conducted pursuant to collaborations
      between Micromem and U of T.                                                                                                                                                                                                                                                                                        
| |  |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  |    | The terms of the agreement provide that Micromem is to
      contribute $249,463 (equivalent to Cdn. $360,000) in cash to fund the
      direct costs of the MMF. 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, Micromem entered into a two year
      Collaborative Research Agreement with Communications and Information
      Technology Ontario ("CITO") U of T and Dr. Harry Ruda. For the first year,
      CITO provided funding of $106,715 (equivalent to Cdn. $154,000) and
      Micromem contributed $31,875 (equivalent to Cdn. $46,000). For the second
      year, CITO provide funding of a further $107,715 (equivalent to Cdn.
      $154,000) and Micromem provided funding of a further $31,875 (equivalent
      to Cdn. $46,000). Micromem has further provided $67,632 (equivalent to Cdn
      $97,600) of in-kind contributions to the research collaboration.
| |  |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | 4. | Equipment Transfer Agreement:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |  |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  |    | On March 1, 2003, Micromem entered into an agreement
      with U of T whereby Micromem has contributed equipment and supplies with
      an estimated value of $200,000 (Note 6). The equipment was previously used
      by                                                                                                                                                                                                                                                                                                                                                                                                                                                                 



27

MICROMEM TECHNOLOGIES INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



October 31, 2004




| |  |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  | b. | Technology development agreement:                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  |    | On March 14, 2001, the Company's subsidiary, Pageant,
    entered into a three-year technology development agreement with Estancia and
    Lienau to continue the development of the Technology. Under the terms of the
    agreement, Pageant committed to pay Estancia $215,000 per year, payable on a
    monthly basis in arrears, and committed to incur expenditures in connection
    with the 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
    May - October 2002, $197,086 during fiscal 2003 and $143,330 during fiscal
    2004.                                                                                                                                                                 
| |  |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  |    | The development efforts under this agreement ceased in
    July 2002. The Company reports approximately $287,000 in accounts payable
    and accrued liabilities with respect to this agreement as of October 31,
    2004 (at October 31, 2003: $143,000).                                                                                                                                                                                                                      
| |  |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  | c. | Operating leases:                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  |    | The Company has operating lease commitments which expire
    in 2006 in respect of its head office. The future minimum annual lease
    payments are approximately as follows:                                                                                                                                                                                                                                                                                                   





|     |          
|---- | ---------
|2005 | $ 93,500 
|2006 | 15,500   
|     | $ 109,000





28

MICROMEM TECHNOLOGIES INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



October 31, 2004




|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                              | 
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|14. | Contingencies:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                              | 
|    | Pageant Technologies (U.S.A.) Inc. has been named as a
  defendant in legal actions relating to tenant improvements on a leased
  property, including an action claiming damages of approximately $887,000
  alleging breach of contract under a construction contract entered into by
  Clear Blue Laboratories, Inc. ("Clear Blue"). The landlord of the leased
  property is also claiming damages from Pageant Technologies (U.S.A.) Inc.
  Pageant Technologies (U.S.A.) Inc. assigned its rights under the lease to
  Clear Blue, however, Pageant Technologies (U.S.A.) Inc. is allegedly obligated
  to pay the lease payments should the assignee default under the contract. The
  landlord is claiming damages of approximately $887,000.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                              | 
|    | The outcome of these actions is uncertain and Pageant
  Technologies (U.S.A.) Inc. is vigorously defending all actions in which it is
  named as a defendant. It is, therefore, not possible to provide an estimate of
  the financial effects, if any, of the actions. No losses related to these
  actions have been accrued in these consolidated financial statements. It is
  possible that the outcome of these claims could represent a material amount.                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                              | 
|    | In the normal course of business, the Company and its
  subsidiaries are involved in various legal actions. In management's opinion,
  the ultimate disposition of these actions, individually or in aggregate, will
  not have a material adverse effect on the financial condition of the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                              | 
|    | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                              | 
|    | Under the terms of the Research Collaboration and
  Infrastructure Agreements with MMO (Note 13 (1)) the University of Toronto
  (Note 13 (2)) and Communications and Information Technology Ontario (Note 13
  (3)), the Company is committed to potential royalty payments in each case when
  a license agreement is finalized with respect to the technology relating to
  such agreements. As and when the research work is completed the Company will
  enter into a license agreement whereby:                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                              | 
|    | a.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | The collaboration partner in each case shall retain a
      non-exclusive royalty free worldwide perpetual license to use the
      Intellectual Property for its research, teaching and administrative
      purposes only.

