UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

___________

FORM 20-F

£
    REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OFTHE
    SECURITIES EXCHANGE ACT OF 1934orQ
    ANNUAL
    REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE
    SECURITIES EXCHANGE ACT OF 1934For The
    Fiscal Year Ended October 31, 2007or£
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE
    SECURITIES EXCHANGE ACT OF 1934or£
    SHELL
    COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE
    SECURITIES EXCHANGE ACT OF 1934Date of
    event requiring this shell report




Commission File No. 0-26005

___________

MICROMEM TECHNOLOGIES INC.

(Exact name of Registrant as specified in its charter)



Ontario, Canada

(Jurisdiction of incorporation or organization)

777 Bay Street, Suite 1910,

Toronto, Ontario M5G 2E4, Canada

Tel: (416) 364-6513

Fax: (416) 360-4034

(Address of principal executive offices)

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

None

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

Common Shares without par value

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

None

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

72,946,167 Common Shares

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

Yes
£          No
Q

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

Yes
£          No
Q

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

Yes
Q          No
£

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

Large Accelerated Filer
£       Accelerated Filer
£      Non-Accelerated Filer
Q

Indicate by check mark which financial statement item the Registrant has elected to follow:

Item 17 
Q   Item 18
£

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

Yes
£  No
Q

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TABLE OF CONTENTS
Part IPageItem
    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
    4A.
    Unresolved staff comments
    24Item
    5.
    Operating and Financial Review and Prospects
    24Item
    6.
    Directors, Senior Management and Employees
    36Item
    7.
    Major
    Shareholders and Related Party Transactions
    43Item
    8.
    Financial Information
    43Item
    9.
    The
    Offer and Listing
    43Item
    10.
    Additional Information
    45Item
    11.
    Quantitative and Qualitative Disclosures about Market Risk
    53Item
    12.
    Description of Securities Other Than Equity Securities
    53Part IIItem
    13.
    Defaults, Dividend Arrearages and Delinquencies
    53Item
    14.
    Material Modifications to the Rights of Security Holders and Use of Proceeds
    53Item
    15.
    Controls and Procedures
    53Item
    15T.
    Controls and Procedures
    55Part IIIItem
    16.
    Not
    Applicable
    55Item
    16A.
    Audit
    Committee Financial Expert
    55Item
    16B.
    Code
    of Ethics
    55Item
    16C.
    Principal Accountant Fees and Services
    55Item
    16D.
    Exemptions from the Listing Standards for Audit Committees
    56Item
    16E.
    Purchases of Equity by the Issuer and Affiliated Purchasers
    56Item
    17.
    Financial Statements
    56Item
    18.
    Financial Statements
    57Item
    19.
    Exhibits
    57Signatures
    60



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PART I
INTRODUCTION
Abbreviations

Throughout this document, Micromem Technologies Inc. and/or its affiliates
are referred to as "Micromem", the "Company", "we", "us" or "our".
Forward Looking and Cautionary Statements

This Form 20-F contains certain forward-looking statements.
These forward-looking statements are based on current expectations, estimates
and projections about the business of our company and the industry in which we
operate, our management's beliefs, and assumptions made by our management. Words
such as "expects," "anticipates," "intends," "plans," "believes," "seeks" and
"estimates," variations on such words and similar expressions are intended to
identify such forward-looking statements. These statements are not guarantees of
future performance and involve certain risks, uncertainties and assumptions
which are difficult to predict. Our actual results could differ materially from
those expressed or forecasted in these forward-looking statements as a result of
certain factors, including those set forth under "Item 3 - Key Information  Risk
Factors" and elsewhere in this Form 20-F.
ITEM 1.
IDENTITY OF DIRECTORS, SENIOR
MANAGEMENT AND ADVISORS

Not Applicable.

ITEM 2.

OFFER STATISTICS AND EXPECTED
TIMETABLE

Not Applicable.

ITEM 3.

KEY INFORMATION

A.

Selected Financial Data

The following table sets forth our selected consolidated
financial data in United States dollars as of and for each of the five fiscal
years ended October 31, 2007, 2006, 2005, 2004 and 2003. The selected
consolidated financial data has been derived from our audited consolidated
financial statements. All information contained in the following table should be
read in conjunction with our audited consolidated financial statements and the
notes thereto and "Item 5 - Operating and Financial Review and Prospects",
included elsewhere in this Form 20-F.

Selected balance sheet information

|                                 | 2007         | 2006       | 2005       | 2004       | 2003      
|-------------------------------- | ------------ | ---------- | ---------- | ---------- | ----------
|Working capital
    (deficiency) | ($1,531,855) | ($448,923) | ($74,831)  | $34,685    | $100,670  
|Capital Assets                   | -            | -          | -          | 2,925      | 3,768     
|Total Assets                     | 329,232      | 465,440    | 728,375    | 474,234    | 350,138   
|Capital Stock                    | 37,166,397   | 36,693,353 | 34,305,087 | 32,103,787 | 31,236,287
|Shareholders' equity             |              |            |            |            |           
|(deficiency)                     | (1,531,855)  | (448,923)  | (74,831)   | 37,610     | 104,438   

1

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Selected statement of operations and deficit information

|                                      | 2007        | 2006        | 2005        | 2004        | 2003       
|------------------------------------- | ----------- | ----------- | ----------- | ----------- | -----------
|Interest and other income             | $2,586      | $9,930      | $8,703      | $4,746      | $20,121    
|Research and development expenses     | 682,331     | 389,689     | 362,141     | 378,410     | 490,914    
|General and administrative expenses   | 1,862,417   | 2,448,249   | 1,951,600   | 570,684     | 621,050    
|Stock compensation expense            | 269,216     | 2,058,560   | 1,721,742   | 1,379,970   | 318,000    
|Write-down of royalty rights          | -           | -           | -           | -           | -          
|Write-down of patents and trademarks  | -           | -           | -           | -           | 299,820    
|Loss (gain) on disposal of assets     | -           | -           | -           | -           | 58,302     
|Loss from continuing operations       | (2,811,378) | (4,058,180) | (4,035,483) | (2,314,298) | (1,767,965)
|Loss from discontinued operations     | -           | -           | -           | -           | -          
|Loss before income taxes              | (2,811,378) | (4,058,180) | (4,035,483) | (2,314,298) | (1,767,965)
|Provision for income taxes (recovery) | -           | -           | -           | -           | -          
|Net loss                              | (2,811,378) | (4,058,180) | (4,035,483) | (2,314,298) | (1,767,965)
|Loss per share-basic and diluted      | 0.04        | 0.06        | 0.07        | 0.04        | 0.04       
|Weighted average number of basic and  |             |             |             |             |            
|diluted shares                        | 70,685,153  | 66,709,353  | 62,155,234  | 52,958,975  | 47,061,810 
|Dividends                             | -           | -           | -           | -           | -          

Reconciliation between Canadian GAAP and U.S. GAAP:

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

Currency and Exchange Rates

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

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

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

|                   | 2007   | 2006   | 2005   | 2004   | 2003  
|------------------ | ------ | ------ | ------ | ------ | ------
|High for period    | 1.1853 | 0.9134 | 0.8690 | 0.8432 | 0.7738
|Low for period     | 0.9499 | 0.8349 | 0.7872 | 0.7288 | 0.6350
|End of period      | 0.9499 | 0.8907 | 0.8577 | 0.8319 | 0.7738
|Average for period | 1.1003 | 0.8782 | 0.8254 | 0.7717 | 0.7200

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

|     | November | December | January | February | March  | April 
|---- | -------- | -------- | ------- | -------- | ------ | ------
|     | 2006     | 2006     | 2007    | 2007     | 2007   | 2007  
|High | 1.1474   | 1.1653   | 1.1824  | 1.1853   | 1.1811 | 1.1584
|Low  | 1.1277   | 1.1417   | 1.1649  | 1.1585   | 1.1529 | 1.1067

2

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|     | May    | June   | July   | August | September | October
|---- | ------ | ------ | ------ | ------ | --------- | -------
|     | 2007   | 2007   | 2007   | 2007   | 2007      | 2007   
|High | 1.1135 | 1.0730 | 1.0686 | 1.0755 | 1.0546    | 1.0004 
|Low  | 1.0719 | 1.0580 | 1.0372 | 1.0499 | 0.9963    | 0.9535 

On February 28, 2008, the noon buying rate for one Canadian
dollar, as quoted by the Bank of Canada, was CDN $.972 = U.S. $1.00.

