##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM 20-F
 o
    
    REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF
THE SECURITIES EXCHANGE ACT OF 1934
 or
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 For The Fiscal Year Ended October 31, 2005
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 or
 o
    
    SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 Date of event requiring this shell report
 Commission File No. 0-26005
 MICROMEM TECHNOLOGIES INC.
  Ontario, Canada
  777 Bay Street, Suite 1910,
Toronto, Ontario M5G 2E4, Canada
Tel: (416) 364-6513
Fax: (416) 360-4034
  None
  Common Shares without par value
  None
 
 64,719,449 Common Shares
  o þ
 
 o þ
  þ o
  Large Accelerated Filer o
    
    Accelerated Filer o
    
    Non-Accelerated Filer þ
  þ o
  o þ




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##### 



TABLE OF CONTENTS
 PagePart IItem 1.
    
    Identity of Directors, Senior Management and Advisors
    
    
    1Item 2.
    
    Offer Statistics and Expected Timetable
    
    
    1Item 3.
    
    Key Information
    
    
    1Item 4.
    
    Information on the Company
    
    
    13Item 5.
    
    Operating and Financial Review and Prospects
    
    
    23Item 6.
    
    Directors, Senior Management and Employees
    
    
    36Item 7.
    
    Major Shareholders and Related Party Transactions
    
    
    43Item 8.
    
    Financial Information
    
    
    44Item 9.
    
    The Offer and Listing
    
    
    44Item 10.
    
    Additional Information
    
    
    45Item 11.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    54Item 12.
    
    Description of Securities Other Than Equity Securities
    
    
    54Part IIItem 13.
    
    Defaults, Dividend Arrearages and Delinquencies
    
    
    55Item 14.
    
    Material Modifications to the Rights of Security Holders and Use of Proceeds
    
    
    55Item 15.
    
    Controls and Procedures
    
    
    55Part IIIItem 16.
    
    Not Applicable
    
    
    56Item 16A
    
    Audit Committee Financial Expert
    
    
    56Item 16B
    
    Code of Ethics
    
    
    56Item 16C
    
    Principal Accountant Fees and Services
    
    
    56Item 16D
    
    Exemptions from the Listing Standards for Audit Committees
    
    
    57Item 16E
    
    Purchases of Equity by Issuer and Affiliated Purchasers
    
    
    57Item 17.
    
    Financial Statements
    
    
    58Item 19.
    
    Exhibits
    
    
    91Signatures
    
    
    
    
    94REVISED LICENSE AGREEMENTEMPLOYMENT AGREEMENTEMPLOYMENT AGREEMENTOFFICER'S CERTIFICATION PURSUANT TO SECTION 302OFFICER'S CERTIFICATION PURSUANT TO SECTION 302OFFICER'S CERTIFICATION PURSUANT TO SECTION 906OFFICER'S CERTIFICATION PURSUANT TO SECTION 906INDEPENDENT AUDITORS' CONSENT OF SCHWARTZ LEVITZKY FELDMAN LLPINDEPENDENT AUDITORS' CONSENT OF GRANT THORNTON LLPINDEPENDENT AUDITORS' CONSENT OF ERNST & YOUNG LLPINDEPENDENT AUDITORS' CONSENT OF SCHWARTZ LEVITSKY FELDMAN LLP




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PART I
 INTRODUCTION
 Abbreviations
  Forward Looking and Cautionary Statements
  
 ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
  
 ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
  
 ITEM 3. KEY INFORMATION
 A. Selected Financial Data
  Selected balance sheet information
 Years ended October 31,2005
    
    2004
    
    2003
    
    2002
    
    2001Working capital (deficiency)
    
    ($
    74,831
    )
    
    $
    34,685
    
    
    $
    100,670
    
    
    $
    985,551
    
    
    $
    3,455,108Capital Assets
    
    
    
    
    
    
    2,925
    
    
    
    3,768
    
    
    
    98,654
    
    
    
    336,839Total Assets
    
    
    728,375
    
    
    
    474,234
    
    
    
    350,138
    
    
    
    1,583,422
    
    
    
    14,454,470Capital Stock
    
    
    34,305,087
    
    
    
    32,103,787
    
    
    
    31,236,287
    
    
    
    31,073,787
    
    
    
    29,642,242Shareholders equity (deficiency)
    
    
    (74,831
    )
    
    
    37,610
    
    
    
    104,438
    
    
    
    1,391,903
    
    
    
    14,124,918
 1




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Selected statement of operations and deficit information
 Years ended October 31,2005
    
    2004
    
    2003
    
    2002
    
    2001Interest and other income
    
    $
    8,703
    
    
    $
    4,746
    
    
    $
    20,121
    
    
    $
    165,892
    
    
    $
    196,520Research and development expenses
    
    
    362,141
    
    
    
    378,410
    
    
    
    490,914
    
    
    
    1,601,624
    
    
    
    2,212,679General and administrative expenses
    
    
    1,951,600
    
    
    
    570,684
    
    
    
    621,050
    
    
    
    1,319,528
    
    
    
    2,492,386Stock compensation expense
    
    
    1,721,742
    
    
    
    1,379,970
    
    
    
    318,000
    
    
    
    1,832,500
    
    
    
    4,627,752Write-down of royalty rights
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,000,000
    
    
    
    Write-down of patents and trademarks
    
    
    
    
    
    
    
    
    
    
    299,820
    
    
    
    
    
    
    
    Loss (gain) on disposal of assets
    
    
    
    
    
    
    
    
    
    
    58,302
    
    
    
    13,292
    
    
    
    (6,134
    )Loss from continuing operations
    
    
    (4,035,483
    )
    
    
    (2,314,298
    )
    
    
    (1,767,965
    )
    
    
    (14,529,978
    )
    
    
    (9,157,163
    )Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Loss before income taxes
    
    
    (4,035,483
    )
    
    
    (2,314,298
    )
    
    
    (1,767,965
    )
    
    
    (14,529,978
    )
    
    
    (9,157,163
    )Provision for income taxes (recovery)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (35,537
    )
    
    
    30,214Net loss
    
    
    (4,035,483
    )
    
    
    (2,314,298
    )
    
    
    (1,767,965
    )
    
    
    (14,565,515
    )
    
    
    (9,187,377
    )Loss per share-basic and diluted
    
    
    0.07
    
    
    
    0.04
    
    
    
    0.04
    
    
    
    0.31
    
    
    
    0.21Weighted average number of basic and
diluted shares
    
    
    62,155,234
    
    
    
    52,958,975
    
    
    
    47,061,810
    
    
    
    46,396,799
    
    
    
    44,163,669Dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 Reconciliation between Canadian GAAP and U.S. GAAP:
  Currency and Exchange Rates
    2005
    
    2004
    
    2003
    
    2002
    
    2001High for period
    
    
    0.8690
    
    
    
    0.8432
    
    
    
    0.7738
    
    
    
    0.6654
    
    
    
    0.6711Low for period
    
    
    0.7872
    
    
    
    0.7288
    
    
    
    0.6350
    
    
    
    0.6179
    
    
    
    0.6293End of period
    
    
    0.8577
    
    
    
    0.8319
    
    
    
    0.7738
    
    
    
    0.6339
    
    
    
    0.6294Average for period
    
    
    0.8254
    
    
    
    0.7717
    
    
    
    0.7200
    
    
    
    0.6368
    
    
    
    0.6493
 2




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November
    
    December
    
    January
    
    February
    
    March
    
    April2004
    
    2004
    
    2005
    
    2005
    
    2005
    
    2005High
    
    
    1.1911
    
    
    
    1.2055
    
    
    
    1.2425
    
    
    
    1.2343
    
    
    
    1.2147
    
    
    
    1.2618Low
    
    
    1.1848
    
    
    
    1.1970
    
    
    
    1.2361
    
    
    
    1.2277
    
    
    
    1.2085
    
    
    
    1.2482
 May
    
    June
    
    July
    
    August
    
    September
    
    October2005
    
    2005
    
    2005
    
    2005
    
    2005
    
    2005High
    
    
    1.2619
    
    
    
    1.2330
    
    
    
    1.2310
    
    
    
    1.1935
    
    
    
    1.1682
    
    
    
    1.1836Low
    
    
    1.2506
    
    
    
    1.2238
    
    
    
    1.2220
    
    
    
    1.1836
    
    
    
    1.1588
    
    
    
    1.1752
  B. Capitalization and Indebtedness
  C. Reasons for the Offer and Use of Proceeds
  D. Risk Factors
  Risk Factors Related to Our Business
 The financial statements of our company have been prepared on a going concern basis.
     3




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We currently have no operating revenue.
  Our technology is under development.
    
    
    the ability of manufacturers to incorporate the technology into existing
manufacturing capabilities without significant retooling and material costs;
    
    price competitiveness; and
    
    the availability and costs of raw materials.
  Products using our technology have not yet been manufactured.
  4




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Our competitors are seeking to develop other magnetic based memory technologies.
   Failure to secure continued financing will cause our business to suffer.
  Because much of our success and value depends on our ownership and use of intellectual
property, our failure to protect our property could adversely affect our future growth and
success.
  Intellectual property claims against us, no matter how groundless, could cause our business
to suffer.
   5




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We have a history of losses, and we may continue to generate losses in the foreseeable future.
    We lack manufacturing capacity and will be dependent on third party manufacturers.
  We will be dependent upon the success of a limited range of products.
  We may not realize income from the licensing of our technologies if our licensees fail to
commercialize the products that incorporate these technologies.
  6




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Our supply of future products could be dependent upon relationships with key suppliers.
  In order to commercialize our future products, we will need to establish a sales and marketing
capability.
  The rights to certain of our patented technologies are shared with a third party.
  We will be reliant upon contractual rights to use certain technologies that are material to
our business.
  7




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Our auditors have identified significant deficiencies in our internal accounting controls.
     Risk Factors Related to Our Common Shares
 Our stock is subject to the penny stock regulations, which may discourage brokers from
effecting transactions in the stock and adversely affect the stocks market price and liquidity.
  8




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The rights of our shareholders may differ from the rights typically afforded to shareholders
of a U.S. corporation.
   ¤
   9




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
    
    an acquisition of our common shares if the acquisition were made in connection
with the persons business as a trader or dealer in securities;
    
    an acquisition of control of Micromem in connection with the realization of a
security interest granted for a loan or other financial assistance and not for any
purpose related to the provisions of the Investment Act; and
    
    an acquisition of control of Micromem by reason of an amalgamation, merger,
consolidation or corporate reorganization, following which the ultimate direct or
indirect control of Micromem, through the ownership of voting interests, remains
unchanged. Under U.S. law, except in limited circumstances, restrictions generally
are not imposed on the ability of non-residents to hold a controlling interest in
a U.S. corporation.
 U.S. shareholders may not be able to enforce civil liabilities against us.
  10




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We do not anticipate paying dividends.
  We may need to issue additional securities which may cause our shareholders to experience
dilution.
  We depend on key personnel.
  We may be materially affected by global economic and political conditions.
  We may be materially affected by rapid technological change and evolving industry standards.
  We may be materially affected by risks associated with new product development.
   11




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Our operations may be materially affected by the risks associated with developing and
protecting intellectual property.
     We may be materially affected if we are unable to attract, retain and motivate key
employees.
  The price of our common shares and volume of our common shares may be volatile.
   There are foreign exchange risks associated with our company.
  12




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We
will attempt to file a registration statement in connection
with unit private placement financings completed in fiscal 2005.
   
    
    The Unit will consist of a common share and a Class A and Class B warrant.
    
    The Class A warrant will expire on June 30, 2006.
    
    The Class B warrant will expire on December 31, 2006.
   