29

MICROMEM TECHNOLOGIES INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



October 31, 2004




|    |                                                                                                                                                                                                                                                                                                                                                                                                                                             |                                                                                                                                                      |                                                                                                                                                                                                               
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | b.                                                                                                                                                                                                                                                                                                                                                                                                                                          | The collaboration partner shall receive an annual
      royalty payment calculated as:                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                             |                                                                                                                                                      |                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                             | i.                                                                                                                                                   | 4% of the revenues generated by the Company from the
        manufacture and sale of products to the extent that such products
        directly and specifically pertain to the related Intellectual Property.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                             |                                                                                                                                                      |                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                             | ii.                                                                                                                                                  | A maximum of 20% of the revenues generated by the Company
        from the sublicensing of the related Intellectual Property,                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                             |                                                                                                                                                      |                                                                                                                                                                                                               
|    | subject to an overall total payment of $500,000. Once the
  overall payments equal $500,000, then the future royalty rate is reduced to 1%
  in each of case (i) and (ii) above.                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                             |                                                                                                                                                      |                                                                                                                                                                                                               
|    | As outlined in Note 4, certain interests under the
  Agreement with Estancia reverted to Estancia on March 9, 2004. On this basis,
  to the extent that 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.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                             |                                                                                                                                                      |                                                                                                                                                                                                               
|15. | 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 items                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                             |                                                                                                                                                      |                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                             | The consolidated financial statements include
    balances/transactions that are denominated in foreign currencies as follows:                      







|            | 2004 Canadian Dollars | 2003 Canadian Dollars
|----------- | --------------------- | ---------------------
|Assets      | $ 270,999             | $ 343,144            
|Liabilities | 122,561               | 60,046               
|Revenue     | 6,241                 | 8,976                
|Expenses    | 973,615               | 1,574,943            



30

MICROMEM TECHNOLOGIES INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



October 31, 2004




|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                           | 
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------- | 
|16. | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                           | 
|    | a.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | Stock-Based compensation:
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                           | 
|    | The Company has chosen to account for employee stock-based
  compensation using the intrinsic value method prescribed in Accounting
  Principles Board Opinion No. 25, Accounting for Stock Issued to Employees.
  Under this method, compensation expense is recorded if the market value
  exceeds the exercise price at the date of grant. The compensation expense, if
  any, is recognized at the date of option grants or when the option shares are
  earned, when future performance is required, in the consolidated statements of
  operations and deficit.                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                           | 
|    | For the purposes of reporting under U.S. GAAP, companies
  are required under Statement of Financial Accounting Standard (SFAS) No. 123
  to calculate and disclose on a pro forma basis, the compensation expense
  related to the fair value of the stock options granted during the year in the
  notes to the consolidated financial statements. Accordingly, for the purpose
  of reporting under U.S. GAAP, the Company's net loss applicable to common
  shares and loss per common share would be increased to the pro forma amounts
  as disclosed in Note 8(b).                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                           | 
|    | In December 2004, the Financial Accounting Standards Board
  (FASB) issued SFAS No. 123 (revised 2004), "Share-Based Payments". SFAS No.
  123(R) would require the Company to measure all employee stock-based
  compensation awards using a fair-value method and record such expense in its
  consolidated financial statements. SFAS No. 123(R) is effective beginning in
  the quarter ending January 31, 2005. The effect of the adoption of SFAS No.
  123(R) is expected to be comparable to the effect disclosed on a pro forma
  basis as a result of applying the current fair-value recognition provisions of
  SFAS No. 123 as shown in 8(b) herein.



31





MICROMEM TECHNOLOGIES INC.
(

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



October 31, 2004




|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | b.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | Consolidated statement of comprehensive income
              (loss):                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | Comprehensive income (loss) includes all changes in equity
  during the periods presented except shareholder transactions. For the purpose
  of reporting under U.S. GAAP, the components of comprehensive income and total
  comprehensive income are reported in the consolidated statements of changes in
  shareholders' equity, below net loss in the consolidated statements of
  operations and deficit and in a separate consolidated statement of
  comprehensive income. For the periods presented, accumulated other
  comprehensive loss equals net loss.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|17. | Subsequent events:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | a.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | Since October 31, 2004, the Company has secured
    additional financing as follows:
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | i.                                                                                   | $44,000 of proceeds realized on the exercise of
        warrants as outlined in Note 8(e) (i).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | ii.                                                                                  | In December 2004 the Company 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, the Company has 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 $.60 until expiry 12 months from the date of issue. Each
        Series B Warrant entitles the holder to purchase one additional Common
        Share for $.60 until expiry 12 months from the date of issue.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | iii.                                                                                 | In January 2005, the Company arranged a Unit private
        placement to several investors pursuant to prospectus and registration
        exemptions set forth in applicable securities laws. Under the private
        placement the Company is scheduled to receive up to approximately
        $883,000 by February 28, 2005 as subscription proceeds for the sale of
        up to 1,346,490 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 $.65 until expiry 12
        months from the issue date. Each Series B Warrant entitles the holder to
        purchase                                              

32

MICROMEM TECHNOLOGIES INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



October 31, 2004




|    |                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | one additional Common Share for $.65 until expiry 12
        months from the date of issue.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                | iv.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | In February 2005 the Company 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, the Company 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 $.75 until expiry 12 months from the date of issue. Each
        Series B Warrant entitles the holder to purchase one additional common
        share for $.75 until expiry 12 months from the date of issue.
|    |                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | b.                                                                                                                                                                             | In January 2005 the Company entered into an employment
    agreement with an arm's length individual for her services as Chief
    Technology Officer of the Company. The agreement extends for 2 years with a
    cancellation clause which can be executed by the Company at any time with 4
    months notice provided. The base remuneration stipulated in the agreement is
    $260,000 per year. The company also granted the Chief Technology Officer
    300,000 in options exercisable at $0.80 per share, expiring 45 days after
    the end of the above noted employment agreement.
|    |                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | c.                                                                                                                                                                             | On February 10, 2005 the Board approved a resolution to
    issue 100,000 options under the Company's Stock Option Plan with an exercise
    price of $0.91 per share. These options were awarded to an officer and an
    employee of the Company.                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|18. | Comparative consolidated financial statements:                                                                                                                                
|    |                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | Comparative consolidated financial statements have been
  reclassified from statements previously presented to conform to the
  presentation of the 2004 financial statements.