B.

Capitalization
and Indebtedness

Not Applicable.

C.

Reasons for the
Offer and Use of Proceeds

Not Applicable.

D.

Risk Factors

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

Risk Factors Related to Our Business

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

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

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

At October 31, 2007 we had approximately $245,000 cash on
hand and our current monthly cash expenses were approximately $150,000.
Subsequent to October 31, 2007, through to the date of this report, we have
raised an additional $1,138,727 through the exercise of stock options and
through private placement financings.

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

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

We currently have no operating revenue.

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

Our technology is under development.

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

3

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

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

- 

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

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

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

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

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

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

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

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

4

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Intellectual property claims against us, no matter how
groundless, could cause our business to suffer.
Our future success and competitive position depend in part on
our ability to retain exclusive rights to our technology, including any
improvements that may be made on that technology from time to time by us or on
our behalf. While our technology is patented or is subject to pending patent
applications in the United States and we know of no challenge that has been made
either against our technology or our rights to it, and we have no reason to
believe that any such challenge might be made or that the grounds for any such
challenge exist, if any intellectual property litigation were to be commenced
against us, no matter how groundless, the result could be a significant expense
to us, adversely affecting further development, licensing and sales, diverting
the efforts of our technical and management personnel and, in the event of an
adverse outcome, damages and possible restrictions on the further development,
licensing and use of our technology.
There is no assurance that any of our pending patent
applications will be issued as patents or that any issued patent will not be
determined to be invalid at a later date.
We have a history of losses, and we may continue to generate
losses in the foreseeable future.
To date, we have been solely a development company. We have
not been profitable in any of the last three fiscal years. Unless and until we
are able to successfully complete the development of our technology and develop
markets for the commercialization of such technology, we may not be able to
generate revenues in future periods and we may not be able to attain
profitability.
The development of non-volatile random access memory products
is a capital intensive business. Therefore, we expect to incur expenses without
corresponding revenues at least until we are able to license our technology to
third parties. This may result in net operating losses, which will increase
continuously until we can generate an acceptable level of revenues, which we may
never attain. Further, even if we do achieve operating revenues, there can be no
assurance that such revenues will be sufficient to fund continuing operations.
Therefore, we cannot predict whether we will ever be able to achieve
profitability.
The likelihood of success of our business plan must be
considered in light of the problems, expenses, difficulties, complications and
delays frequently encountered in connection with developing and expanding early
stage businesses and the competitive environment in which we operate.
We lack manufacturing capacity and will be dependent on third
party manufacturers.

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

The range of products we intend to commercialize is currently
limited to applications of non-volatile random access memory technologies and
sensors. Reliance on a limited range of products could restrict our ability to
respond to adverse business conditions. If we are not successful in developing
this specific technology, or if there is not adequate demand for such technology
or the market for such technology develops less rapidly than we anticipate, we
may not have the capability to shift our resources to the development of
alternative products. In such case our business would likely be at a significant
disadvantage to other competitors in the field. As a result, the limited range
of products we intend to develop could limit our revenues and profitability.
5
We may not realize income from the licensing of our technologies if our
licensees fail to commercialize the products that incorporate these
technologies.

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

We will be reliant on third parties to supply the raw
materials needed to manufacture our future products. Any reliance on suppliers
may involve several risks, including a potential inability to obtain critical
materials and reduced control over production costs, delivery schedules,
reliability and quality. Any unanticipated disruption to future contract
manufacture caused by problems at suppliers could delay shipment of products,
increase our cost of goods sold and result in lost sales.
In order to commercialize our future products, we will need to establish a
sales and marketing capability.
At present, we do not have any sales or marketing capability
since our technology is currently in the development stage. However if we are
successful in completing our development efforts, we will need to add marketing
and sales personnel who have expertise in the computer technology business. We
must also develop the necessary supporting distribution channels. Although we
believe we can build the required infrastructure, we may not be successful in
doing so if we cannot attract personnel or generate sufficient capital to fund
these efforts. Failure to establish a sales force and distribution network would
have a material adverse effect on our ability to grow our business.
The rights to certain of our patented technologies are shared with a third
party.

Our core technology includes a memory design with the
magnetic bit aligned vertically to the substrate, also referred to herein as our
VEMRAM technology. We acquired ownership of certain patents and patent
applications covering the VEMRAM technology, as well as certain related rights,
pursuant to an Asset Purchase Agreement dated as of December 10, 2000 with
Estancia Limited, also referred to herein as Estancia. However, under the terms
of the Asset Purchase Agreement we have been required to convey back to Estancia
a 40% undivided interest in the VEMRAM patents, as well as the right to
participate in gross profits and royalties from the license or sale of such
patents. This participation right requires us to pay to Estancia 32% of (i) the
gross profit, less expenses to be agreed by the parties, for each license of the
patents sold or otherwise transferred by us and (ii) all royalties received by
us as a result of the license or sale of the patents less reasonable expenses
directly related to the obtaining of such royalties.
We will be reliant upon contractual rights to use certain technologies that
are material to our business.
Certain technologies material to our business are being
developed through collaborative arrangements with the University of Toronto. We
have entered into a number of successive Research Collaboration Agreements with
the University of Toronto under which research and development programs have
been led by a University research team. We have provided funding, equipment and
background technology to these projects. Certain Canadian governmental entities
are also parties to these agreements and have provided additional funding. The
University of Toronto has ownership rights to all intellectual property
developed under these programs. We have no ownership rights but have the right
to obtain exclusive, world-wide and perpetual sub-licenses from the governmental participants to use such intellectual property; the
governmental participants in turn have the right to obtain an exclusive,
world-wide license to such technology directly from the University of Toronto.

6

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

We operate as a development stage company and have historically had only
limited accounting personnel and resources with which to address our internal
control procedures.
In anticipation of the implementation of Rules 13a-15(c) of
the Securities Exchange Act of 1934 as amended (the Exchange Act"), also
referred to as Section 404 of the Sarbanes-Oxley Act of 2002, we engaged, in
2005, an independent firm of external accountants - a different firm from our
independent registered public accounting firm - to complete an in-depth review
of our internal accounting procedures and controls. The firm's evaluation was
only interim, and did not meet the requirements of Rule 13a-15(c). The
independent firm of external accountants made several recommendations which we
reviewed and evaluated at that time.
Our management, with the participation of our Chief Executive
Officer and Chief Financial Officer, evaluated the effectiveness of our
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Exchange Act as of October 31, 2005. Based on management's evaluation
in 2005, our Chief Executive Officer and Chief Financial Officer concluded that,
as of October 31, 2005, our disclosure controls and procedures were (1) not
effective, in that they were not designed to ensure that material information
relating to us is made known to our Chief Executive Officer and Chief Financial
Officer by others within our organization, as appropriate to allow timely
decisions regarding required disclosures, and (2) not effective, in that they
did not ensure that information required to be disclosed by us in our reports
that we file or submit under the Exchange Act is recorded, processed, summarized
and reported within the time periods specified in the SEC's rules and forms.
When our independent registered public accountants audited our financial
statements as of and for the year ended October 31, 2005, they identified
significant deficiencies in our disclosure controls and procedures. Significant
deficiencies noted were that:we lacked certain formalized accounting policies and
  procedures including written procedures for the monthly, quarterly and annual
  closing of our financial books and records;

Since 2005 we have been committed to improving and enhancing
our disclosure controls and procedures. In connection with the deficiencies
described above, we implemented additional controls and procedures commencing in
the fourth quarter of 2005 and continuing thereafter. The additional controls
and enhanced procedures included:

- 

We replaced our previous controller in 2006 with a more
experienced individual. Additionally, we engaged an additional experienced
person in 2006 to supervise and review the work of our controller and to
interact directly with our Chief Financial Officer.

Our CFO has attended professional development courses dealing with SEC
related filings. In 2006 our Board of Directors adopted formal disclosure
controls and policies and appointed a Chief Information Officer to implement
these policies.

7

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When our independent registered public accountants audited
our financial statements as of and for the year-ended October 31, 2007 they
identified a reportable condition relating to our operating controls relating to
our outsourced research and development efforts at the University of Toronto.
They reported that the relationship with the University of Toronto had not been
managed in a manner which would prevent unauthorized charges on a timely basis
which could result in disputed charges and additional costs.