 ITEM 4. INFORMATION ON THE COMPANY
 A. History and Development of Our Company
 www.micromeminc.com
 Purchase of Pageant International
  13




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Agreement to Purchase Estancia Limited Interests
   
    
    $10.0 million was paid on closing, in the form of 2,007,831 of our common shares
(or $8.0 million worth of our common shares based on the close price on the closing
date, being $3.98 per share) and $2.0 million in cash;
    
    $20.0 million, paid if and when either: (a) certification was received from
Honeywell Federal Manufacturing & Technologies that fully integrated, randomly
addressable memory matrices of VEMRAM technology met certain stipulated performance
standards, or (b) Micromem or
 14




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any of its affiliates executed a definitive agreement for the sale or licensing of the
VEMRAM technology to an arms length third party for any commercial purposes other
than testing or evaluation of the technology. The $20 million was payable in the form
of cash and common shares to be determined by Pageant International provided that a
minimum of 50% of the $20.0 million shall be paid in our common shares valued at the
close of trading on the date of such certification receipt, sale or licensing; and
    
    $20.0 million, paid if and when we or any of our affiliates executed a definitive
agreement for the sale or licensing of any technology (including the VEMRAM
technology) owned by us to an arms length third party for any commercial purposes
other than testing or evaluation of the technology; payable in the form of cash and
common shares to be determined by Pageant International provided that a minimum of 50%
of the $20.0 million shall be paid in common shares valued at the close of trading on
the date of execution of the license.
    Changes to Our Board of Directors and Management
   15




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B. Business Overview
  16




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
    
    a memory design with the magnetic bit aligned horizontally to the substrate, known
as HEMRAM; and
    
    a memory design with the magnetic bit aligned vertically to the substrate, known as
VEMRAM.
  Industry Background
   Our Companys Technology
  Random Access Memory (RAM) central processing unit (CPU) volatile
 Dynamic Random Access Memory (DRAM)
 17




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Static Random Access Memory (SRAM)
 Read Only Memory (ROM ) EPROMs (erasable programmable read-only
memory) EEPROMs (electrically erasable read-only memory)
 Secondary Storage Devices Floppy Disks, which Hard Disks
  Competition
    18




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Recent DevelopmentsResearch and Development and Collaboration with the University of Toronto
and Ontario Centres of Excellence Inc.
   
    
    $83,154 (CDN $120,000) on execution of agreement, which was paid;
    
    $83,154 (CDN $120,000) at end of the two months following November 1, 2002, which
was paid; and
    
    $83,155 (CDN $120,000) at end of the four months following the November 1, 2002,
which was paid.
    19




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Recent Developments  Equity Financing Transactions
   20




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21




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Patents and Trademarks
   
    
    those covering technologies developed pursuant to research collaborations with the
University of Toronto and OCE Inc.;
    
    those covering VEMRAM technology; and
    
    those covering HEMRAM technology.
 Environmental Matters
  C. Organizational Structure
    22




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D. Property, Plant and Equipment
   
 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
  OVERVIEW
 Technology
  23




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Operations
   Financial
   a.
    
    We successfully raised approximately $2.3 million of funding in 2005.b.
    
    We report current and cumulative losses that are substantial. We had a working capital
deficiency of $74,831 at October 31, 2005 (however $639,863 of the total of $803,206 of
accounts payable and accrued liabilities reported at October 31, 2005 are deferred
obligations which will not be discharged until we have adequate funding to discharge such
obligations). We continue to raise capital in order to fund our operations.c.
    
    We reported $0 capital assets as of October 31, 2005 and have no current commitments to
acquire additional capital assets.d.
    
    We have contingent obligations with respect to potential royalty payments and with
respect to our license agreements.
 Compliance Matters
  24




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Accounting Policies
  Key Variables
  A. Operating Results
  Selected statement of operations and deficit information
 (all amounts in United States dollars)2005
    
    2004
    
    2003
    
    2002
    
    2001Interest & other income
    
    $
    (8,703
    )
    
    $
    (4,746
    )
    
    $
    (20,121
    )
    
    $
    (165,892
    )
    
    $
    (196,520
    )Loss for the year
    
    
    4,035,483
    
    
    
    2,314,298
    
    
    
    1,767,965
    
    
    
    14,565,515
    
    
    
    9,187,377Loss per share-basic &
diluted
    
    
    0.07
    
    
    
    0.04
    
    
    
    0.04
    
    
    
    0.31
    
    
    
    0.21
 Selected balance sheet information
 (all amounts in United States dollars)2005
    
    2004
    
    2003
    
    2002
    
    2001Working capital
    
    $
    (74,831
    )
    
    $
    34,685
    
    
    $
    100,670
    
    
    $
    985,551
    
    
    $
    3,455,108Property and
equipment
    
    
    
    
    
    
    2,925
    
    
    
    3,768
    
    
    
    98,654
    
    
    
    336,839Total Assets
    
    
    728,375
    
    
    
    474,234
    
    
    
    350,138
    
    
    
    1,583,422
    
    
    
    14,454,470Shareholders equity
    
    
    (74,831
    )
    
    
    37,610
    
    
    
    104,438
    
    
    
    1,391,903
    
    
    
    14,124,918
 Fiscal 2005 Compared to Fiscal 2004
  25




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a.
    
    Administrative costs increased from $157,854 to $320,383, an increase of $162,529. In
2005, we reported higher expenses relating to shareholder communications and meetings and
absorbed a higher proportion of common costs (rent, telephone, office expenses) which costs
are shared with related entities.b.
    
    Professional, management and consulting fees increased from $271,351 in 2004 to
$1,303,662 in 2005 principally as a result of:
 i.
    
    $150,000 of deferred compensation expense relating to our Chairman of
the Board of Directors, as compared to an expense of $0 in 2004;ii.
    
    Compensation of senior officers totaled $354,000 (including $200,000
of deferred compensation) in 2005, as compared to $120,000 current and $0 deferred
compensation in 2004 during which we hired a CFO in mid-year);iii.
    
    Compensation of our Chief Technology Officer hired on a full-time
basis as of January 2005 at a salary of $230,000, as compared to $40,000 in 2004;iv.
    
    Legal fees in 2005 pertaining to intellectual property related
matters totaled $202,000, as compared to $40,000 in 2004;v.
    
    Other legal fees totaled $105,000 in 2005, as compared to $80,000 in
2004; andvi.
    
    Audit related expenses and accounting fees pertaining to the
financing/registration statement and the internal control review and evaluation
completed in 2005 totaled $200,000, as compared to $80,000 in 2004.
 c.
    
    Wages and salaries have increased from $31,563 in 2004 to $152,628 in 2005. We added one
accounting personnel and absorbed more of the salary costs shared amongst related entities
in 2005.
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d.
    
    Travel and entertainment costs increased from $77,616 in 2004 to $169,737 in 2005. The
increase in costs relates primarily to significantly higher travel costs associated with the
newly hired Chief Technology Officer in 2005.
 e.
    
    Stock compensation expense was $1,721,742 in 2005 as compared to $1,379,970 in 2004. We
adopted fair value accounting for stock options issued in 2005 using the Black Scholes
option pricing model and have restated prior years financial statements accordingly.
 f.
    
    Research and Development expenses were $362,141 in 2005 as compared to $378,410
in 2004. This increase reflects several payments made by our company to the University of
Toronto in furtherance of our development efforts. These payments include:
 i.
    
    Cost share payment for EMK proposal number PN01069 in the
aggregate amount of CDN $75,000.ii.
    
    A payment of CDN $81,000 in payment of proposal EE40103iii.
    
    A direct payment from our company to the University of Toronto
in the amount of CDN $250,000 reflecting partial payment of a sponsored
research agreement pursuant to the terms of our license agreement with the
University of Toronto.
  Fiscal 2004 Compared to Fiscal 2003
     
    
    A decrease in wages and salaries expense from $112,437 in 2003 to $31,563 in 2004.
In 2004, we recovered more of the salary costs we incur for our employees from other
companies that share facilities with us.
    
    Included in professional fees, as reported, are management and consulting fee
payments made to various companies whose shareholders serve as our officers and
directors. Such payments totaled $72,000 in 2004, as compared to $201,000 in 2003.
During 2004, we engaged an acting Chief Technology Officer who became employed as the
Chief Technology Officer subsequent to the year end.
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
    
    Research and development costs decreased from $490,914 in 2003 to $378,410 in 2004.
The costs associated with the various research initiatives were lower in 2004.
Included in each of these expenses reported in 2004 are sums in the amount of
$143,000, and $107,000 in 2003. These sums relate to a research program which was
terminated in 2002.
    
    Travel and entertainment costs increased to $77,616 in 2004 from $17,508 in 2003.
We incurred more travel expenses, primarily to US destinations, in pursuit of
additional financing and to further our future research initiatives.
    
    In 2003, we wrote down the remaining balance we reported in patent and trademark
costs in the sum of $299,820. This expense was non-recurring in 2004.
    
    Amortization expense on capital assets and patents and trademarks totaled $5,410 in
2004 versus $73,178 in 2003. We donated $58,302 of capital assets to the University
of Toronto in 2003 leaving only nominal capital assets reported in 2004 on our books
resulting in this lower amortization expense in 2004.
    
    During 2004, we 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 officers and directors stock options.
  Fiscal 2003 Compared to Fiscal 2002
       28




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Unaudited quarterly financial information
 (all amounts in United States dollars)October 31,
    
    July 31,
    
    April 30,
    
    January 31,
    
    October 31,
    
    July 31,
    
    April 30,
    
    January 31,Quarter ended,
    
    
    
    
    
    2005
    
    
    
    
    
    
    
    
    
    2004Total Revenue
    
    $
    7,070
    
    
    $
    1,043
    
    
    $
    301
    
    
    $
    289
    
    
    $
    117
    
    
    $
    450
    
    
    $
    3,658
    
    
    $
    521Net Loss
    
    
    (1,380,802
    )
    
    
    (1,726,931
    )
    
    
    (474,227
    )
    
    
    (453,523
    )
    
    
    447,515
    
    
    
    551,663
    
    
    
    70,876
    
    
    
    192,294Loss per share:Basic and diluted
    
    
    0.03
    
    
    
    0.03
    
    
    
    0.01
    
    
    
    0.01
    
    
    
    0.01
    
    
    
    0.01
    
    
    
    0.00
    
    
    
    0.00
 B. Liquidity and Capital Resources
 Liquidity
    29




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##### Table of Contents



Capital Resources
    Critical Accounting Policies
    
    
    Current Assets and Current Liabilities at the prevailing exchange rates at the end of the year;
    
    Other Assets at historical rates;
    
    Revenues and expenses are translated at the average monthly exchange rate per quarter
which rate approximates the rate of exchange prevailing at the transaction dates; and
    
    Gains and losses resulting from the fluctuation of foreign exchange rates are
included in the determination of income.
  30




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##### Table of Contents



Commitments
 Summary of commitments:
 A.
    
    Research collaboration agreements(1
    )
    
    Materials and Manufacturing Ontario
    
    October 24, 2002(2
    )
    
    University of Toronto
    
    November 1, 2002(3
    )
    
    Communications and Information Technology Ontario
    
    December 10, 2002(4
    )
    
    Revised Licensed Agreement  University of Toronto
    
    June 2005B.
    
    Technology Development Agreement, Pageant Technologies Incorporated
    
    March 14, 2001C.
    
    Operating Leases
    
    2006  2010D.
    
    Employment Contracts(1
    )
    
    Chairman of the Board of Directors
    
    May 29, 2005(2
    )
    
    Chief Technology Officer
    
    January 2005
  Payments due by periodMoreLess than 1
    
    
    
    
    
    
    
    
    
    
    than 5Total
    
    
    year
    
    
    1-3 years
    
    
    3-5 years
    
    
    yearsLong term debt obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Capital Lease obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating lease obligations
    
    
    492,000
    
    
    
    98,400
    
    
    
    196,800
    
    
    
    196,800
    
    
    
    Purchase obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Management contracts CEO
    
    
    550,000
    
    
    
    150,000
    
    
    
    300,000
    
    
    
    100,000
    
    
    
     CTO
    
    
    260,000
    
    
    
    260,000
    
    
    
    
    
    
    
    
    
    
    
    Research collaboration agreement
    
    
    213,000
    
    
    
    213,000
    
    
    
    
    
    
    
    
    
    
    
    All other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total:
    
    
    1,515,000
    
    
    
    721,400
    
    
    
    496,800
    
    
    
    296,800
    
    
    
    
 31




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##### Table of Contents



A.
    
    Research Collaboration and Infrastructure Agreements:
 1.
    
    Materials and Manufacturing Ontario:On October 24, 2002, we entered into a two year Research Collaboration Agreement with
Materials and Manufacturing Ontario, a not-for-profit organization funded by the
provincial government, the University of Toronto and a researcher employed by
University of Toronto to fund the research on Magnetic Structure development for Hall
effect memory devices.Under the terms of the agreement, we committed to contribute $87,432 (CDN $136,175) and
$18,000 (CDN $28,000) in cash and in-kind contribution, respectively, per year to fund
the research. We have met all of our obligations under this agreement.On November 12, 2003, we entered into a second research collaboration agreement with
Materials and Manufacturing Ontario and the University of Toronto for research and
development associated with magnetic memory devices. Under the second agreement, in
the first year and upon renewal in the second year, Materials and Manufacturing Ontario
granted $58,900 (CDN $85,000) in cash funding and we contributed $56,130 (CDN $81,000)
in cash funding and additionally made $30,770 (CDN $44,400) of in-kind contributions,
all towards the research collaboration, each year. We have met all of our obligations
under the agreement.2.
    