33



ITEM 18.         EXHIBITS

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

|Exhibit No. 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/A filed with the Commission on January 11, 2000).                                                                                                                                                                                                   
|--------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|Exhibit No. 1.2 | Articles of Amendment of Micromem
            Technologies Inc. dated as of October 17, 2001 amending the Articles
            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/A filed with the Commission on
            March 20, 2003);                                                              
|                |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|Exhibit No. 1.3 | Articles of Amendment of Micromem
            Technologies Inc. dated as of June 24, 2002 amending the Articles 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/A filed with the Commission on March 20,
            2003);                                                                      
|                |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|Exhibit No. 1.4 | By-Laws of Micromem Technologies
            Inc. in effect as of January 11, 2002, (Incorporated herein by
            reference to the Company's Form 20-F/A filed with the Commission on
            January 11, 2000);                                                                                                                                                                                                                                
|                |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|Exhibit No. 1.5 | 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/A filed with the Commission
            on March 20, 2003);                                                                                 
|                |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|Exhibit No. 4.1 | Research Collaboration Agreement
            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/A filed with the Commission on March 20,
            2003);
|                |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|Exhibit No. 4.2 | Asset Purchase Agreement 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.B -
            Business Overview - Recent Developments), (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
            among Pageant Technologies Incorporated, Estancia Limited and
            Richard Lienau dated March 9, 2001 (referred to in this Annual
            Report at Item 4.B - Business Overview - Recent Developments),
            (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
            between Micromem Technologies Inc. and he 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/A filed with the Commission
            on March 20, 2003);                                                                        
|                |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|Exhibit No. 4.5 | A second 2-year research research
            collaboration agreement dated November 12, 2003, among Micromem,
            Materials and Manufacturing Ontario and the University of Toronto
            (referred to in this Annual Report at "Item 10.C - Material
            Contracts"), (Incorporated herein by reference to the Company's Form
            20F filed with the Commission on March 19, 2004);                                       

71



|Exhibit No. 4.6  | Equipment Transfer Agreement dated
            March 1, 2003 between Micromem and the Governing Council of the
            University of Toronto (referred to in this Annual Report at Item
            10.C - Material Contracts"), (Incorporated herein by reference to
            the Company's Form 20F filed with the Commission on March 19, 2004);                                                                      
|---------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                 |                                                                                                                                                                                                                                                                                                                                                                                                                                 
|Exhibit No. 4.7  | Collaborative Research Agreement
            dated December 10, 2002 among Micromem, Communications and
            Information Technology Ontario ("CITO"), the University of Toronto
            and Dr. Harry Ruda (referred to in this Annual Report at "Item 10.C
            - Material Contracts"), (Incorporated herein by reference to the
            Company's Form 20F filed with the Commission on March 19, 2004);
|                 |                                                                                                                                                                                                                                                                                                                                                                                                                                 
|Exhibit No. 12.1 | Officer's
            Certification pursuant to Section 302 of the Sarbanes Oxley Act,
            2002                                                                                                                                                                                                                                                                                                                         
|                 |                                                                                                                                                                                                                                                                                                                                                                                                                                 
|Exhibit No. 12.2 | Officer's Certification pursuant
            to Section 302 of the Sarbanes Oxley Act, 2002                                                                                                                                                                                                                                                                                                                                     
|                 |                                                                                                                                                                                                                                                                                                                                                                                                                                 
|Exhibit No. 13.1 | Officer's Certification pursuant
            to Section 906 of the Sarbanes Oxley Act, 2002                                                                                                                                                                                                                                                                                                                                     
|                 |                                                                                                                                                                                                                                                                                                                                                                                                                                 
|Exhibit No. 13.2 | Officer's Certification pursuant
            to Section 906 of the Sarbanes Oxley Act, 2002                                                                                                                                                                                                                                                                                                                                     
|                 |                                                                                                                                                                                                                                                                                                                                                                                                                                 
|Exhibit No. 14   | Independent Auditors' Consent                                                                                                                                                                                                                                                                                                                                                                                                   



SIGNATURES

Pursuant to the requirements of Section 12 of the Securities
Exchange Act of 1934, the Registrant certifies that it meets all of the
requirements for filing on Form 20-F and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized.

| | MICROMEM TECHNOLOGIES INC.
| | --------------------------
| |                           
| |                           
| |                           
| |                           
| |                           
| |                           
| |                           
| |                           
| |                           
| |                           

Dated: February 25, 2005



72