In July 2007 we formed a Technical Advisory Committee consisting of
independent directors and an outside consultant to supervise and to report on
our technical developments on a timely basis.

The foregoing remedial measures did not materially increase
our expenses. With the implementation of the above controls and procedures, we
believe that we have significantly improved our disclosure controls and
procedures and that the risks cited in 2005 have been appropriately reduced as a
result.

The Company believes that it currently maintains appropriate
information systems, procedures and controls to ensure that information used
internally and disclosed internally is complete, accurate, reliable and timely.
The disclosure controls and procedures are designed to provide reasonable
assurance that information required to be disclosed in its various reports are
recorded, processed, summarized and reported accurately.

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

Risk Areas

In February 2008 our ex-Chief Technology Officer filed a claim against the
Company.

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

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

On February 19, 2008, the Company received, via regular mail,
a letter from the Occupational Safety and Health Administration ("OSHA") Branch
of the U.S. Department of Labour. In the letter, OSHA advised that Dr. Kuper was
alleging discriminatory employment practices in violation of Section 806 of the
Corporate and Criminal Fraud Accountability Act of 2002, Title VIII of the
Sarbanes-Oxley Act of 2002.

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

The Company vigorously denies Dr. Kupers claims and believes
that they are malicious and frivolous. It has referred the matter to the Audit
Committee and to the entire Board of Directors for full review and evaluation.
The Company has also engaged legal counsel to fully and appropriately deal with
these allegations. The Company is also conducting a complete investigation with
respect to Dr. Kupers performance during her tenure as Chief Technology
Officer.

The Company and Dr. Kuper, through respective counsel, have
agreed to a mediation of this dispute. The mediation date is currently set for
Monday, April 21, 2008. There can be no assurance that this dispute will be
resolved in mediation. If OSHA ruled against the Company in this matter, the
financial and legal repercussions to the Company could be significant.

8

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Risk Factors Related to Our Common Shares

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

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

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

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

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

With regard to certain matters, we must obtain approval of
our shareholders by way of at least 66

9

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

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

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

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

- 

an acquisition of 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 nonresidents to hold a controlling interest in a U.S. corporation.

10

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

Micromem is incorporated under the laws of the Province of
Ontario. Additionally, a number of our directors and executive officers are
non-residents of the U.S., and all or a substantial portion of the assets of
such persons are located outside the U.S. As a result, should any investor
commence an action in the U.S. against Micromem or its directors or executive
officers, Micromem or its directors or officers, as the case may be, may be able
to insist that any action against them take place in the jurisdiction of the
Province of Ontario. In addition, if an investor were to obtain a U.S. judgment
against Micromem or its directors or executive officers, there is doubt as to
the enforceability of such U.S. judgment in Canada.
We do not anticipate paying dividends.

We have never paid a dividend on our securities and we do not anticipate
paying dividends in the foreseeable future.
We may need to issue additional securities which may cause our shareholders
to experience dilution.

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

Our senior managers and employees are Salvatore Fuda, who
serves as the Chairman of the Board of Directors, Joseph Fuda, who serves as our
Chief Executive Officer, Mr. Steven Van Fleet who serves as our Head of Business
Development and Dan Amadori who serves as our Chief Financial Officer. Dr. Harry
Ruda, and a number of researchers forming the team that he oversees, are key
technical personnel engaged pursuant to research collaboration agreements
between us and the University of Toronto. We have also engaged the services of
an engineering/technical consulting firm, Strategic Solutions Inc. to assist in
converting our development efforts to an industrial fabrication plant. Our
success depends on our ability to retain certain of our senior management and
key technical personnel and our ability to attract and retain additional highly
skilled personnel in the future.
We may be materially affected by global economic and political conditions.

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

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

Our new product research and development is complex and
requires us to investigate and evaluate multiple alternatives, as well as plan
the design and manufacture of those alternatives selected for further
development. Our research and development efforts could be adversely affected by
hardware and software design flaws, product development delays, changes in data
storage technology, changes in operating systems and changes in industry
standards.
The manufacturing of new products involves integrating complex designs and
processes, coordinating with suppliers for parts and components and managing
manufacturing capacities to accommodate forecasted demand. Our failure to obtain
sufficient quantities of parts and components or other manufacturing delays and
constraints could adversely affect our ability to timely introduce new products.
11Our operations may be materially affected by the risks associated with
developing and protecting intellectual property.

We cannot provide any assurance that we will be able to continue to develop
new intellectual property or that we will continue to have it developed for us.
We rely on a combination of U.S. patent, copyright,
trademark, and trade secret laws to protect our intellectual property rights.
Due to financial constraints, we have decided to not file patent and trademark
registration applications with foreign governments and this may expose our
technologies to infringement in foreign jurisdictions.
We enter into confidentiality and non-disclosure agreements relating to our
intellectual property with our employees and consultants.
Despite all of our efforts to protect our intellectual
property rights, unauthorized parties may attempt to copy or otherwise obtain or
use our intellectual property. Monitoring the unauthorized use of our
intellectual property is difficult and we cannot provide assurance that we will
be able to adequately protect our intellectual property in the future.
We may be materially affected if we are unable to attract, retain and
motivate key employees.

Our future success depends, in large part, on our ability to
attract, retain and motivate key employees. We face significant competition for
individuals who possess the skills required to design, develop, manufacture, and
market our technologies. An inability to successfully attract, retain, and
motivate these employees in the future could have an adverse effect on our
future operating and financial performance.
The price of our common shares and volume of our common shares may be
volatile.
Our shareholders may be unable to sell a significant number of our common
shares on the NASD OTC-BB without a significant reduction in the market price of
the shares.
Furthermore, there can be no assurance that we will be able
to meet the listing requirements of, or achieve listing on, any other stock
exchange. The market price of the common shares may be affected significantly by
factors such as fluctuations in our operating results, announcements of
technological innovations or new products by us or our competitors, action by
governmental agencies against us or the industry in general, developments with
respect to patents or proprietary rights, public concern as to the safety of
products developed by us or others, the interest of investors, traders and
others in public companies such as ours and general market conditions. In recent
years, the securities markets in the United States and Canada have experienced a
high level of price and volume volatility, and the market price of securities of
many companies, particularly small capitalization companies, have experienced
fluctuations which have not necessarily been related to the operating
performance, underlying asset values or business prospects of such companies.
There are foreign exchange risks associated with our company.

Because we have historically raised funding in U.S. dollars,
and a significant portion of our costs are denominated in Canadian dollars, our
funding is subject to foreign exchange risks. A decrease in the value of the
U.S. dollar relative to the Canadian dollar could affect our costs and potential
future profitability. We do not currently hold forward exchange contracts or
other hedging instruments to exchange foreign currencies for U.S. dollars to
offset potential currency rate fluctuations.
We attempted on a best efforts basis to make effective a Registration
Statement in connection with Unit private placement financings completed in
fiscal 2005.

We filed a Registration Statement with respect to Unit
Private Placements during fiscal 2005. However, we decided to withdraw the
Registration Statement prior to October 31, 2005. Our Board of Directors has
since approved of the restructuring of the Unit Private Placements as follows:In December 2005, the Unit was revised
  to consist of a common share and a Class A and Class B warrant. The Class A
  warrant expiry date was extended to June 30, 2006 and the Class B warrant
  expiry date remained at December 31, 2006. All of the other terms and
  conditions of the Unit Private Placements remained unchanged.

12

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In June 2006, the expiry date on the
  Class A warrants was extended to September 30, 2006 on the provision that
  one-third of the outstanding Class A warrants were exercised by June 30, 2006.
  A total of 771,850 Class A warrants were exercised on this basis and the
  Company realized proceeds of $485,548. A total of 1,563,484 Class A warrants
  remained outstanding.

In September 2006, the expiry date on the Class A
  warrants were extended to December 31, 2006.

In December 2006, all of the outstanding Class A and
  Class B warrants were re-priced to $0.50 per warrant and the expiry date was
  extended in both cases to March 31, 2007.

In February 2007, the expiry date for all of the
  outstanding Class A and Class B warrants was extended to June 30, 2007.

In April 2007, we extended the expiry date of the
  outstanding Class A and Class B warrants to June 30, 2008 and repriced the
  warrants to $0.40 per warrant. 