    University of Toronto:On November 1, 2002, we entered into an Infrastructure Agreement with the University of
Toronto to fund the assembly of a magnetic memory facility for research, development
and fabrication of magnetic memory. The University of Toronto has agreed to use the
magnetic memory facility in connection with, among other things, research to be
conducted pursuant to collaborations between us and the University of Toronto.Under the agreement, we were required to and did contribute $249,463 (CDN $360,000) in
cash to fund the direct costs of the magnetic memory facility. The contribution has
been included as a research and development expense in the consolidated statements of
operations and deficit.3.
    
    Communications and Information Technology Ontario:On December 10, 2002, we entered into a two year Collaborative Research Agreement with
Communications and Information Technology Ontario, the University of Toronto and Dr.
Harry Ruda. For the first year, Communications and Information Technology Ontario
provided funding of $106,715 (CDN $154,000) and we contributed $31,875 (CDN $46,000).
For the second year, Communications and Information Technology Ontario provided funding
of $107,715 (CDN $154,000) and we provided funding of $31,875 (CDN $46,000). We have
further provided $67,632 (CDN $97,600) of in-kind contributions to the research
collaboration.4.
    
    Revised License Agreement, June 2005:In June 2005, we signed a new license agreement with the University of Toronto and the
Ontario Centres of Excellence whereby:
 a.
    
    Ontario Centres of Excellence released us and the University of Toronto from
the commercialization obligations set forth in all prior research collaboration
agreements.
 32




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##### Table of Contents



b.
    
    We acquired exclusive worldwide rights to the technology and any
technology or patent rights under the agreement related to the MRAM technology
developed at the University of Toronto.c.
    
    We have agreed to royalties and payments as follows:1.1
    
    In consideration for the rights and licenses granted, we shall pay to
the University of Toronto:
 a.
    
    4% of Net Sales until such time as the University of
Toronto has received from us an aggregate amount of CDN $500,000.b.
    
    1% of Net Sales thereafter.
 1.2
    
    If we sublicense any rights granted herein to any non-affiliate:
 a.
    
    In combination or association, the University of Toronto
shall receive 10% of any Net Fees and/or Net Royalties that shall be
received by us in respect of any licenses involving both the rights granted
herein and such our intellectual property;b.
    
    For all other sublicenses of the rights granted herein to
a non-affiliate, the University of Toronto shall receive 20% of any Net Fees
and/or Net Royalties that shall be received by us in respect of such
sublicenses; andc.
    
    Net Fees and/or Net Royalties shall be paid to the
University of Toronto until such time as it has received an aggregate amount
of CDN $500,000; thereafter we shall pay half of the amounts set forth in
1.2 (a) or (b) as is applicable.
 1.3
    
    At any point after which we have paid the University of Toronto CDN
$500,000, we may at our option buy out the obligation to pay royalties hereunder by
paying to the University of Toronto a single lump sum payment equaling the greater
of CDN $500,000 and an amount equal to the total amount of royalties paid by us to
the University of Toronto in the preceeding twenty-four months. We shall be
entitled to exercise such option by providing written notice to the University of
Toronto along with the required payment, after which time our obligation to pay
royalties under Section 1.1. or 1.2 shall be waived by the University of Toronto.
   B.
    
    Technology Development Agreement:On March 14, 2001, our subsidiary, Pageant International, entered into a three-year
technology development agreement with Estancia Limited and Mr. Lienau to continue the
development of the technology. Under the terms of the agreement, Pageant International
committed to pay Estancia Limited $215,000 per year, payable on a monthly basis in arrears,
and committed to incur
 33




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##### Table of Contents



expenditures in connection with development expenses of up to a maximum of $500,000 per
agreement year.On April 23, 2002, the technology development agreement was amended to extend its term for
an additional eight-month period through November 2004. The go-forward payments were
renegotiated as $62,707 between the months of May and October 2002, $197,086 during fiscal
2003 and $143,330 during fiscal 2004.The development efforts under this agreement ceased in July 2002. We have reported
approximately $287,000 in accounts payable and accrued liabilities with respect to this
agreement as of October 31, 2005, as compared to $287,000 at October 31, 2004.
 C.
    
    Operating leases:We have operating lease commitments which expire in 2010 for the lease of our head office.
The future minimum annual lease payments are approximately as follows:
 2006  2010 (annually)
    
    $98,400
 D.
    
    Employment contracts:
 1.
    
    On May 29, 2005, we entered into a new employment agreement with the
Chairman of the Board of Directors. The agreement commenced on January 1, 2005
and expires on September 30, 2009. Under the terms of the agreement, the Chairman
of the Board of Directors has been retained to provide certain management services
to us. We have agreed to provide compensation based on a percentage of the
increase of the market capitalization on a year-over-year basis commencing as of
December 31, 2005. This compensation is subject to a minimum annual amount of
$150,000. At our option, we can pay either cash or issue common shares as
compensation providing that the cumulative maximum number of shares that we can
issue under the agreement is 2,000,000 common shares. At December 31, 2005
$150,000 of deferred cash compensation has been provided for.2.
    
    In January 2005, we entered into an employment contract with an
arms length individual, Dr. Kuper, for her services as our Chief Technology
Officer. The agreement extends for 2 years with a cancellation clause which can
be executed by us at any time with 4 months notice. The base remuneration
stipulated in the contract is $260,000 per year. We also granted the Chief
Technology Officer 100,000 options to purchase our common shares exercisable at
$0.68 per share which expired on December 31, 2005 and 300,000 options to purchase
our common shares exercisable at $0.80 per share which expire 45 days after the
end of the above noted employment agreement.
 Contingencies
 A.
    
    In the normal course of business, we and our subsidiaries are involved in various legal
actions. In managements opinion, the ultimate disposition of these actions, individually or
in the aggregate, will not have a material adverse effect on our financial condition.
 B.
    
    We have agreed to indemnify our directors and officers and certain of our employees in
accordance with our By-laws. We maintain insurance policies that may provide coverage against
certain claims.
 34




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##### Table of Contents



C.
    
    Pageant Technologies (USA) Inc. was previously 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. The landlord of the leased property was also claiming
damages against Pageant Technologies (USA) Inc. Pageant Technologies (USA) Inc. assigned its
rights under the lease to Clear Blue Technologies, Inc., however, Pageant Technologies (USA)
Inc. was allegedly obligated to pay the lease payments should the assignee default under the
contract. The landlord claimed damages of approximately $887,000. This matter was settled
pursuant to a settlement agreement in 2005 at no cost to us.
 D.
    
    As outlined above, certain interests under the Asset Purchase Agreement with Estancia Limited
reverted to Estancia Limited on March 9, 2004. On this basis, to the extent that revenues are
generated by us relating directly and specifically to the VEMRAM patents, we are obligated to
pay Estancia Limited 32% of the gross profit realized less expenses agreed to by the parties
and 32% of any unit royalties realized less direct expenses.
 Translation of Foreign Currencies
  
    
    Monetary assets and liabilities are translated at exchange rates at the
consolidated balance sheet dates;
    
    Non-monetary assets are translated using the historical rate of exchange in
effect at the translation dates;
    
    Revenues and expenses are translated using the average monthly rate of exchange
per quarter, which rate approximates the rate of exchange prevailing at the
transaction dates; and
    
    Gains and losses resulting from the translation are included in the determination
of net loss for the period.
 Research and Development
   Trend Information
  35




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##### Table of Contents



Off-Balance Sheet Arrangements
  
 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
 A. Directors and Executive Officers
  Name
    
    Age
    
    PositionSalvatore Fuda
    
    
    70
    
    
    Chairman of the Board of DirectorsJoseph Fuda
    
    
    45
    
    
    President, Chief Executive Officer and DirectorManoj Pundit
    
    
    41
    
    
    Secretary and DirectorAndrew Brandt
    
    
    67
    
    
    DirectorStephen Fleming
    
    
    56
    
    
    DirectorCharles Harnick
    
    
    55
    
    
    DirectorGeorge Kennedy
    
    
    65
    
    
    DirectorDavid Sharpless
    
    
    55
    
    
    DirectorSteven Van Fleet
    
    
    51
    
    
    DirectorLarry Blue
    
    
    49
    
    
    DirectorDan Amadori
    
    
    54
    
    
    Chief Financial OfficerCynthia Kuper
    
    
    33
    
    
    Chief Technology Officer
 Salvatore Fuda
 Joseph Fuda
 36




---



##### Table of Contents



Cynthia Kuper
 Manoj Pundit
 Andrew Brandt
 Stephen B. Fleming
 Charles Harnick
 George A. Kennedy
 37




---



##### Table of Contents



David Sharpless
 Steven Van Fleet
 Larry Blue
 Dan Amadori
 Business Corporations Act
  38




---



##### Table of Contents



B.
    
    Compensation
 Annual Compensation
    
    Long-Term CompensationAwards
    
    PayoutsLongRestricted
    
    TermSecurities
    
    Shares or
    
    IncentiveOther Annual
    
    Under
    
    Restricted
    
    PlanName and
    
    
    
    
    
    Salary
    
    Bonus
    
    Compensation
    
    Options
    
    Share
    
    Payouts
    
    All otherPrincipal Position
    
    Year
    
    (US$)
    
    (US$)
    
    (US$)
    
    Granted (#)
    
    Units ($)
    
    ($)
    
    Compensation ($)Joseph Fuda
    
    
    2005
    
    
    
    81,000
    
    
    
    
    
    
    
    
    
    
    
    1,800,000
    9
    
    
    
    
    
    
    
    
    
    
    100,000Chief Executive Officer 1
    
    
    2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,800,000
    2
    
    
    
    
    
    
    
    
    
    
    52,0002003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    850,000
    3
    
    
    
    
    
    
    
    
    
    
    90,000Salvatore Fuda,
    
    
    2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,800,000
    11
    
    
    
    
    
    
    
    
    
    
    150,000Chairman of the Board of
    
    
    2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,800,000
    2
    
    
    
    
    
    
    
    
    
    
    Directors
    
    
    2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,050,000
    3
    
    
    
    
    
    
    
    
    
    
    Former Chief Executive
Officer and President 1Manoj Pundit, Executive
    
    
    2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Vice President and
    
    
    2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,000,000
    2
    
    
    
    
    
    
    
    
    
    
    General Counsel 4
    
    
    2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    850,000
    3
    
    
    
    
    
    
    
    
    
    
    90,000Andrew Brandt
    
    
    2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Director
    
    
    2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    400,000
    2
    
    
    
    
    
    
    
    
    
    
    2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    400,000
    3
    
    
    
    
    
    
    
    
    
    
    Stephen Fleming
    
    
    2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Director
    
    
    2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    300,000
    2
    
    
    
    
    
    
    
    
    
    
    2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    300,000
    3
    
    
    
    
    
    
    
    
    
    
    Charles Harnick
    
    
    2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Director
    
    
    2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    400,000
    2
    
    
    
    
    
    
    
    
    
    
    2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    400,000
    3
    
    
    
    
    
    
    
    
    
    
    George A Kennedy
    
    
    2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Director
    
    
    2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    300,000
    2
    
    
    
    
    
    
    
    
    
    
    2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    300,000
    3
    
    
    
    
    
    
    
    
    
    
    David Sharpless
    
    
    2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Director
    
    
    2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    400,000
    2
    
    
    
    
    
    
    
    
    
    
    2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    400,000
    3
    
    
    
    
    
    
    
    
    
    
    2002
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Steven Van Fleet
    
    
    2005
    
    
    
    24,000
    
    
    
    
    
    
    
    
    
    
    
    300,000
    9
    
    
    
    
    
    
    
    
    
    
    Director
    
    
    2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    300,000
    2
    
    
    
    
    
    
    
    
    
    
    2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    300,000
    3
    
    
    
    
    
    
    
    
    
    
    Dan Amadori
    
    
    2005
    
    
    
    74,000
    
    
    
    
    
    
    
    
    
    
    
    450,000
    9
    
    
    
    
    
    
    
    
    
    
    100,000Chief Financial Officer 7
    
    
    2004
    
    
    
    24,000
    
    
    
    6,000
    
    
    
    
    
    
    
    300,000
    2
    
    
    
    
    
    
    
    
    
    
    6,000
 39




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##### Table of Contents



Annual Compensation
    
    Long-Term CompensationAwards
    
    PayoutsLongRestricted
    
    TermSecurities
    
    Shares or
    
    IncentiveOther Annual
    
    Under
    
    Restricted
    
    PlanName and
    
    
    
    
    
    Salary
    
    Bonus
    
    Compensation
    
    Options
    
    Share
    
    Payouts
    
    All otherPrincipal Position
    
    Year
    
    (US$)
    
    (US$)
    
    (US$)
    
    Granted (#)
    
    Units ($)
    
    ($)
    
    Compensation ($)Cynthia Kuper 6
    
    
    2005
    
    
    
    260,000
    
    
    
    
    
    
    
    
    
    
    
    300,000
    10
    
    
    
    
    
    
    
    
    
    
    Acting Chief Technology
    
    
    2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100,000
    5
    
    
    
    
    
    
    
    
    
    
    10,000Officer
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100,000
    13Antonio Lopes
    
    
    2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Former Chief Financial
    
    
    2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,000Officer 7
    
    
    2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    300,000
    3
    
    
    
    
    
    
    
    
    
    
    20,789Larry Blue
    
    
    2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    300,000
    12
    
    
    
    
    
    
    
    
    
    
    Director
 
 Notes:(1)
    
    Salvatore Fuda has served as our Chairman of the Board of Directors since January 11, 1999.
He served as our President and Chief Executive Officer from June 2000 through to February 13,
2002. Joseph Fuda was appointed our Chief Executive Officer on February 13, 2002.(2)
    
    Each option entitles the holder to purchase one of our common shares at $0.30 prior to expiry
on July 18, 2009 and is fully vested.(3)
    
    Each option entitled the holder to purchase one of our common shares at $0.10. These options
were exercised in 2004.(4)
    
    Mr. Pundit previously served as our Executive Vice-President, General Counsel and Secretary.(5)
    
    Each option entitles the holder to purchase one of our common shares at $0.68. These options
expired on December 31, 2005.(6)
    
    Dr. Kuper has served as our Chief Technology Officer since January 2005, and prior thereto
served as acting Chief Technology Officer since September 2004.(7)
    
    These options expired unexercised.(8)
    
    Mr. Viswanathan was employed as our Chief Financial Officer between June 5, 2000 and October
31, 2002. Mr. Lopes served as our Chief Financial Officer between November 1, 2002 and June
2004. Mr. Amadori has served as our Chief Financial Officer since June 29, 2004.(9)
    
    Each option entitles the holder to purchase one of our common shares at a price of $0.72 per
share prior to expiry in June 2010.(10)
    
    Each option entitles the holder to purchase one of our common shares at a price of $0.80 per
share prior to expiry in January 2007.(11)
    
    Each option entitles the holder to purchase one of our common shares at a price of $0.65 per
share prior to expiry in December 2010.(12)
    
    Each option entitles the holder to purchase one of our common shares at a price of $0.60 per
share prior to expiry in December 2010.(13)
    
    Each option entitles the holder to purchase one of our common shares at a piece of $0.72 per
share prior to expiry in March 2007.  40




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##### Table of Contents



C.
    
    Board of Directors Practices
      Audit Committee
  41




---



##### Table of Contents



Compensation Committee
  D.
    
    Employees
   42




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##### Table of Contents



Share Ownership
 Options ExerciseName
    
    Shares Owned
    
    Options Held
    
    Price
    
    Expiration DateJoseph Fuda
Chief Executive
Officer and
Director
    
    
    202,780
    
    
    
    1,800,000
    
    
    $
    0.72
    
    
    6/30/2010Salvatore Fuda
Chairman of the
Board of Directors
and Director
    
    2,455,2921
    
    
    1,800,000
1,800,000
    
    
    $
$
    0.30
0.65
    
    
    7/19/2009
8/1/2010Manoj Pundit
Executive
Vice-President,
General Counsel and
Director
    
    
    2,478
    
    
    
    1,000,000
    
    
    $
    0.30
    
    
    7/19/2009Andrew Brandt
Director
    
    
    3,000
    
    
    
    400,000
    
    
    $
    0.30
    
    
    7/19/2009Stephen Fleming
Director
    
    
    
    
    
    
    300,000
    
    
    $
    0.30
    
    
    7/19/2009Charles Harnick
Director
    
    
    800
    
    
    
    
    
    
    
    
    
    
    George A. Kennedy
Director
    
    
    
    
    
    
    150,000
    
    
    $
    0.30
    
    
    7/19/2009David Sharpless
Director
    
    
    
    
    
    
    400,000
    
    
    $
    0.30
    
    
    7/19/2009Steven Van Fleet
Director
    
    
    
    
    
    
    300,000
300,000
    
    
    $
$
    0.30
0.72
    
    
    7/19/2009
6/30/2010Dan Amadori
Chief Financial
Officer
    
    
    
    
    
    
    300,000
50,000
400,000
    
    
    $
$
    0.30
0.91
0.72
    
    
    7/19/2009
2/28/2010
6/30/2010Cynthia Kuper
Chief Technology
Officer
    
    
    
    
    
    
    100,000
300,000
    
    
    $
$
    0.68
0.80
    
    
    10/06/2009
1/09/2007Jason Baun
Investor Relations
    
    
    
    
    
    
    50,000
50,000
    
    
    $
    0.91
0.72
    
    
    7/19/2009
12/20/2010Larry Blue
Director
    
    
    
    
    
    
    300,000
    
    
    $
    0.60
    
    
    11/15/2010
 
 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
  B. Other Related Party Transactions
  43




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##### Table of Contents



C. Interests of Experts and Counsel
  
 ITEM 8. FINANCIAL INFORMATION
 A. Consolidated Statements
  Dividend Policy
  Significant Changes
  B. Legal Proceedings
  
 ITEM 9. THE OFFER AND LISTING
   Period
    
    High
    
    LowLast six months:January 2006
    
    
    0.72
    
    
    
    0.58December 2005
    
    
    0.69
    
    
    
    0.47November 2005
    
    
    0.71
    
    
    
    0.55October 2005
    
    
    0.72
    
    
    
    0.55September 2005
    
    
    0.80
    
    
    
    0.40August 2005
    
    
    0.85
    
    
    
    0.60Last eight quarters:
 44




---



##### Table of Contents



Period
    
    High
    
    LowQ4 2005
    
    
    0.99
    
    
    
    0.54Q3 2005
    
    
    1.17
    
    
    
    0.21Q2 2005
    
    
    0.39
    
    
    
    0.22Q1 2005
    
    
    0.56
    
    
    
    0.15Q4 2004
    
    
    0.99
    
    
    
    0.54Q3 2004
    
    
    1.17
    
    
    
    0.21Q2 2004
    
    
    0.39
    
    
    
    0.22Q1 2004
    
    
    0.56
    
    
    
    0.15Last five years:2005
    
    
    0.90
    
    
    
    0.652004
    
    
    1.17
    
    
    
    0.152003
    
    
    0.31
    
    
    
    0.052002
    
    
    1.77
    
    
    
    0.052001
    
    
    5.28
    
    
    
    1.28
  
 ITEM 10. ADDITIONAL INFORMATION
 A. Share Capital
  B. Memorandum and Articles of Incorporation of Association
 Articles of Incorporation of Incorporation
 Incorporation Details and Objects of Micromem Technologies Inc.
  Summary of Directors Powers and Authorities
 Business Corporations Act
  45




---



##### Table of Contents




    
    borrow money on the credit of Micromem;
    
    issue, re-issue, sell or pledge debt obligations of Micromem;
    
    subject to restrictions respecting financial assistance prescribed in the
Business Corporations Act (Ontario), give a guarantee on behalf of Micromem to
secure the performance of an obligation of any person; and
    
    mortgage, hypothecate, pledge or otherwise create a security interest in all or
any property of Micromem, owned or subsequently acquired, to secure any obligation
of Micromem.
  Securities of Micromem
    46




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##### Table of Contents



Rights and Privileges of Shareholders
 Investment Canada Act
  C. Material Contracts
 1.
    
    Equipment Transfer Agreement dated March 1, 2003, by and between Micromem and the
Governing Council of the University of Toronto, pursuant to which we conveyed equipment
having an estimated value of $200,000 (CDN $297,600) to the University of Toronto for
incorporation into the Universitys magnetic memory facility for the research and
development and fabrication of magnetic memory.2.
    
    Collaborative Research Agreement dated December 10, 2002, by and among Micromem,
Communications and Information Technology Ontario, the University of Toronto and Dr. Harry
Ruda, Professor of Physics at the University of Toronto, pursuant to which:
 
    
    over a period of two years Micromem contributed $63,750 (CDN $92,000) and $67,632
(CDN $97,600) of in-kind contribution and, Communications and Information Technology
Ontario contributed $215,430 (CDN $308,000) for research into High Density Magnetic
Memory Device Development; and
    
    in consideration of such contribution, Communications and Information Technology
Ontario 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, by and among Micromem,
Materials and Manufacturing Ontario, the University of Toronto and Dr. Harry Ruda, Chair
Professor in Nanotechnology, pursuant to which:
 
    
    Micromem has engaged the University of Toronto to conduct research and development
of magnetic memory technology; and
 47




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##### Table of Contents




    
    Micromem and Materials and Manufacturing Ontario each provide $174,864 (CDN
$272,000) of funding and the combined $349,728 (CDN $544,000) is used to cover the
operating expenses of the research collaboration over a term of two years.
 4.
    
    A second two-year research collaboration agreement dated November 12, 2003, by and
among Materials and Manufacturing Ontario and the University of Toronto, pursuant to
which:
 
    
    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;
    
    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 Materials and
Manufacturing Ontario has committed to providing $58,900 (CDN $85,000) in cash;
    
    the combined cash contributions of we and Materials and Manufacturing Ontario,
$230,060 (CDN $332,000), will be used to cover the operating expenses of the research
collaboration over a term of two years;
    
    Materials and Manufacturing Ontarios funding of $117,800 (CDN $170,000) (or
$58,900 (CDN $85,000) per year) will be paid directly to the University of Toronto and
therefore is not reflected in Micromems financial statements; and
    
    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, by and among Micromem, Pageant
International, Estancia Limited and Richard M. Lienau, pursuant to which:
 
    
    Pageant International purchased from Estancia Limited and Mr. Lienau all interests
in the VEMRAM patents and the VEMRAM technology and all other rights, interests and
entitlements held by Estancia Limited and Mr. Lienau as set forth in the Joint
Ownership and Licensing Agreement and a termination of such agreement; and
    
    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,
by and among Pageant International, Estancia Limited and Richard M. Lienau, pursuant to
which:
 
    
    Estancia Limited and Mr. Lienau are required to provide services to Pageant
International in respect of the continued development of VEMRAM technology; and
    
    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 by and between Micromem and the University of Toronto, dated
November 1, 2002, pursuant to which Micromem agreed to provide funding to the University
of Toronto in the amount of $249,463 (CDN $360,000) for the assembly of a magnetic memory
facility to be used for research collaborations between Micromem and the University of
Toronto.
 48




---



##### Table of Contents



8.
    
    Revised License Agreement between the University of Toronto, the Materials and
Manufacturing Ontario and Communications and Information Technology Ontario as detailed
above in Section 5 under the commentary on Commitments (point 4).9.
    
    In January 2005, we entered into a consulting agreement with Dr. Cynthia Kuper for
her services as Chief Technology Officer. The agreement extends for 2 years with a
cancellation clause which can be executed by us at any time with 4 months notice provided.
The base remuneration stipulated in the contract is $260,000 per year. We also granted
the Chief Technology Officer 100,000 options to purchase our common shares exercisable at
$0.68 per share which expired on December 31, 2005 and 300,000 options to purchase common
shares exercisable at $0.80 per share, which expire 45 days after the end of the above
noted employment agreement.10.
    
    On May 29, 2005, we entered into a new employment agreement with the Chairman of the
Board of Directors. The agreement commenced on January 1, 2005 and expires on September
30, 2009. Under the terms of the agreement, the Chairman of the Board of Directors has
been retained to provide certain management services to us. We have agreed to provide
compensation based on a percentage of the increase of the market capitalization on a
year-over-year basis commencing as of December 31, 2005 subject to a minimum annual
compensation amount of $150,000. At our option, we can pay either cash or issue common
shares as compensation providing that the cumulative maximum number of shares that we can
issue under the agreement is 2 million common shares.
 D. Exchange Controls
   E. Taxation
 Certain Canadian Income Tax Consequences
   49




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##### Table of Contents



Dividends on common shares and Other Income
    Dispositions of Common Shares
    Certain United States Federal Income Tax Consequences
 Additional
Information E. Taxation
  50




---



##### Table of Contents



US Holders
  Distributions on Common Shares
    51




---



##### Table of Contents



Foreign Tax Credit
  Disposition of Common Shares
  
    
    the amount of cash plus the fair market value of any property received, and
    
    the shareholders tax basis in the common shares.
  Other Considerations
  52




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##### Table of Contents



Foreign Personal Holding Company
  Foreign Investment Company
  Passive Foreign Investment Company
   53




---



##### Table of Contents



Controlled Foreign Corporation
  F. Dividends and Paying Agents
  G. Statement by Experts
  H. Documents on Display
  www.sec.gov www.sedar.com
 www.micromeminc.com
 I. Subsidiary Information
  
 ITEM 11.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 12.
    
    DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
  54




---



##### Table of Contents



PART II
 
 ITEM 13.
    
    DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
  
 ITEM 14.
    
    MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND
USE OF PROCEEDS
  
 ITEM 15.
    
    CONTROLS AND PROCEDURES
       55




---



##### Table of Contents



PART III
 
 Item 16.
  
 Item 16A.
    
    Audit Committee Financial Expert
  
 Item 16B.
    
    Code of Ethics
  
 Item 16C.
    
    Principal Accountant Fees and Services
     2005
    
    2004Audit Fees
    
    $
    55,000
    
    
    $
    76,000Audit Related Fees
    
    
    
    
    
    
    Tax Fees
    
    
    
    
    
    
    All Other Fees
    
    
    30,000
    
    
    
    6,000
 Audit Fees
   56




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##### Table of Contents



Audit Related Fees
    Tax Fees
   All Other Fees
     
 Item 16D.
    
    Exemptions from the Listing Standards for Audit Committees
  
 Item 16E.
    
    Purchases of Equity by the Issuer and Affiliated Purchasers.
  57




---



##### Table of Contents



MICROMEM TECHNOLOGIES INC.
 
 ITEM 17.
FINANCIAL STATEMENTS
 INDEPENDENT
AUDITORS REPORT
 
       
 
 58




---



##### Table of Contents



COMMENTS
BY AUDITORS FOR US READERS ON
CANADA  US REPORTING DIFFERENCE
     
 
 59




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Consolidated Balance Sheets


As at
    
    October 31, 2005
    
    October 31, 2004AssetsCurrent assets:Cash and cash equivalents
    
    $
    642,803
    
    
    $
    350,504Term deposits
    
    
    
    
    
    
    87,243Deposits and other receivables (Note 5)
    
    
    85, 572
    
    
    
    33,562728,375
    
    
    
    471,309Property and equipment (Note 6)
    
    
    
    
    
    
    2,925Patents and trademarks (Note 7)
    
    
    
    
    
    
    Royalty rights (Note 4 and Note 10)
    
    
    
    
    
    
    728,375
    
    
    
    474,234Liabilities and Shareholders Equity (Deficiency)Current liabilities:Accounts
payable and accrued liabilities (Note 5)
    
    
    803,206
    
    
    
    436,624Shareholders equity (deficiency):Share capital: (Note 8)Authorized:2,000,000 special preference shares, redeemable, voting
Unlimited common shares without par valueIssued and outstanding:64,719, 449 common shares ( 2004: 58,063,437)
    
    
    34,305,087
    
    
    
    32,103,787Contributed surplus (Notes 8 (b) and 9)
    
    
    20,140,112
    
    
    
    18,418,370Deficit accumulated during the development stage
    
    
    (54,520,030
    )
    
    
    (50,484,547
    )(74,831
    )
    
    
    37,610$
    728,375
    
    
    $
    474,234






Joseph Fuda (Signed)Joseph Fuda, DirectorDavid Sharpless (Signed)David Sharpless, Director




60



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MICROMEM TECHNOLOGIES INC.
 Consolidated Statements of Operations and Deficit
  Period fromSeptember 3, 1997Oct.
31, 2005
    
    Oct. 31, 2004
    

Oct. 31, 2003
    
    to October 31, 2005(12 mos)
    
    (12 mos)
    
    (12 mos)Interest and other income
    
    $
    8,703
    
    
    $
    4,746
    
    
    $
    20,121
    
    
    $
    540,087Costs and expenses (income):Administration
    
    
    320,383
    
    
    
    157,854
    
    
    
    176 ,361
    
    
    
    2,470,422Professional,
Management and consulting fees (Notes 8 (b)and 12 (c))
    
    
    1,303,662
    
    
    
    271,351
    
    
    
    303,222
    
    
    
    4,458,608Wages and salaries (Note 12 (b))
    
    
    152,628
    
    
    
    31,563
    
    
    
    112,437
    
    
    
    9,521,802Research and development (Notes 6 and 13)
    
    
    362,141
    
    
    
    378,410
    
    
    
    490,914
    
    
    
    6,756,833Travel and entertainment
    
    
    169,737
    
    
    
    77,616
    
    
    
    17,508
    
    
    
    1,237,319Amortization of property and equipment (Note 6)
    
    
    2,925
    
    
    
    5,410
    
    
    
    36,921
    
    
    
    344,466Stock compensation expense (Note 8(b))
    
    
    1,721,742
    
    
    
    1,379,970
    
    
    
    318,000
    
    
    
    19,561,221Unrealized
foreign exchange loss (gain)
    
    
    10,968
    
    
    
    16,870
    
    
    
    (61,657
    )
    
    
    (43,172
    )Amortization of patents and trademarks
    
    
    
    
    
    
    
    
    
    
    36,258
    
    
    
    67,596Operating leases
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    109,412Loss on sale of investment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    54,606Write-down of investment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    61,020Write-down of royalty rights (Note 10)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,000,000Write-down
of patents and trademarks (Note 7)
    
    
    
    
    
    
    
    
    
    
    299,820
    
    
    
    299,820Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    75,027Loss on sale of property and equipment
    
    
    
    
    
    
    
    
    
    
    58,302
    
    
    
    65,4604,044,186
    
    
    
    2,319,044
    
    
    
    1,788,086
    
    
    
    55,040,440Loss before income taxes
    
    
    (4,035,483
    )
    
    
    (2,314,298
    )
    
    
    (1,767,965
    )
    
    
    (54,500,353
    )Provision for income taxes (Note 11)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,677Net loss for the period
    
    
    (4,035,483
    )
    
    
    (2,314,298
    )
    
    
    (1,767,965
    )
    
    
    (54,520,030
    )Deficit
accumulated during the development stage, beginning of period 
as restated (Note 8)
    
    
    (50,484,547
    )
    
    
    (48,170,249
    )
    
    
    (46,402,284
    )
    
    
    Deficit accumulated during the development stage, end of period
    
    ($
    54,520,030
    )
    
    ($
    50,484,547
    )
    
    ($
    48,170,249
    )
    
    ($
    54,520,030
    )Loss per share  basic and diluted
    
    
    (0.07
    )
    
    
    (0.04
    )
    
    
    (0.04
    )
    
    
    (1.13
    )Weighted average number of shares
    
    
    62,155,234
    
    
    
    52,958,975
    
    
    
    47,061,810
    
    
    
    48,145,724
  61




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MICROMEM TECHNOLOGIES INC.
 Consolidated Statements of Cash Flows
  Period fromSeptember 03, 1997Oct. 31, 2005
    

Oct. 31, 2004
    
    Oct. 31, 2003
    
    to October 31, 2005(12 mos)
    
    (12 mos)
    
    (12 mos)Cash flows from operating activities:Net loss for the period
    
    
    ($4,035,483
    )
    
    
    ($2,314,298
    )
    
    
    ($1,767,965
    )
    
    
    ($54,520,030
    )Adjustments
to reconcile loss for
the period to net cash used in operating activities:Amortization of patents and trademarks
    
    
    
    
    
    
    
    
    
    
    36,258
    
    
    
    67,596Amortization of property and equipment
    
    
    2,925
    
    
    
    5,410
    
    
    
    36, 921
    
    
    
    529,686Stock option expense
    
    
    1,721,742
    
    
    
    1,379,970
    
    
    
    318,000
    
    
    
    19,561,221Loss on sale of investment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    49,810Write down of investment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    61,020Loss on disposal of property and equipment
    
    
    
    
    
    
    
    
    
    
    58,302
    
    
    
    65,460Write-down of royalty rights
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,000,000Write-down of patents and trademarks
    
    
    
    
    
    
    
    
    
    
    299,820
    
    
    
    299,820Share compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,285,696Non-cash wages and salaries
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    34,000Decrease (increase) in deposits and other receivables
    
    
    (52,010
    )
    
    
    13,645
    
    
    
    145,924
    
    
    
    (76,975
    )Increase in accounts payable and accrued liabilities
    
    
    366,582
    
    
    
    190,924
    
    
    
    54,181
    
    
    
    697,162Net cash used in operating activities
    
    
    (1,996,244
    )
    
    
    (724,349
    )
    
    
    (818,559
    )
    
    
    (15,945,534
    )Cash flows from investing activities:Purchase of property and equipment
    
    
    
    
    
    
    (4,567
    )
    
    
    (2,025
    )
    
    
    (729,604
    )Proceeds on disposal of property and equipment
    
    
    
    
    
    
    
    
    
    
    1,688
    
    
    
    134,458Patents and trademarks
    
    
    
    
    
    
    
    
    
    
    (28,380
    )
    
    
    (367,416
    )Sale of available-for-sale investment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    260,641Royalty rights
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,000,000
    )Term deposits
    
    
    87,243
    
    
    
    132,687
    
    
    
    (219,930
    )
    
    
    Net cash (used in) investing activities
    
    
    87,243
    
    
    
    128,120
    
    
    
    (248,647
    )
    
    
    (2,701,921
    )Cash flows from financing activities:Issue of common shares
    
    
    2,201,300
    
    
    
    867,500
    
    
    
    162,500
    
    
    
    18,709,533Net proceeds from shareholders Loan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    544,891Loan proceeds from Avanticorp international inc.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    112,031Rights issue costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (76,197
    )Net cash provided bv financing activities
    
    
    2,201,300
    
    
    
    867,500
    
    
    
    162,500
    
    
    
    19,290,258Increase (decrease) in cash and cash equivalents
    
    
    292,299
    
    
    
    271,271
    
    
    
    (904,706
    )
    
    
    642,803Cash and
cash equivalents, beginning of period
    
    
    350,504
    
    
    
    79,233
    
    
    
    983,939
    
    
    
    Cash and cash equivalents, end of period
    
    $
    642,803
    
    
    $
    350,504
    
    
    $
    79,233
    
    
    $
    642,803Supplemental cash flow information:Interest paid
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    76, 987Income taxes paid
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    66,722
 
 62




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MICROMEM TECHNOLOGIES INC.
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY (DEFICIENCY)
(Expressed in United States dollars)
  DeficitNumber of
    
    
    
    
    
    Contributed
    
    
    Deferred Share
    
    
    AccumulatedShares
    
    
    Share Capital
    
    
    Surplus
    
    
    Compensation
    
    
    During DevelopmentMicromem share capital, October 31, 1998
    
    
    3,490,643
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Exercise of directors stock options
    
    
    490,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Pageant share capital, October 31, 1998
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Net loss for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (500,992
    )Common shares of Pageant, December 4, 1998
    
    
    
    
    
    
    4,999
    
    
    
    
    
    
    
    
    
    
    
    Assigned fair value of net assets (Note 3 (c))
    
    
    32,000,000
    
    
    
    549,140
    
    
    
    
    
    
    
    
    
    
    
    Micromem
share capital,September 11, 1999
    
    
    35,980,643
    
    
    
    554,140
    
    
    
    
    
    
    
    
    
    
    
    (500,992
    )Exercise of common share purchase warrants for cash
    
    
    120,676
    
    
    
    164,053
    
    
    
    
    
    
    
    
    
    
    
    Private placement of common shares for cash, May 17, 1999
    
    
    350,000
    
    
    
    1,050,000
    
    
    
    
    
    
    
    
    
    
    
    Shareholder loan forgiven (Note 9)
    
    
    
    
    
    
    
    
    
    
    544,891
    
    
    
    
    
    
    
    Exercise of stock options for cash
    
    
    100,000
    
    
    
    300,000
    
    
    
    
    
    
    
    
    
    
    
    Net loss for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,207,787
    )Balance, October 31,1999
    
    
    36,551,319
    
    
    
    2,068,193
    
    
    
    544,891
    
    
    
    
    
    
    
    (5,708,779
    )Exercise of common share purchase warrants for cash
    
    
    182,087
    
    
    
    274,717
    
    
    
    
    
    
    
    
    
    
    
    Exercise of stock options for cash
    
    
    100,000
    
    
    
    300,000
    
    
    
    
    
    
    
    
    
    
    
    Deferred share compensation (Note 12)
    
    
    
    
    
    
    
    
    
    
    2,711,881
    
    
    
    (453,219
    )
    
    
    Private
placement of common shares for cash, February 10, 2000
    
    
    2,000,000
    
    
    
    5,000,000
    
    
    
    
    
    
    
    Common shares issued pursuant to compensation agreements, March 15, 2000
    
    
    901,110
    
    
    
    4,206,447
    
    
    
    
    
    
    
    
    
    
    
    Stock options issued to directors/consultants
    
    
    
    
    
    
    
    
    
    
    9,681,257
    
    
    
    
    
    
    
    Net loss for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16,940,613
    )Balance, October 31, 2000
    