All of the other terms and conditions of the Unit Private Placements remain
unchanged.
The Company filed an amended Registration Statement in June
2006 but it was not declared effective by the Securities and Exchange Commission
at that time. In 2007, the Board of Directors decided that the Company had
exercised best efforts to make the Registration Statement effective and that it
would not further pursue this process. On this basis, the related Class A and
Class B warrants, once exercised, will have trading restrictions imposed for a
period of at least 12 months from issue date.
The investors in these Unit private placements could argue that the Company
has not exercised best efforts and seek recission rights on these private
placements.
ITEM 4.
INFORMATION ON THE COMPANYA.     History and Development of Our CompanyMicromem is a corporation formed under the laws of the
Province of Ontario, Canada, with principal executive offices at 777 Bay Street,
Suite 1910, Toronto, Ontario M5G 2E4 (416.364.6513). Micromem was incorporated
on October 21, 1985 as Mine Lake Minerals Inc. We subsequently changed our name
to Avanti Capital Corp. on June 23, 1988, to AvantiCorp International Inc. on
April 30, 1992 and to Micromem Technologies Inc. on January 11, 1999 in
connection with our acquisition of Pageant Technologies Incorporated, also
referred to herein as Pageant International. Our website address is www.micromeminc.com. The information on our
website is not part of this annual report on Form 20-F. We have included our
website address in this document as an inactive textual reference only.
Purchase of Pageant International

On January 11, 1999, we completed the acquisition of 100% of
the capital stock of Pageant Technologies Inc. ("Pageant International"), in
exchange for 32,000,000 of our common shares and warrants for the purchase of an
additional 1,000,000 of our common shares, also referred to herein as the
warrants, representing 88.94% of the outstanding common shares of Micromem
(89.24% assuming exercise of all the shares underlying the warrants). The
acquisition was completed pursuant to an agreement, dated December 7, 1998,
amongst Micromem, as the purchaser, and Ataraxia Corp., as the vendor, and
Pageant International. The warrants were exercisable at CDN $2.00 per share
through January 11, 2000 and thereafter at CDN $2.30 per share through January
12, 2001 on which date the warrants remaining unexercised expired. The total
purchase price for the Pageant International common stock was $30,000,000. The
value of our common shares used to pay the purchase price was determined through
"arm's length" negotiations using as a point of reference the price per common
share of $1.16 on September 23, 1998 less an agreed upon discount.
The primary asset of Pageant International was an undivided
50% interest in patents issued in the United States and Europe, with a
corresponding application in Japan, for nonvolatile random access memory
technology which was, at the time, called MAGRAM and which is, today, called
VEMRAM, referred to herein as the VEMRAMpatents. The VEMRAM technology
also includes certain improvements to the VEMRAM patents, some of which are the
subject of pending patent applications. The undivided 50% interest in the VEMRAM
patents was originally conveyed to Ataraxia Corp. by Estancia Limited, a company
incorporated under the laws of the Turks & Caicos Islands, pursuant to a Joint
Ownership and Licensing Agreement dated September 17, 1997, referred to herein
as the JointOwnership and Licensing Agreement, which Ataraxia Corp.
assigned to Pageant International on October 22, 1997 with the written consent
of Estancia Limited. In addition to the undivided 50% interest in the VEMRAM
patents, under the Joint Ownership and Licensing Agreement, Pageant
International was granted an exclusive worldwide license to develop, manufacture
and sell the VEMRAM technology. The Joint Ownership and Licensing Agreement
required Pageant International to pay Estancia Limited, or its nominee, a
royalty of 40% of the gross profits less expenses agreed by the parties for each
technology license sold. Additionally, Pageant International would be required
to pay Estancia Limited 40% of any per unit royalty received by Pageant
International less properly documented reasonable expenses directly related to
the obtaining of those royalties and as agreed by the parties in writing.
13
The Joint Ownership and Licensing Agreement also provided
that if Pageant International, as approved assignee of Ataraxia Corp., sold the
rights to the VEMRAM technology to a third party not owned or controlled by it,
it would have to pay Estancia Limited 50% of the proceeds from such transaction.
In the event of the sale of all of the VEMRAM technology rights, 50% of the
proceeds would be assigned to Estancia Limited, reflecting its 50% undivided
interest in the technology, rather than 40% reflecting its royalty rights under
the VEMRAM License. Estancia Limited is controlled by John Zammit. Mr. Zammit
has no direct control relationship with us, and our management is not aware of
the existence of an indirect control relationship between us and Ataraxia Corp
and Mr. Zammit.
The acquisition of Pageant International was treated as a
reverse takeover for accounting purposes. In the case of the purchase of Pageant
International by Micromem, the two former shareholders of Pageant International
ended up with a greater number of voting shares than did the pre-acquisition of
our shareholders and therefore were deemed to have apparent control. Our
consolidated financial statements are presented as a continuation of the
financial position and results of Pageant International, even though we remain
the legal parent and Pageant International remains the legal subsidiary. The
primary consequence of the application of this treatment to the acquisition is
that the patent rights were recorded at $100 on the date of the reverse
takeover, the historical value at which they were carried on the Pageant
International balance sheet.
Agreement to Purchase Estancia Limited Interests

On December 10, 2000, we and Pageant International entered
into an Asset Purchase Agreement with Estancia Limited and Richard M. Lienau to
purchase from Estancia Limited and Mr. Lienau all interests in the VEMRAM
patents and the VEMRAM technology and all other rights, interests and
entitlements held by Estancia Limited and Mr. Lienau as set forth in the Joint
Ownership and Licensing Agreement, also referred to herein as the estancia
limited interests.
Under the Asset Purchase Agreement, which closed on March 9, 2001, Pageant
International agreed to pay a purchase price of $50.0 million to Estancia
Limited, as follows:$10.0 million was paid on closing, in
  the form of 2,007,831 of our common shares (or $8.0 million worth of our
  common shares based on the close price on the closing date, being $3.98 per
  share) and $2.0 million in cash;$20.0 million, paid if and when
  either: (a) certification was received from Honeywell Federal Manufacturing &
  Technologies that fully integrated, randomly addressable memory matrices of
  VEMRAM technology met certain stipulated performance standards, or (b)
  Micromem or any of its affiliates executed a definitive agreement for the sale
  or licensing of the VEMRAM technology to an "arm's length" third party for any
  commercial purposes other than testing or evaluation of the technology. The
  $20 million was payable in the form of cash and common shares to be determined
  by Pageant International provided that a minimum of 50% of the $20.0 million
  shall be paid in our common shares valued at the close of trading on the date
  of such certification receipt, sale or licensing; and$20.0 million, paid if and when we or
  any of our affiliates executed a definitive agreement for the sale or
  licensing of any technology (including the VEMRAM technology) owned by us to
  an "arm's length" third party for any commercial purposes other than testing
  or evaluation of the technology; payable in the form of cash and common shares
  to be determined by Pageant International provided that a minimum of 50% of
  the $20.0 million shall be paid in common shares valued at the close of
  trading on the date of execution of the license. 

Notwithstanding the provisions triggering the two $20.0
million payments, also referred to herein as the triggering events, Pageant
International had the right to pay any portion or all of the purchase price at
any time following the March 9, 2001 closing date,through a combination
of cash and common shares, provided that a minimum of 50% of such payment was
through the issuance of common shares.
14At the closing of the Asset Purchase Agreement, on March 9,
2001, Estancia Limited was also required to and, they did in fact enter into a
three year technology development agreement with Pageant International for the
continued services of Mr. Lienau towards the development of VEMRAM technology,
also referred to as the Technology DevelopmentAgreement. The Technology
Development Agreement provided for fees to Estancia Limited of $215,000 per
annum and a budget for the continued development of VEMRAM of up to $500,000 per
annum. Effective April 23, 2002, the Technology Development Agreement was
amended to extend the term of the agreement for an additional eight months
commencing March 9, 2004 through to November 9, 2004, and to provide a reduction
of the monthly fees payable to Estancia Limited to $107,500 during the period
from June to December 2002, and during the extended period.
Because neither of the triggering events occurred prior to
March 9, 2004, Pageant International was deemed to have conveyed a 40% undivided
interest in the VEMRAM patents and granted a 32% gross profits royalty (as
described below), to Estancia Limited, where the proportionate interest was
calculated as the ratio of the portion of the purchase price remaining unpaid
(being $40.0 million) at such date over $50.0 million. Consequently, Pageant
International owns a 60% interest in the VEMRAM patents and is required to pay
Estancia Limited royalties equal to 32% of: (a) the gross profit, less expenses
agreed to by the parties, for each license of the VEMRAM patents sold or
otherwise transferred by Pageant International; and (b) the amount of any unit
royalty received by Pageant International as a result of the license or sale of
the VEMRAM patents less reasonable expenses directly related to the obtaining of
said royalties.
Changes to Our Board of Directors and Management