    
    39,734,516
    
    
    
    11,849,357
    
    
    
    12,938,029
    
    
    
    (453,219
    )
    
    
    (22,649,392
    )Exercise of common share purchase warrants for cash
    
    
    362,450
    
    
    
    554,655
    
    
    
    
    
    
    
    
    
    
    
    Common shares issued under rights offering November 20, 2000
    
    
    304,674
    
    
    
    1,119,058
    
    
    
    
    
    
    
    
    
    
    
    Exercise of stock options for cash
    
    
    800,000
    
    
    
    2,400,000
    
    
    
    
    
    
    
    
    
    
    
    Deferred share compensation (Note 12)
    
    
    
    
    
    
    
    
    
    
    (453,219
    )
    
    
    453,219
    
    
    
    Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    34,000
    
    
    
    
    
    
    
    Exercise of
directors stock options for cash, January 17, 2001
    
    
    714,686
    
    
    
    71,469
    
    
    
    
    
    
    
    
    
    
    
    Common
shares issued pursuant to compensatory stock options, at
January 17, 2001 (Note
    
    
    
    
    
    
    1,581,242
    
    
    
    (1,581,242
    )
    
    
    
    
    
    
    Adjustment-share compensation expenses (Note 12)
    
    
    
    
    
    
    
    
    
    
    (677,420
    )
    
    
    
    
    
    
    Common shares issued pursuant to compensation agreement, January 23, 2001(Note 12
(a))
    
    
    11,192
    
    
    
    66,461
    
    
    
    
    
    
    
    
    
    
    
    Private placement of common shares for cash, March 21, 2001
    
    
    2,000,000
    
    
    
    4,000,000
    
    
    
    
    
    
    
    
    
    
    
    Common shares issued under asset purchase agreement to Estancia Limited, March
14, 2001
    
    
    2,007,831
    
    
    
    8,000,000
    
    
    
    
    
    
    
    
    
    
    
    Compensation shares due but not issued (Note 12)
    
    
    
    
    
    
    
    
    
    
    1,431,545
    
    
    
    
    
    
    
    Stock options issued to directors/consultants
    
    
    
    
    
    
    
    
    
    
    4,627,752Net loss for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,187,377
    )Balance, October 31, 2001
    
    
    45,935,349
    
    
    $
    29,642,242
    
    
    $
    16,319,445
    
    
    $
    
    
    
    ($
    31,836,769
    )
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##### Table of Contents



MICROMEM TECHNOLOGIES INC.
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY (DEFICIENCY)
(Expressed in United States dollars)
  DeficitNumber of
    
    
    
    
    
    Contributed
    
    
    Deferred Share
    
    
    AccumulatedShares
    
    
    Share Capital
    
    
    Surplus
    
    
    Compensation
    
    
    During DevelopmentBalance, October 31, 2001
    
    
    45,935,349
    
    
    $
    29,642,242
    
    
    $
    16,319,445
    
    
    $
    
    
    
    
    ($31,836,769
    )Shares
issued pursuant to compensatory agreement, March 26, 2002 (Note 12)
    
    
    765,588
    
    
    
    1,431,545
    
    
    
    (1,431,545
    )
    
    
    
    
    
    
    Stock options issued to directors/consultants
    
    
    
    
    
    
    
    
    
    
    1,832,500Net loss for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,565,515
    )Balance, October 31, 2002
    
    
    46,700,937
    
    
    
    31,073,787
    
    
    
    16,720,400
    
    
    
    
    
    
    
    (46,402,284
    )Private placement of common shares for cash, August 13, 2003 (Note 8(d))
    
    
    2,031,250
    
    
    
    162,500
    
    
    
    
    
    
    
    
    
    
    
    Stock options issued to directors/consultants
    
    
    
    
    
    
    
    
    
    
    318,000Net loss for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,767,965
    )Balance, October 31, 2003
    
    
    48,732,187
    
    
    
    31,236,287
    
    
    
    17,038,400
    
    
    
    
    
    
    
    ($48,170,249
    )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 directors/consultants
    
    
    
    
    
    
    
    
    
    
    1,379,970
    
    
    
    Net loss for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,314,298
    )Balance, October 31, 2004
    
    
    58,063,437
    
    
    
    32,103,787
    
    
    
    18,418,370
    
    
    
    
    
    
    
    ($50,484,547
    )Exercise of
common share purchase warrants for cash (Note 8(e)), December 
January
    
    
    400,000
    
    
    
    44,000
    
    
    
    
    
    
    
    
    
    
    
    Private placement of common shares for cash
    
    
    1,028,334
    
    
    
    617,000
    
    
    
    
    
    
    
    
    
    
    
    Stock options issued to consultants/employees
    
    
    
    
    
    
    
    
    
    
    202,203
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss for the quarter
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (453,523
    )Balance at
January 31, 2005
    
    
    59,491,771
    
    
    
    661,000
    
    
    
    18,620,573
    
    
    
    
    
    
    
    ($50,938,070
    )Exercise of common shares purchase warrants for cash (Note 8(d)), February, 2005
    
    
    1,406,250
    
    
    
    112,500
    
    
    
    
    
    
    
    
    
    
    
    Private Placement of common shares for cash, March, 2005
    
    
    1,300,000
    
    
    
    845,000
    
    
    
    
    
    
    
    
    
    
    
    Private Placement of common shares for cash, February, 2005
    
    
    14,000
    
    
    
    10,500
    
    
    
    
    
    
    
    
    
    
    
    Legal
expenses relating to private placements
    
    
    
    
    
    
    (75,000
    )
    
    
    
    
    
    
    
    
    
    
    Net loss for the quarter
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (474,227
    )Balance at April 30, 2005
    
    
    62,212,021
    
    
    
    33,657,787
    
    
    
    18,620,573
    
    
    
    
    
    
    
    (51,412,297
    )Exercise of stock options (Note 8(b)), June, 2005
    
    
    1,820,000
    
    
    
    553,600Settlement of accounts payable for common shares
    
    
    62,428
    
    
    
    43,700
    
    
    
    
    
    
    
    Stock options issued to consultants/employees
    
    
    
    
    
    
    
    
    
    
    903,040
    
    
    
    Net loss for the quarter
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,726,931
    )Balance at
July 31, 2005
    
    
    64,094,449
    
    
    $
    34,255,087
    
    
    $
    19,523,613
    
    
    $
    
    
    
    
    ($53,139,228
    )Exercise of common shares purchase warrants for cash September, 2005
    
    
    625,000
    
    
    
    50,000
    
    
    
    
    
    
    
    Stock options issued to consultants
    
    
    
    
    
    
    
    
    
    
    616,499
    
    
    
    Net loss for the quarter
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,380,802
    )Balance at October 31, 2005
    
    
    64,719,449
    
    
    $
    34,305,087
    
    
    $
    20,140,112
    
    
    $
    
    
    
    
    ($54,520,030
    )
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##### Table of Contents



MICROMEM TECHNOLOGIES INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Expressed in United States dollars)
  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(c), 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. The Company has not generated significant revenue through October 31, 2005,
has no planned principal operations 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 and continues to raise financing for
operations as outlined in Note 8(e).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 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.
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##### Table of Contents



MICROMEM TECHNOLOGIES INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Expressed in United States dollars)
  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.
    
    Financial reporting:The Company has adopted Section 1100 of the Canadian Institute of Chartered Accountants
(CICA) Handbook, Generally Accepted Accounting Principles (GAAP). This section
establishes standards for financial reporting in accordance with GAAP and provides guidance
on sources to consult with when selecting accounting policies and determining the
appropriate disclosures when an item is not explicitly dealt with in the primary sources of
GAAP. The Company also adopted Section 1400 of the CICA Handbook, General Standards of
Financial Statement Presentation. This section clarifies what constitutes fair
presentation in accordance with GAAP. The Company also adopted Section 3063 of the CICA
Handbook, Impairment of Long Lived Assets. This section requires the Company to measure
and disclose impairments of long-lived assets. Adoption of these sections did not have a
material impact on the Companys financial statements.b.
    
    Principles of consolidation:These consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiaries, Memtech International Inc., Memtech International (U.S.A.) Inc.,
Pageant Technologies Inc. and Pageant Technologies (U.S.A.) Inc.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. 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.
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##### Table of Contents



MICROMEM TECHNOLOGIES INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Expressed in United States dollars)
  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 income 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.
    
    Property and equipment:Property and equipment are recorded at cost less accumulated amortization. Amortization is
provided on property and equipment on a straight-line basis for a period of up to three
years. Property and equipment are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. When circumstances
dictate, an impairment loss is calculated as equal to the excess of the carrying value of
the assets over their undiscounted estimated future net cash flow.g.
    
    Patents and trademarks: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
which is the translation of research findings or other knowledge into a plan for the
technology prior to commercial production or use. The Company has determined that no
development costs have met these criteria at the financial reporting date.
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##### Table of Contents



MICROMEM TECHNOLOGIES INC.
  (Expressed in United States dollars)
  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.Until October 31, 2004 for all awards of employee stock-based compensation granted after
January 1, 2002, the Company recognized employee stock-based compensation costs under the
intrinsic value-based method and provided pro forma disclosure of net income and earnings
per share as if the fair value-based method had been applied.Effective November 1, 2004 the Company has adopted the fair value method of accounting for
employee stock-based compensation costs. Accordingly the financial statements for the
years ending October 31, 2004 and 2003 and the cumulative financial statements for the
period from September 3, 1997 to October 31, 2005 have been restated to reflect the
stock-based compensation costs that the Company has incurred in each period which expense
previously was disclosed on a proforma basis.The stock-based compensation expense for options granted during the twelve-month period
ending October 31, 2005 has been reflected as an expense in the consolidated statement of
operations for the period then ended.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.
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##### Table of Contents



MICROMEM TECHNOLOGIES INC.
  (Expressed in United States dollars)
  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. Income and
expenses are translated using the average monthly rate of exchange per quarter, which rate
approximates the rate of exchange prevailing at the transaction dates. Gains or losses
resulting from translation are included in the determination of net loss for the period.
 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:
 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;
andc.
    
    $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.
 69




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##### Table of Contents



MICROMEM TECHNOLOGIES INC.
  (Expressed in United States dollars)
    1.
    
    a 40% interest in the Vemram Patents;2.
    
    a 32% interest in the gross profit, less expenses agreed to by the parties, for each
license of the Vemram Patents sold or otherwise transferred by Pageant; and3.
    
    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.
    
    Non-cash working capital balances:
 I.
    
    Deposits and other receivables
 10/31/05
    
    
    10/31/04Sales tax recoverable
    
    $
    9,737
    
    
    $
    2,429Deposits
    
    
    2,345
    
    
    
    15,000Receivables from companies where senior
officers and directors of the Company
exercise significant influence (Note
12(b))
    
    
    73,490
    
    
    
    16,133$
    85,572
    
    
    $
    33,562
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MICROMEM TECHNOLOGIES INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Expressed in United States dollars)
   10/31/05
    
    
    10/31/04Deferred compensation to Chairman
(Note 12(a) ii) and to senior officers
(Note 12(c))
    
    $
    350,000
    
    
    $
    Accrual of costs under technology
development agreement (Note 13(b)
    
    
    289,863
    
    
    
    289,863Accounts payable
    
    
    163,343
    
    
    
    146,761$
    803,206
    
    
    $
    436,624
 6.
    
    Property and equipment:
 2004
    
    
    Additions
    
    
    2005Cost:Computers and equipment
    
    $
    41,348
    
    
    
    
    
    
    $
    41,348$
    41,348
    
    
    
    
    
    
    $
    41,348
 Amortization2004
    
    
    Expense
    
    
    2005Accumulated amortization:Computers and equipment
    
    $
    38,423
    
    
    $
    2,925
    
    
    $
    41,348$
    38,423
    
    
    $
    2,925
    
    
    $
    41,348
 2004
    
    
    2005Net book value:Computers and equipment
    
    $
    2,925
    
    
    $
    $
    2,925
    
    
    $
    
  71




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MICROMEM TECHNOLOGIES INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Expressed in United States dollars)
  7.
    