On January 11, 1999, immediately following our acquisition of
Pageant International, Stephen Fleming, who had been serving as President and
Chief Executive Officer of Pageant Technologies (USA) Inc., was elected to our
Board of Directors to join Salvatore Fuda and Ross McGroarty, who had served as
Directors since 1992 and 1988, respectively. The Board of Directors then elected
Mr. Fuda as Chairman of the Board of Directors, Mr. Fleming as President and
Chief Executive Officer, and Mr. McGroarty, who had been serving as our
President, to serve as our Executive Vice President and Secretary. Subsequently,
on March 18, 1999, Robert Patterson, who had been serving as Chairman of the
Board of Directors and Vice President of Corporate Development of Pageant
Technologies (USA) Inc., was elected to serve as our President and Chief
Executive Officer to replace Mr. Fleming. On November 15, 1999, Antonio Lopes
was appointed Chief Financial Officer. On June 15, 2000, Mr. McGroarty resigned
as Executive Vice-President and Secretary.
At our annual meeting of shareholders held on June 29, 2000,
the following individuals were elected to serve on our Board of Directors:
Andrew Brandt, Stephen Fleming, Salvatore Fuda, Charles Harnick and George
Kennedy. The terms of all previously elected directors ended on such date. The
term of Mr. Lopes' employment as our Chief Financial Officer ended on June 5,
2000 and Mr. Raj Viswanathan was then appointed to serve as our Chief Financial
Officer. The term of Robert Patterson's employment as our President and Chief
Executive Officer having ended, Salvatore Fuda was reappointed as Chairman of
the Board of Directors and he was appointed to serve as our Chief Executive
Officer on June 29, 2000. Also on June 29, 2000, Manoj Pundit was appointed to
serve as our Executive Vice-President and General Counsel. On February 21, 2001,
Dr. Dale Hensley was appointed to serve as Chief Operating Officer of both
Micromem and Pageant Technologies (USA) Inc.
At our annual meeting of shareholders held on March 14, 2001, Andrew Brandt,
Stephen Fleming, Salvatore Fuda, Charles Harnick, George Kennedy, Manoj Pundit
and David Sharpless were elected to serve on our Board of Directors. At a
meeting of our Board of Directors held on March 14, 2001, a resolution was
passed appointing Dale Hensley as a director of Micromem. At a meeting of our
Board of Directors held on February 13, 2002, our Board of Directors accepted
the resignation of Salvatore Fuda as President and Chief Executive Officer of
Micromem due to health reasons. Salvatore Fuda continues to serve as our
Chairman of the Board of Directors. In his place, the Board of Directors
appointed Joseph Fuda to serve as our Director and as President and Chief
Executive Officer. Messrs. Andrew Brandt, Stephen Fleming, Salvatore Fuda,
Charles Harnick, Dale Hensley, George Kennedy, Manoj Pundit, David Sharpless and
Stephen Van Fleet were elected as Directors of Micromem at the annual meeting
held April 30, 2002.
Dr. Dale Hensley's employment as our Chief Operating Officer
was terminated effective as of September 24, 2002. Raj Viswanathan resigned as
our Chief Financial Officer on October 31, 2002 and as a Director of Pageant
Technologies (USA) Inc. on September 26, 2002. Dr. Hensley resigned as a
Director of Pageant Technologies (USA) Inc. on September 26, 2002 and as a
Director of Micromem effective October 9, 2002. Antonio Lopes was reappointed as
our Chief Financial Officer on November 1, 2002.
15At our annual meeting of shareholders held on June 6, 2003,
Salvatore Fuda, Stephen Fleming, Charles Harnick, George Kennedy, Andrew Brandt,
Manoj Pundit, Joseph Fuda, David Sharpless and Steven Van Fleet were elected to
serve on our Board of Directors.
At our annual meeting of shareholders held on June 25, 2004,
Salvatore Fuda, Stephen Fleming, Charles Harnick, George Kennedy, Andrew Brandt,
Manoj Pundit, Joseph Fuda, David Sharpless and Steven Van Fleet were elected to
serve on our Board of Directors. Dan Amadori replaced Antonio Lopes as our Chief
Financial Officer on the annual meeting date.
Dr. Cynthia Kuper joined us as Chief Technology Officer on
January 28, 2005 after serving as acting Chief Technology Officer since
September 2004. At our annual meeting of shareholders held on June 27, 2005,
Salvatore Fuda, Stephen Fleming, Charles Harnick, George Kennedy, Andrew Brandt,
Manoj Pundit, Joseph Fuda, David Sharpless and Steven Van Fleet were elected to
serve on our Board of Directors.
On November 12, 2005 Mr. Larry Blue was appointed to serve on our Board of
Directors.
At our annual meeting of shareholders held on June 26, 2006,
Salvatore Fuda, Andrew Brandt, Joseph Fuda, David Sharpless, Steven Van Fleet,
Oliver Nepomuceno and Larry Blue were elected to serve on our Board of
Directors. Messrs. Salvatore Fuda, Joseph Fuda, Manoj Pundit, Dan Amadori and
Ms. Cynthia Kuper continued to hold the officer roles as described above.
At our Annual Meeting of shareholders on Friday, July 27,
2007 Salvatore Fuda, Andrew Brandt, Joseph Fuda, David Sharpless, Steven Van
Fleet, Oliver Nepomuceno and Larry Blue were all re-elected to serve on our
Board of Directors. Messrs. Salvatore Fuda, Joseph Fuda, Manoj Pundit, Dan
Amadori and Ms. Cynthia Kupers roles as officers of the Company were continued.
On November 18, 2007, pursuant to the terms of the employment agreement
previously executed, the Company served four months notice to terminate the
employment contract of Cynthia Kuper as Chief Technology Officer.
As discussed in "Item 3 - Risk Factors" on Page 8 of this
report, Dr. Kuper has filed a claim against the Company in February 2008 citing
wrongful dismissal and making a number of allegations against the Company. The
Company vigorously denies Dr. Kupers claims which it considers malicious and
frivolous. The dispute has been referred to the Companys Audit Committee and
legal counsel has been engaged to advise the Company of its options and an
appropriate response. April 21, 2008 has been set for mediation of this dispute.
On February 1, 2008, Manoj Pundit resigned as Vice President and Secretary of
the Corporation.
The Company has not made any capital expenditures in 2007, 2006 or 2005; in
2004 capital expenditures were $4,567.B.     Business OverviewWe are engaged in the development of memory technology having
the characteristic of non-volatility, which is the ability to retain information
after power has been shut off. Our technology is based on our ability to use
magnetic materials in combination with a sensor to record the "state of
magnetization." Each magnetic element stores one bit of data based on its
ability to alternate between states of magnetic polarization, which states are
determined by a sensor. Our technology represents "1"s and "0"s by the different
polarization of magnets. For example, a magnet oriented north/south is a "1" and
a magnet oriented south/north is a "0". The magnetic field strength and
direction do not decay when power is switched off, and, therefore, the memory is
non-volatile.
In June 2002, our management determined that our research and
development required restructuring due to financial constraints, in order to
continue the development of magnetic non-volatile memory technology.
Accordingly, we commenced restructuring our operations in July 2002 to achieve
an orderly transition of our research and development program. As part of this
restructuring, Pageant Technologies (USA) Inc., a subsidiary of Pageant
International, closed its Lee's Summit, Missouri facility by August 31, 2002 and
we downsized our head office in Toronto as of October 31, 2002. Both we and
Pageant Technologies (USA) Inc. terminated Dr. Dale Hensley as Chief Operating
Officer effective as of September 24, 2002. Pageant Technologies (USA) Inc.
terminated all of its other employees by October 31, 2002. Dr. Hensley resigned
from our Board of Directors on October 9, 2002 and as a Director of Pageant
Technologies (USA) Inc. on September 26, 2002. In September 2002, Pageant
Technologies (USA) Inc. terminated its agreement with Townsend Capital Inc.
pursuant to which Pageant Technologies (USA) Inc. occupied the offices,
laboratory and clean room it had occupied at Summit Technology Campus, Lee's
Summit, Missouri.
Until August 2002, we were pursuing the development of our two unique memory
technologies:
16

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

a memory design with the magnetic bit aligned
  vertically to the substrate, known as VEMRAM. 

Since July 2002, we have participated in further magnetic
memory technology research and development pursuant to our collaboration with
the University of Toronto and Dr. Harry Ruda and have launched additional
development initiatives in 2007. Refer to "Recent Developments  Research and
Development Efforts" on Page 22 of this report.
We have a portfolio of patents and patent applications protecting the
technology that we are developing.
Industry Background
The semiconductor memory industry is principally driven by
the requirements of the computing industry. The nature of the memory
manufacturing industry is that it is capital intensive, cyclical, rapidly
changing and it depends significantly on patent protection.
The semiconductor industry is intensely competitive. Both
low-density and high-density nonvolatile memory products are manufactured and
marketed by major corporations possessing worldwide wafer manufacturing and
integrated circuit production facilities and by specialized product companies.
Our Company's Technology
The various characteristics of the our technology can be
better understood by describing the three basic types of memory used in present
day computers, Random Access Memory (RAM), Read Only Memory (ROM), and secondary
storage devices such as floppy and hard disks. The three types of memory are
described below:
Random Access Memory (RAM) is memory that can be
both read and written randomly, which means that its storage locations can be
accessed in any order. Thus, a computer using RAM can find and go directly to
the selected location rather than performing a sequential search. Semiconductor
RAM is usually the primary memory associated with the computer's central
processing unit (CPU), the computational unit of the computer responsible
for interpreting and executing instructions. However, RAM is volatile
which means that all stored information vanishes once the power supply is
removed and must be restored from a secondary storage device each time the power
is resumed.
Two typical examples of RAM are Dynamic Random Access Memory
and Static Random Access Memory. Dynamic Random Access Memory (DRAM) uses
integrated circuits containing capacitors to achieve significant storage
capacity and speed. DRAM can be written and read in the speed range of less than
100 nanoseconds. DRAM has a major drawback in that its capacitors lose their
charge over time and therefore information contained in DRAM must be continually
refreshed. This means that, on average, DRAM must stop operations every 16-30
milliseconds and restore all of the data it contains or the data will disappear.
During this refresh time, the processor has no access to the information being
refreshed. Static Random Access Memory (SRAM) differs from DRAM in that
it stores information in a logic circuit referred to as a flip-flop, rather than
in a capacitor. SRAM memory does not need to be refreshed while the power is on,
but also loses its information once the power is turned off.
17
Read Only Memory (ROM), like RAM, can be read
randomly, but cannot be written randomly. Unlike RAM, however, it is nonvolatile
and therefore does not lose its information when a computer's power is cut off.
ROM is typically employed to store vital program information required during the
first moments after a computer is powered on. It may be used for such purposes
as forcing system test routines, directing the processor to input/output devices
or for controlling access to certain computer subsystems such as hard drives. EPROMs (erasable programmable read-only memory) and EEPROMs
(electrically erasable read-only memory) are read only memories that can be
erased and rewritten, but must be written "en masse," rather than at the
individual word level. "Flash" memory is a form of EEPROM that is widely used
today in such devices as cell phones, modems and personal digital assistants.
The drawbacks to Flash memory are that write times are slower, the number of
read/write cycles are limited and there is a requirement for significantly
higher power to store data.
Secondary Storage Devices include CDs, which
are light and portable and are written and read by a motor driven mechanical
drive. They normally have a storage capacity in the low megabyte range and are
non-volatile and can be both written and read. However, since they are serial
(as opposed to parallel) devices, they are considerably slower than RAM.
Our technology combines the use of semi-conducting
ferromagnetic metals with a sensor. When the magnetization of the magnetic
material changes direction, the sensor senses the change in direction and
records a "0" or "1". In this fashion, a bit is created that is non-volatile and
based on magnetic properties. We are developing this form of magnetic random
access memory for low-density applications, such as RFID, that can benefit from
non-volatile data storage.
Competition

We are aware of others conducting research, development and commercialization
in the magnetic non-volatile memory area. These include IBM Research (San Jose,
California), Ovonyx, Inc. (Troy, Michigan), Hewlett-Packard (Palo Alto,
California), Honeywell (Plymouth, Minnesota), Motorola (Phoenix, Arizona) and
Freescale Semiconductor.
Two main centers of MRAM research are at IBM and
Infineon. IBM and Infineon have alternative MRAM technologies based on the giant
magneto resistance principle. This giant magneto resistance principle primarily
consists of two ferromagnetic layers separated by a conductive nonmagnetic
interlayer. The electrical resistance is high in the absence of an external
magnetic field. However, an applied external field forces the initially
anti-parallel magnetization in the coupled films into parallel alignment and the
resistance drops. The high or low resistance determines the data storage state.
Magnetic tunnel junction cells, as they are known, have similar sandwiched
structures but the interlayer is insulating instead of conducting. In contrast
to giant magneto resistance structures, in which the sense current flows
parallel to the layers, the current in magnetic tunnel junction flows
perpendicularly to the layers of the stack.
Even though we cite these companies as our competitors, because they develop MRAM technology, it should be noted that our technology is significantly
different with respect to the device architecture and mechanism of functioning.
Recent DevelopmentsResearch and Development Efforts
On October 24, 2002, we entered into a two-year research
collaboration agreement, also referred to herein as the U of T Research
Collaboration Agreement, with Materials and Manufacturing Ontario, the
University of Toronto and Dr. Harry Ruda, Chair Professor in Nanotechnology.
Through the collaboration, we have continued our involvement in the research and
development of magnetic memory technology, carried out by a highly skilled
research team headed and assembled by Dr. Ruda. Under the agreement, we and
Materials and Manufacturing Ontario have each provided CDN $272,000 of funding
and a combined CDN $544,000 was used to cover the operating expenses of the
research collaboration over a term of two years. Under the agreement, we
maintain our ownership of our portfolio of patents and intellectual property to
date.
On November 1, 2002, we entered into an Infrastructure
Agreement with the University of Toronto to fund the assembly of a facility for
research and development and fabrication of magnetic memory which involves the
storage of memory using magnetization. Under the terms of the agreement, we
agreed to contribute $249,463 (CDN $360,000) in cash to fund the direct costs of
magnetic memory files. The payment schedule to the University of Toronto was as
follows:

$83,154 (CDN $120,000) on execution of agreement,
  which was paid;

$83,154 (CDN $120,000) at end of the two months
  following November 1, 2002, which was paid; and

$83,155 (CDN $120,000) at end of the four months following
  the November 1, 2002, which was paid.