    Patents and trademarks: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 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:
      72




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MICROMEM TECHNOLOGIES INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Expressed in United States dollars)
  2005
    
    
    
    
    
    
    2004Weighted
    
    
    
    
    
    WeightedOptions in
    
    
    Average
    
    
    Options in
    
    
    AverageThousands
    
    
    exercise price
    
    
    Thousands
    
    
    exercise priceOutstanding, beginning of period
    
    
    7,270
    
    
    
    .310
    
    
    
    5,300
    
    
    $
    .100Granted
    
    
    4,700
    
    
    
    .730
    
    
    
    7,270
    
    
    
    .310Cancelled
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    (1,820
    )
    
    
    .304
    
    
    
    (5,300
    )
    
    
    .100Outstanding end of period
    
    
    10,150
    
    
    
    .500
    
    
    
    7,270
    
    
    $
    .310Options exercisable at end of period
    
    
    10,150
    
    
    
    .500
    
    
    
    7,270Weighted average price of
Options granted during the period
    
    
    
    
    
    
    .730
    
    
    
    
    
    
    $
    .310
    Exercise
    
    
    ExpiryDate
    
    Optionee
    
    
    Number of Options
    
    
    Price
    
    
    DateJanuary 29, 2005
    
    Officer
    
    
    300,000
    
    
    
    .80
    
    
    March 22, 2007January 31, 2005
    
    Employee
    
    
    50,000
    
    
    
    .91
    
    
    June 17, 2009January 31, 2005
    
    Officer
    
    
    50,000
    
    
    
    .91
    
    
    June 17, 2009May 27, 2005
    
    Officer
    
    
    400,000
    
    
    
    .72
    
    
    May 27, 2010May 27, 2005
    
    Director
    
    
    300,000
    
    
    
    .72
    
    
    May 27, 2010May 27, 2005
    
    Director
    
    
    1,800,000
    
    
    
    .72
    
    
    May 27, 2010August 1, 2005
    
    Chairman
    
    
    1,800,000
    
    
    
    .65
    
    
    June 16, 2009November 25, 2005
    
    Director
    
    
    300,000
    
    
    
    .60
    
    
    November 24, 2009December 20, 2005
    
    Employee
    
    
    50,000
    
    
    
    .72
    
    
    December 20, 2010January 15, 2006
    
    Officer
    
    
    100,000
    
    
    
    .72
    
    
    January 15, 2007
  73




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MICROMEM TECHNOLOGIES INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Expressed in United States dollars)
    Period fromSeptember 3, 19972004
    
    
    2003
    
    
    to October 31, 2005Stock compensation expense as
originally reported
    
    
    10,020
    
    
    
    
    
    
    
    10,020Restatement
 expense using fair
value method
    
    
    1,369,950
    
    
    
    318,000
    
    
    
    19,551,201Restated stock compensation expense
    
    
    1,379,970
    
    
    
    318,000
    
    
    
    19,561,221Net loss as originally reported
    
    
    (944,348
    )
    
    
    (1,449,965
    )
    
    
    (36,690,571
    )Restatement
 expense using fair
value method
    
    
    1,369,950
    
    
    
    318,000
    
    
    
    (17,829,459
    )Restated net loss
    
    
    (2,314,298
    )
    
    
    (1,767,965
    )
    
    
    (54,520,030
    )Closing deficit as originally reported
    
    
    (32,655,088
    )
    
    
    (31,710,740
    )
    
    
    (36,690,571
    )Restatement, expense using fair value
method
    
    
    (17,829,459
    )
    
    
    (16,459,509
    )
    
    
    (17,829,459
    )Restated closing deficit
    
    
    (50,484,547
    )
    
    
    (48,170,249
    )
    
    
    (54,520,030
    )Basic and fully diluted loss per share as
originally reported
    
    
    (0.02
    )
    
    
    (0.03
    )
    
    
    (0.75
    )Restatement
 impact on loss per share using
fair value method
    
    
    (0.02
    )
    
    
    (0.01
    )
    
    
    (0.38
    )Revised basic and fully diluted loss per share
    
    
    (0.04
    )
    
    
    (0.04
    )
    
    
    (1.13
    )
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MICROMEM TECHNOLOGIES INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Expressed in United States dollars)
   2005
    
    
    2004
    
    
    2003Dividend yield
    
    
    
    
    
    
    
    
    
    
    Expected Volatility
    
    
    97% - 142
    %
    
    
    150
    %
    
    
    157
    %Risk free interest rate
    
    
    3.25
    %
    
    
    3.25
    %
    
    
    2.22
    %Expected option life
    
    1.5 years
    
    
    1.5 years
    
    
    1 year
   Options Outstanding
    
    
    
    
    
    
    Options exercisableWeighted averageremaining
    
    Weighted
    
    
    
    
    
    WeightedActual exercise
    
    Number
    
    contractual life (in
    
    Average
    
    Number
    
    Averageprice
    
    outstanding
    
    years)
    
    exercise price
    
    exercisable
    
    exercise price$0.30
    
    
    
    5,350,000
    
    3.5 years
    
    
    $
    0.30

    
    
    
    5,350,000
    
    
    $
    0.300.68
    
    
    
    100,000

    
    1.16 years
    
    
    
    0.68
    
    
    
    100,000
    
    
    
    0.680.80
    
    
    
    300,000

    
    1.2 years
    
    
    
    0.80

    
    
    
    300,000

    
    
    
    0.800.91
    
    
    
    100,000

    
    3.75 years
    
    
    
    0.91

    
    
    
    100,000

    
    
    
    0.910.72
    
    
    
    2,500,000

    
    4.5 years
    
    
    
    0.72

    
    
    
    2,500,000

    
    
    
    0.720.65
    
    
    
    1,800,000

    
    4.5 years
    
    
    
    0.65

    
    
    
    1,800,000

    
    
    
    0.65
 c.
    
    Loss per shareBasic 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.
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MICROMEM TECHNOLOGIES INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Expressed in United States dollars)
   d.
    
    WarrantsOn 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 closing trading value at the date authorized by the Board of
Directors, the warrants were allocated a nil value. .In August 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. .In February 2005, the holders of the Second Units exercised 1,406,250 Second Unit warrants
and the Company thus issued 1,406,250 common shares and realized proceeds of $112,500. .In August 2005, the holders of the Second Units exercised 625,000 Second Units warrants and
the Company thus issued 625,000 common shares and realize proceeds of $50,000. .
 e.
    
    Private Placementsi)
    
    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
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##### Table of Contents



MICROMEM TECHNOLOGIES INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Expressed in United States dollars)
     ii)
    
    In December 2003, the Company 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. .
 iii)
    
    In December 2004 the Company completed a Unit private placement to several U.S. investors
pursuant to prospectus and registrations 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 (Note 18).
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MICROMEM TECHNOLOGIES INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Expressed in United States dollars)
  iv)
    
    In February 2005, the Company arranged a Unit private placement to several investors
pursuant to prospectus and registration exemptions set forth in applicable securities laws.
Under this private placement the Company received $845,000 as of April 30, 2005 as
subscription proceeds for the sale of 1,300,000 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 $.65 until expiry 12 months from the issue date.
Each Series B warrant entitles the holder to purchase one Common Share for $.65 until expiry
12 months from the issue date (Note 18).v)
    
    In February 2005, the Company completed a Unit private placement to two Canadian
investors 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 (Note 18).f.
    
    Outstanding warrants
  August 13, 2003 financing (Note 8 (d)):Series A warrants outstanding at October 31, 2003
    
    
    2,031,250Series A warrants exercised in fiscal 2004
    
    
    (2,031,250
    )Series B warrants resulting from exercise of Series A warrants
    
    
    2,031,250Outstanding at January 31, 2005
    
    
    2,031,250Series B warrants exercised in February 2005
    
    
    (1,406,250
    )Series B warrants exercised in August 2005
    
    
    (625,000
    )December 2003 financing (Note 8 (e) (i)):Series A warrants issued
    
    
    300,000Series A warrants exercised
    
    
    (200,000
    )Series B warrants resulting from exercise of Series A warrants
    
    
    200,000Outstanding at October 31, 2004
    
    
    300,000Series A warrants exercised, January 2005
    
    
    (100,000
    )Series B warrants resulting from exercise of Series A warrants
    
    
    100,000Series B warrants exercised, January 2005
    
    
    (300,000
    )
 78




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MICROMEM TECHNOLOGIES INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Expressed in United States dollars)
  December 2003 financing (Note 8 (e) (ii))Series A warrants issued
    
    
    500,000Series A warrants exercised, June 2004
    
    
    (500,000
    )Series B warrants resulting from exercise of Series A warrants
    
    
    500,000Series B warrants exercised, October 2004
    
    
    (500,000
    )December 2004 financing (Note 8(e) (iii))Series A warrants issued and outstanding
    
    
    1,028,344February 2005 financing (Note 8(e) (iv)Series A warrants issued and outstanding
    
    
    1,300,000February 2005 financing (Note 8(e)(v)Series A warrants issued and outstanding
    
    
    14,000June 8, 2005 financial advisory services agreement
    
    
    1,000,000June 22, 2005 financial advisory services agreement
    
    
    800,000
    9.
    
    Contributed surplus:
  79




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MICROMEM TECHNOLOGIES INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Expressed in United States dollars)
  10.
    
    Restructuring and write-down of royalty rights:
   11.
    
    Income Taxes:
  Canada
    
    
    Other Foreign
    
    
    Total2006
    
    $
    268,000
    
    
    $
    
    
    
    $
    268,0002007
    
    
    1,632,000
    
    
    
    
    
    
    
    1,632,0002008
    
    
    1,363,000
    
    
    
    
    
    
    
    1,363,0002009
    
    
    1,062,000
    
    
    
    
    
    
    
    1,062,0002010
    
    
    932,000
    
    
    
    265,000
    
    
    
    1,197,0002011
    
    
    
    
    
    
    208,000
    
    
    
    208,0002014
    
    
    746,000
    
    
    
    
    
    
    
    746,0002015
    
    
    2,249,000
    
    
    
    
    
    
    
    2,249,0002023
    
    
    
    
    
    
    73,000
    
    
    
    73,0002024
    
    
    
    
    
    
    173,000
    
    
    
    173,0002025
    
    
    
    
    
    
    20,000
    
    
    
    20,000Total losses
    
    $
    8,252,000
    
    
    $
    739,000
    
    
    $
    8,991,000
 80




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##### Table of Contents



MICROMEM TECHNOLOGIES INC.
 (Expressed in United States dollars)
   10/31/05
    
    
    10/31/04
    
    
    10/31/03Consolidated accounting
loss before income taxes
    
    $
    (4,035,483
    )
    
    $
    (2,314,298
    )
    
    $
    (1,767,965
    )Add nondeductible items
    
    
    1,764,667
    
    
    
    1,369,950
    
    
    
    318,000Loss for tax purposes
    
    
    (2,270,816
    )
    
    
    (944,348
    )
    
    
    1,449,965Statutory rates
    
    
    36
    %
    
    
    36
    %
    
    
    38
    %Expected income tax recovery
    
    
    (817,494
    )
    
    
    (339,965
    )
    
    
    (550,987
    )Tax benefit not recognized
    
    
    817,494
    
    
    
    339,965
    
    
    
    550,987$
    
    
    
    $
    
    
    
    $
    
  10-31
    
    
    10-31
    
    
    10-312005
    
    
    2004
    
    
    2003Unused capital losses
    
    $
    47,566
    
    
    $
    47,566
    
    
    $
    47,566Unused non-capital losses
    
    
    3,080,670
    
    
    
    2,244,996
    
    
    
    1,975,066Alternative minimum tax credit
    
    
    142,091
    
    
    
    142,091
    
    
    
    142,091Research and development credit
    
    
    118,720
    
    
    
    118,720
    
    
    
    118,720Tax basis of property and
equipment in excess of
carrying value
    
    
    14,760
    
    
    
    13,680
    
    
    
    109,789Total future tax assets
    
    $
    3,403,807
    
    
    $
    2,567,053
    
    
    $
    2,393,232Valuation allowance
    
    
    (3,403,807
    )
    
    
    (2,567,053
    )
    
    $
    (2,393,232
    )Net future tax assets
    
    $
    
    
    
    $
    
    
    
    $
    
 81




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##### Table of Contents



MICROMEM TECHNOLOGIES INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Expressed in United States dollars)
  12.
    
    Management compensation and related party transactions:
 a (i)
    
    Between 1999 and 2002, the Company has previously entered into stock-based
management compensation arrangements with the Chairman as reported in prior years audited
financial statements.(ii)
    
    On May 29, 2005, the Company entered into a new employment agreement with the
Chairman for a period from January 1, 2005 through September 30, 2009. Under the terms
of the agreement, the Chairman has been retained to provide certain management services
to the Company. The Company has agreed to provide compensation based on a percentage of
the increase of the market capitalization on a year-over year basis commencing as of
December 31, 2005 subject to a minimum annual compensation amount of $150,000. At the
Companys option it can pay cash or issue common shares as compensation providing that
the cumulative maximum number of shares that it can issue under the agreement is 2
million common shares. The Company determined that the compensation expense in fiscal
2005 was $150,000 under this agreement.
  Cash Compensation
    
    
    Stock Option Expense2005
    
    $
    150,000
    
    
    $
    659,0002004
    
    
    
    
    
    $
    339,000
 c.
    