18

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On December 10, 2002, we entered into a Collaborative
Research Agreement with Communications and Information Technology Ontario, the
University of Toronto and Dr. Harry Ruda. Under the terms of the agreement, over
a period of two years, we were required to contribute $63,750 (CDN $92,000) in
cash and $67,632 (CDN $97,600) of in-kind contribution. Communications and
Information Technology Ontario was required to contribute $215,430 (CDN
$308,000) for research into "High Density Magnetic Memory Device Development".
In consideration of such contribution, Communications and Information Technology
Ontario received a royalty based on revenues received from the sale of products
incorporating intellectual property developed under this collaboration agreement
for the remaining life of patents issued in connection with such intellectual
property.
On March 1, 2003, we entered into an Equipment Transfer
Agreement with the University of Toronto. Under the terms of this agreement, we
conveyed equipment having an estimated value of $200,000 (CDN $297,600) to the
University of Toronto for incorporation into the University's magnetic memory
facility for the research and development and fabrication of magnetic memory.
On November 12, 2003, we entered into a second two-year
research collaboration agreement, also referred to herein as the Second U of T
Research Agreement, with Materials and Manufacturing Ontario and the University
of Toronto. Through the collaboration, we continued our involvement in the
research and development of magnetic memory technology carried out by a highly
skilled research team headed by Dr. Harry Ruda. Under this agreement, we
committed to providing $56,130 (CDN $81,000) per year in cash and $30,770 (CDN
$44,400) per year of in kind contributions. Materials and Manufacturing Ontario
committed to providing $58,900 (CDN $85,000) in cash. The combined cash
contributions of both us and Materials and Manufacturing Ontario of $230,060 (CDN
$332,000), was designated to cover the operating expenses of the research
collaboration over a term of two years. Materials and Manufacturing Ontario's
funding of $117,800 (CDN $170,000) is paid directly to the University of
Toronto. Under the agreement, we maintained our ownership of our portfolio of
patents and intellectual property that were developed prior to or outside of the
scope of the agreement.
Each research collaboration agreement contemplates a number
of milestones under a comprehensive research plan. The research was carried out
from research facilities at the University of Toronto. We have the first right
to an exclusive and perpetual worldwide sub-license for all uses of the
technology developed under the collaboration (except that the University of
Toronto may use the technology for educational and research purposes). Materials
and Manufacturing Ontario and Communications and Information Technology Ontario,
as the case may be, were entitled to receive a royalty on our manufacturing
revenues from the sale of products incorporating the technology developed under
the collaboration. A separate royalty would be negotiated in the future on
revenues to be generated by us from sub-licenses of the technology developed
under the collaboration.
Each of Materials and Manufacturing Ontario and
Communications and Information Technology Ontario is one of four Ontario Centres
of Excellence established by the Ontario government to promote commercial
research partnerships between universities and industry. The Ontario Centres of
Excellence program is funded by the Ministry of Enterprise, Opportunity and
Innovation and is part of the Provincial government's $2 billion investment in
Ontario's knowledge economy. On April 1, 2004, Materials and Manufacturing
Ontario, Communications and Information Technology Ontario and two other Centres
of Excellence (CRESTech and PRO) merged to become OCE Inc., a non-for-profit,
member based corporation.
In June 2005, we signed a license agreement with the
University of Toronto and OCE Inc. whereby OCE Inc. released us from all future
claims that existed under previous research collaboration and infrastructure
agreements, and we acquired the exclusive worldwide license to exploit the
related technology developed at the University of Toronto. We committed to a
schedule of royalty payments on net revenues from related license revenues
subject to a maximum cumulative payment of CDN $500,000. Thereafter we can buy
out all remaining obligations under this agreement by the payment of an
additional CDN $500,000 or the sum of the prior two years of royalty payments at
the time of the buyout. We are currently in discussion with foundries for
commercial prototyping. We are interested in gallium arsenide, silicon and
radiation-hardened silicon. We are in discussions with foundries in these areas.
In mid-2004 we hired Dr. Cynthia Kuper as a consultant and in
January 2005, we entered into an employment agreement with Dr. Cynthia Kuper for
her services as Chief Technology Officer. The agreement had a term of two years
and could be terminated by either party at any time with 4 months notice. The
remuneration stipulated in the agreement was $260,000 per year and 300,000
options, each option enabling her to purchase one common share at $0.80. These
options expired unexercised on March 22, 2007. In addition, Dr. Kuper was
previously granted 100,000 options each of which entitle her to purchase one
common share for $0.68 in connection with her role as acting Chief Technology
Officer since September 2004. These options expired on December 31, 2005 and
were replaced by 100,000 options each of which entitle her to purchase one
common share for $0.68 and which will expire if unexercised on May 2, 2008.
19
In September 2006, we extended the employment agreement with
Dr. Cynthia Kuper for an additional two years commencing in January 2007 on the
same terms, conditions and cancellation provisions as reflected in the original
contract. Dr. Kuper was granted an additional 200,000 stock options in August
2006, each option enabling her to purchase one common share for $0.80 and which
will expire if unexercised on May 2, 2008.
A number of initiatives were undertaken in 2005  2006 in our
attempt to develop strategic relationships with potential developments partners.
We hired Strategic Solutions Inc., a California-based engineering and technical
consulting firm, in mid-2006 to initiate discussions with these potential
development partners and to identify industrial foundries with whom the Company
might further develop industrial versions of the memory cell and Hall cross
sensor prototype devices which Dr. Ruda and his UofT team were advancing in
their laboratory.
In mid-2007 the Company formed a Technical Advisory Committee
consisting of two outside directors, Larry Blue and Steven Van Fleet, to take
forward the continuing development work, to ensure an effective conversion of
our R&D efforts from the university laboratory to a fabrication plant and to
spearhead discussions with potential development partners.
In order to ensure that the Company was obtaining an
independent perspective on the priorities and efficacies of its go forward
development plans, it also engaged the services of Mr. Henry Dreifus, and his
company, Dreifus Associates Limited, Inc. ("DAL"), an Orlando, Florida-based
consulting firm with substantial experience and dealings in the technology and
defense sectors in the United States and elsewhere. DAL has had previous
assignments in the MRAM space in which the Company operates.
In 2007, research efforts continued at the UofT and the UofT was successful
in delivering a functioning prototype of our MRAM device to be used for future
testing in a foundry.
We engaged a California-based foundry, Global Communication
Services ("GGS"), in September 2007 to begin additional testing and to commence
the development of a multi-bit array device. These efforts continue as of this
date and the Company has announced several milestone achievements since
September 2007.
In October 2007 Dr. Kuper provided a current status report on her activities
over the previous eight months since she last reported to the Board of Directors
in February 2007.
In November 2007 the Company announced that Steven Van Fleet
was appointed as Head of Business Development and charged with the
responsibilities of supervising the ongoing work being completed by Strategic
Solutions Inc. and by the GCS foundry. On November 18, 2007 the Company served
Dr. Kuper with the required four months written notice of termination of her
employment agreement without cause.
Dr. Kuper has filed a claim against the Company in February
2008 citing wrongful dismissal and making a number of allegations against the
Company. The Company vigorously denies Dr. Kupers claims which it believes are
malicious and frivolous. The dispute has been referred to the Companys Audit
Committee and legal counsel has been engaged to advise the Company of its
options and an appropriate response. April 21, 2008 has been set for mediation
of this dispute. See Item 3-"Risk Factors".
The Company continues to report successful milestone results
in the foundry testing underway at GCS. The Company has scheduled a number of
meetings and discussions with potential strategic development partners and its
Technical Advisory Committee is currently planning the ongoing R&D initiatives
for 2008 with SSI, GCS and other parties.
Recent Developments  Equity Financing Transactions
In August 2003, we completed unit private placements to two
private investors. Under the private placements, we received $162,500 as
subscription proceeds for the sale and issue of 2,031,250 units. Each unit
consists of one common share and one Series A warrant. Each Series A warrant
entitles the holder to purchase one common share and one Series B warrant for
$0.08 per unit until expiry 12 months from the date of issue. Each Series B
warrant entitles the holder to purchase one additional common share for $0.08
per share until expiry 12 months from the date of issue. In August 2004, the
investors exercised 2,031,250 Series A warrants and we thus issued 2,031,250
common shares and 2,031,250 Series B warrants and realized proceeds of $162,500.
In February 2005, the investors exercised 1,406,250 Series B warrants and we
thus issued 1,406,250 common shares and realized proceeds of $112,500. In August
2005, our investors exercised the remaining 625,000 Series B warrants and we
thus issued 625,000 common shares and realized proceeds of $50,000.
20In December 2003, we completed unit private placements to two
Canadian private investors pursuant to prospectus and registration exemptions
set forth in applicable securities laws. Under the private placements, we
received $33,000 as subscription proceeds for the sale and issue of 300,000
units. Each unit consists of one common share and one Series A warrant. Each
Series A warrant entitles the holder to purchase one common share and one Series
B warrant for $0.11 per unit until expiry 12 months from the date of issue. Each
Series B warrant entitles the holder to purchase one additional common share for
$0.11 per share until expiry 12 months from the date of issue. In October 2004,
the private investors exercised 200,000 Series A warrants and we thus issued
200,000 common shares and 200,000 Series B warrants and realized proceeds of
$22,000. In November 2004 and February 2005 the investors exercised the balance
of their Series A and B warrants and we thus issued 400,000 common shares and
realized proceeds of $44,000.
In December 2003, we also completed a unit private placement
to one Canadian private investor pursuant to prospectus and registration
exemptions set forth in applicable securities laws. Under the private placement,
we received $40,000 as subscription proceeds for the sale and issue of 500,000
units. Each unit consists of one common share and one Series A warrant. Each
Series A warrant entitles the holder to purchase one common share and one Series
B warrant for $0.08 per unit until expiry 12 months from the date of issue. Each
Series B warrant entitles the holder to purchase one additional common share for
$0.08 until expiry 12 months from the date of issue. In June 2004, the private
investor exercised the Series A warrants and we thus issued 500,000 common
shares and 500,000 Series B warrants and realized proceeds of $40,000. In
September 2004, the private investor exercised the Series B warrants and we thus
issued 500,000 common shares and realized proceeds of $40,000.
In December 2004, we completed a unit private placement to
several U.S. investors pursuant to prospectus and registration exemptions set
forth in applicable securities laws. Under the private placement, we received
$617,000 as subscription proceeds for the sale and issue of 1,028,334 units.
Each unit consists of one common share and one Series A warrant. Each Series A
warrant entitles the holder to purchase one common share and one Series B
warrant for $0.60 per unit until expiry 12 months from the date of issue. Each
Series B warrant entitles the holder to purchase one additional common share for
$0.60 per share until expiry 24 months from the date of issue. In December 2005,
we revised the terms of this unit private placement. The unit was revised to
consist of one common share, one Series A warrant expiring on June 30, 2006 and
one Series B warrant expiring on December 31, 2006. The remaining terms of the
warrants are unchanged.
In January 2005, we completed a unit private placement to one
Canadian investor pursuant to prospectus and registration exemptions set forth
in applicable securities laws. Under the private placement, we received $10,500
as subscription proceeds for the sale and issue of 14,000 units. Each unit
consists of one common share and one Series A warrant. Each Series A warrant
entitles the investor to purchase one common share and one Series B warrant for
$0.75 per unit until expiry 12 months from the date of issue. Each Series B
warrant entitles the holder to purchase one additional common share for $0.75
per share until expiry 12 months from the date of issue. In December 2005, we
revised the terms of this unit private placement. The unit was revised to
consist of one common share, one Series A warrant expiring on June 30, 2006 and
one Series B warrant expiring on December 31, 2006. The remaining terms of the
warrants are unchanged.
In January 2005, we arranged a unit private placement to
several investors pursuant to prospectus and registration exemptions set forth
in applicable securities laws. Under the private placement we received $845,000
by April 1, 2005 as subscription proceeds for the sale of 1,300,000 units. Each
unit consists of one common share and one Series A warrants. Each Series A
warrant entitles the holder to purchase one common share and one Series B
warrant for $0.65 per unit until expiry 12 months from the issue date. Each
Series B warrant entitles the holder to purchase one additional common share for
$0.65 per share until expiry 12 months form the date of issue. In December 2005,
we revised the terms of this unit private placement. The unit was revised to
consist of one common share, one Series A warrant expiring on June 30, 2006 and
one Series B warrant expiring on December 31, 2006. The remaining terms of the
warrants are unchanged.
Our Board of Directors subsequently again revised the terms of the Series A
and Series B warrants relating to the Unit private placements completed in
December 2004 and January 2005 as follows:In June 2006, the expiry date on the
  Class A warrants was extended to September 30, 2006 on the provision that
  one-third of the outstanding Class A warrants were exercised by June 20, 2006.
  A total of 771,850 Class A warrants were exercised on this basis and the
  Company realized proceeds of $485,948. A total of 1,563,484 Class A warrants
  remained outstanding.