    In the normal course of business, the Company has entered into cost sharing
arrangements with companies where certain senior officers and directors exercise
significant influence. These transactions, which were measured at the exchange amount on
the date of the transaction, relate to salaries, rent and other expenses. For the fiscal
year ended October 31, 2005, the Company paid a total of approximately $115,000 in rent
(2004: $92,000) and $180,000 in salaries (2004: $116,000) and recovered $104,000 (2004:
$182,000) of these total costs from the companies in which senior offices and directors
exercise significant influence.At October 31, 2005 the aggregate amount owed by these companies was $73,490 (Note 5). As
at year-end, the Company determined that it would be unable to cover costs amounting to
$60,395 allocated to one of the related companies. Accordingly this amount has been
expensed in the financial statements.
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MICROMEM TECHNOLOGIES INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Expressed in United States dollars)
  c.
    
    Included in professional fees as reported are management and consulting fees paid or
payable to individuals (or companies controlled by such individuals) who served as
officers and directors of the Company. Certain of these individuals joined the Company
during 2004 and 2005. The total compensation paid to such parties is summarized as
follows:
 Cash Compensation
    
    
    Stock Option Expense2005
    
    $
    639,000
    
    
    $
    1,044,0002004
    
    $
    92,000
    
    
    $
    470,000
  13.
    
    Commitments:
 a.
    
    Research Collaboration and Infrastructure Agreements (refer also to 13 (a)
(4) as below):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 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. 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 granted $58,900 (equivalent to Cdn. $85,000) in cash funding and Micromem
contributed $56,130 (equivalent to Cdn. $81,000 in cash funding and additionally made
$30,770 (equivalent to Cdn. $44,400) of in-kind contributions, all towards the research
collaboration, each year. The Company has met all of its obligations under the
agreement. Micromem obtained sublicensing rights for the use of any new technology
developed (Technology Developed) under this research subject to
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MICROMEM TECHNOLOGIES INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Expressed in United States dollars)
   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 provided that Micromem was to contribute $249,463
(equivalent to Cdn. $360,000) in cash to fund the direct costs of the MMF. The
contribution has been made in fiscal 2002-2003 by Micromem and 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 $107,715 (equivalent to Cdn. $154,000) and
Micromem provided funding of $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.
    
    Revised License Agreement:In June 2005 the Company signed a license agreement (the License Agreement) with the
U of T and the Ontario Centres of Excellence (including MMO and CITO) (collectively
OCE) whereby:
 a.
    
    OCE released the Company and the University from the commercialization obligations
set forth is all prior research collaboration agreements.b.
    
    The Company acquired exclusive worldwide rights to the Technology and Developed
Technology and Patent Rights related to the MRAM technology developed at the UofT.
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MICROMEM TECHNOLOGIES INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Expressed in United States dollars)
  c.
    
    The Company has agreed to royalties and payments under the terms of the License
Agreement as follows:
 1.1
    
    In consideration for the rights and licenses granted herein, the Company
shall pay to the UofT:
 a)
    
    4% of Net Sales until such time as the UofT has received from the
Company an aggregate amount of five hundred thousand Canadian dollars
(CDN$500,000);b)
    
    1% of Net Sales thereafter.
 1.2
    
    If the Company sublicenses any rights granted herein to any non-Affiliate:
 a)
    
    in combination or association with the Micromem Intellectual
Property, the UofT shall receive 10% of any Net Fees and/or Net Royalties that
shall be received by the Company in respect of any licenses involving both the
rights granted herein and such Micromem Intellectual Property;b)
    
    For all other sublicenses of the rights granted herein to any
non-Affiliate, the UofT shall receive 20% of any Net Fees and/or Net Royalties
that shall be received by the Company in respect of such sublicenses.c)
    
    Net Fees and/or Net Royalties shall be received from the Company
until such time as the UofT has received from the Company an aggregate amount of
five hundred thousand Canadian dollars (CDN$500,000); thereafter the Company shall
pay half of the amounts set forth in 1.2(a) or (b) as is applicable.
 1.3
    
    At any point after which the Company has paid the UofT five hundred thousand
Canadian dollars (CDN$500,000), the Company may at its option buy out the obligation
to pay royalties under the License Agreement by paying to the UofT a single lump sum
payment equaling the greater of five hundred thousand Canadian dollars (CDN$500,000)
and an amount equal to the total amount of royalties paid by the Company to the UofT
in the preceding twenty-four months. The Company shall be entitled to exercise such
option by providing written notice to the UofT along with the required payment, after
which time the Companys obligation to pay royalties under Sections 1.1 or 1.2 as
applicable shall be waived by the UofT.
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MICROMEM TECHNOLOGIES INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Expressed in United States dollars)
    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 $290,000 in accounts payable and accrued liabilities with respect to this
agreement as of October 31, 2005 (at October 31, 2004: $287,000).
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MICROMEM TECHNOLOGIES INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Expressed in United States dollars)
  c.
    
    Operating leases:
  2006-2010 (annually)
    
    $
    98,400
 d.
    
    Employment agreement: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 contract is
$260,000 per year. The Company also granted the Chief Technology Officer 100,000 options
exercisable at .68¢ which expired on December 31, 2005, 300,000 options exercisable at
$0.80 per share, expiring 45 days after the end of the above noted employment agreement and
100,000 options exercisable at $.72 which expire on March 22, 2007 if unexercised.
 14.
    
    Contingencies:The Company has agreed to indemnify its directors and officers and certain of its employees in
accordance with the Companys by-laws. The Company maintains insurance policies that may
provide coverage against certain claims.As outlined in Note 4, certain interests under the Agreement with Estancia reverted to Estancia
on March 9, 2004. On this basis, to the extent that future revenues are generated by the
Company relating directly and specifically to the Vemram Patents, the Company is obligated to
pay Estancia 32% of the gross profit realized less expenses agreed to by the parties and 32% of
any unit royalties realized less direct expenses.
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MICROMEM TECHNOLOGIES INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Expressed in United States dollars)
  15.
    
    Financial instruments:
 a.
    
    Fair values
    (i)
    
    
    10/31/05
    
    
    10/31/04Assets
    
    $
    299,570
    
    
    
    
    
    
    
    
    
    
    $
    270,999Liabilities
    
    
    68,212
    
    
    
    
    
    
    
    
    
    
    
    122,561Other Income
    
    
    9,094
    
    
    
    
    
    
    
    
    
    
    
    6,241Expenses
    
    
    1,591,303
    
    
    
    
    
    
    
    
    
    
    
    973,615
 16.
    
    Reconciliation between Canadian GAAP and U.S. GAAP:
  a.
    
    Stock-Based compensation:
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MICROMEM TECHNOLOGIES INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Expressed in United States dollars)
    b.
    
    Consolidated statement of comprehensive income (loss):
  c.
    
    Research and development expenditures
  d.
    
    Other recent accounting pronouncements
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MICROMEM TECHNOLOGIES INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States dollars)
     17.
    
    Comparative consolidated financial statements:
  18.
    
    Subsequent Events
 a.
    
    In December 2005 the Company revised the terms of the Unit private placements
outlined in Note 8(e) (iii) (iv) and (v). In each case the Unit was revised to consist
of one Common Share, one Series A warrant expiring on June 30, 2006 and one Series B
warrant expiring on December 31, 2006. The remaining terms of the Series A and Series B
warrants were unchanged.b.
    
    In December 2005, the Company granted 50,000 options to an employee at an
exercise price of .72¢ per share. These options expire in December 20, 2010 if
unexercised. In November 2005 the Company granted 300,000 options to a new director at
an exercise price of .60¢ per share. These options expire in November 2009 if
unexercised.c.
    
    In January 2006 the company granted 100,000 options to the Chief Technology
Officer at an exercise price of .72¢ per share. These options expire in March 2007 if
unexercised.
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MICROMEM TECHNOLOGIES INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Expressed in United States dollars)
  d.
    
    In January 2006 a director exercised 150,000 options at a price of .30¢ per
share and the Company realized $45,000 of subscription proceeds.e.
    
    In February 2006, a director exercised 400,000 options at a price of .30¢ per
share and the Company realized $120,000 of subscription proceeds.
 ITEM 18. EXHIBITS
  Exhibit No. 1.1
    
    Articles of Incorporation 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 Incorporation of Amendment of Micromem Technologies Inc. dated as
of October 17, 2001 amending the Articles of Incorporation of Micromem Technologies
Inc. to increase the number of directors to a minimum of three and a maximum of ten
(Incorporated herein by reference to the Companys Form 20-F/A filed with the
Commission on March 20, 2003);Exhibit No. 1.3
    
    Articles of Incorporation of Amendment of Micromem Technologies Inc. dated as
of June 24, 2002 amending the Articles of Incorporation of Micromem Technologies Inc.
to increase the number of directors to a minimum of 3 and a maximum of 12 (Incorporated
herein by reference to the Companys Form 20-F/A filed with the Commission on March 20,
2003);Exhibit No. 1.5
    
    By-Laws of Micromem Technologies Inc. in effect as of January 11, 2002,
(Incorporated herein by reference to the Companys Form 20-F/A filed with the
Commission on January 11, 2000);Exhibit No. 1.6
    
    Amendment to the By-Laws of Micromem Technologies Inc. approved by shareholders
on June 29, 2000, deleting the requirement from the By-Laws that the President shall be
appointed from amongst the directors (Incorporated herein by reference to the Companys
Form 20-F/A filed with the Commission on March 20, 2003);Exhibit No. 4.1
    
    Research Collaboration Agreement by and among Micromem Technologies Inc., the
University of Toronto, Dr. Harry Ruda and Materials and Manufacturing Ontario dated
October 24, 2002 (referred to in this Annual Report at
Item 4.B  Business Overview 
Recent Developments) (Incorporated herein by reference to the Companys Form 20-F/A
filed with the Commission on March 20, 2003);
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Exhibit No. 4.2
    
    Asset Purchase Agreement by and among Micromem Technologies Inc., Pageant
Technologies Incorporated, Estancia Limited and Richard Lienau dated December 10, 2000
(referred to in this Annual Report at Item 4.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 by and 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 by and between Micromem Technologies Inc. and the
University of Toronto dated November 1, 2002 (referred to in this Annual Report at Item
4.B  Business Overview  Recent Developments) (Incorporated herein by reference to the
Companys Form 20-F/A filed with the Commission on March 20, 2003);Exhibit No. 4.5
    
    A second 2-year Research Collaboration Agreement, by and among Micromem
Technologies Inc., Materials and Manufacturing Ontario and the University of Toronto
dated November 12, 2003 (referred to in this Annual Report at
Item 10.C  Material
Contracts), (Incorporated herein by reference to the Companys Form 20-F filed with
the Commission on March 19, 2004);Exhibit No. 4.6
    
    Equipment Transfer Agreement by and between Micromem Technologies Inc. and the
Governing Council of the University of Toronto dated March 1, 2003 (referred to in this
Annual Report at Item 10.C  Material Contracts), (Incorporated herein by reference to
the Companys Form 20-F filed with the Commission on March 19, 2004);Exhibit No. 4.7
    
    Collaborative Research Agreement by and among Micromem Technologies Inc.,
Communications and Information Technology Ontario, the University of Toronto and Dr.
Harry Ruda dated December 10, 2002 (referred to in this Annual
Report at Item 10.C 
Material Contracts), (Incorporated herein by reference to the Companys Form 20-F
filed with the Commission on March 19, 2004);Exhibit No. 4.8
    
    Revised License Agreement by and between Micromem Technologies Inc. and the
University of Toronto dated June 13, 2005.Exhibit No. 4.9
    
    Employment Agreement by and between Micromem Technologies Inc. and Dr. Cynthia
Kuper dated January 28, 2005.Exhibit No. 4.10
    
    Employment Agreement by and between Micromem Technologies, Inc. and Salvatore
Fuda dated May 29, 2005.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. 14.1
    
    Independent Auditors Consent of Schwartz Levitsky Feldman LLP
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Exhibit No. 14.2
    
    Independent Auditors Consent of Grant Thornton LLPExhibit No. 14.3
    
    Independent Auditors Consent of Ernst & Young LLPExhibit No. 14.4
    
    Independent Auditors Consent
of Schwartz Levitsky Feldman LLP
  *
    
    Portions of this exhibit have been omitted pursuant to a request for confidential
treatment.
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SIGNATURES
  MICROMEM TECHNOLOGIES INC.By:
    
    /s/ Joseph FudaName: Joseph FudaTitle: Chief Executive OfficerBy:
    
    /s/ Dan AmadoriName: Dan AmadoriTitle: Chief Financial Officer
  94