In September 2006, the expiry date on the Class A
  warrants were extended to December 31, 2006.

21

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In January 2007, all of the outstanding Class A and
  Class B warrants were re-priced to $0.50 per warrant and the expiry date was
  extended to June 30, 2007.

In April 2007, all of the outstanding Class A and
  Class B warrants were repriced to $0.40 per warrant and the expiry date was
  extended to June 30, 2008. 

The Company filed an amended Registration Statement in June 2006 which was
not finalized with the SEC. In 2007, the Company decided to suspend its efforts
to have the Registration Statement declared effective.
On June 8, 2005, we entered into a financial advisory
services agreement with an arm's length entity and, as consideration, issued a
warrant to purchase 1,000,000 of our common shares. The warrant entitled the
holder to purchase our common shares at $0.70 per share. The warrant expired
unexercised in June 2006.
We entered into a second financial advisory services
agreement on June 22, 2005 with an arm's length entity and, as consideration,
issued warrants to purchase 800,000 of our common shares. The warrant entitles
the holder to purchase our common shares at $0.70 per share. The warrants
originally were to expire in December 2006. Prior to the original expiry date,
the Board of Directors extended the expiry date to March 31, 2007. These
warrants were subsequently extended to June 30, 2008 and repriced to $0.40 per
warrant.
In May 2006, the Company completed a Unit private placement
financing with two investors pursuant to prospectus and registration exemptions
set forth in applicable securities laws. The Company received $75,000 as
subscription proceeds for the sale and issue of 150,000 units. Each unit
consists of one common share and one Series A warrant. Each Series A warrant
entitles the investor to purchase one common share for $0.50 until expiry in
April 2007.
In October 2007, the Company completed a series of private
placement financings with 8 arms length investors pursuant to prospectus and
registration exemptions set forth in applicable securities laws. The Company
received a total of $716,230 subscription proceeds and issued a total of
1,577,368 common shares.
On September 16, 2007 the Company secured a 30-day bridge
loan from an arms length investor in the amount of $505,000. The Company paid a
5% financing fee to arrange the bridge loan and issued 250,000 common share
purchase warrants to acquire common shares at a strike price of $0.50 per share.
The Company recorded a non-cash expense of $85,484 with respect to these
warrants, calculated in accordance with the Black Scholes option-pricing model.
The warrants have a one-year term and expire in September 2008 if unexercised.
The bridge loan was repaid in October 2007.
Between November 2007- February 2008 the Company completed a
series of private placement financings with arms length investors pursuant to
prospectus and registration exemptions set forth in applicable securities laws.
The Company received a total of $1,066,727 as subscription proceeds and issued a
total of 2,117,110 common shares.
The Company secured a 30 day bridge loan of $200,000 from an
arms length investor in January 2008. The interest rate on the bridge loan was
4% due in 30 days. As additional consideration, the Company issued 100,000
common share purchase warrants at a strike price of $0.60 per share. The loan
was repaid in February 2008.
Patents and Trademarks
We believe that protection of our intellectual property is
important to our ability to generate revenues from our technology in the future.
We have both issued patents and pending patent applications and also entered
into confidentiality and other agreements with third parties and our employees
to protect our intellectual property and trade secrets. We intend to continue to
actively pursue the protection of our intellectual property. Our management will
determine from time to time the jurisdictions where protection will is
appropriate. This determination will be based on a number of factors including
the state of development of our technology, the importance of a particular
market for our technology, the costs of pursuing patent protection in a
jurisdiction and our financial position at the time.
Our magnetic memory patent portfolio comprises separate series of patents and
patent applications: those covering technologies developed pursuant to research
collaborations with the University of Toronto and OCE Inc.; and those covering
what is referred to as the VEMRAM and HEMRAN technologies.
22Environmental Matters
We are subject to various environmental protection
regulations imposed by the government in the jurisdiction where we conduct our
development work. We are not aware of any current or pending environmental
protection laws or regulations that would have a material impact on our capital
expenditure requirements or competitive position.
C.     Organizational Structure
We have a wholly-owned subsidiary, Pageant International,
which was incorporated under the laws of the Turks & Caicos Islands and
continued to Barbados on May 25, 2001. Pageant International has a wholly-owned
subsidiary, Pageant Technologies (USA) Inc., a corporation incorporated in the
State of Utah. We have a second wholly-owned subsidiary, Memtech International
Inc, incorporated under the laws of the Bahamas, which in turn has a
wholly-owned subsidiary, Memtech International (USA) Inc., a corporation
incorporated in the State of Delaware.
We had a third wholly-owned subsidiary, Micromem Technologies
B.V., incorporated under the laws of the Netherlands on January 16, 2001, which
had a subsidiary, Micromem Technologies S.p.A.,a corporation
incorporated under the laws of Republic of Italy on January 25, 2001. Micromem
Technologies S.p.A. was dissolved pursuant to the laws of Italy on December 27,
2002. Micromem Technologies B.V. was dissolved pursuant to the laws of the
Netherlands on August 11, 2003.
Pageant International and Pageant USA are sometimes jointly
referred to in this Form 20-F as "Pageant." Micromem, Pageant International,
Pageant Technologies (USA) Inc., Memtech International Inc. and Memtech
International (USA) Inc. are sometimes collectively referred to as Micromem in
this Form 20-F.
23
D.     Property, Plant and Equipment

We maintain our corporate headquarters in Toronto, Ontario, Canada. We occupy
a space consisting of 3,987 square feet of commercial office space pursuant to a
lease that expires in 2010.
The research and development facilities at the University of
Toronto are comprised of equipment, tools, a clean room and laboratory space.
All facilities and equipment are owned by the University of Toronto and are
being made available to the research and development team under our research
collaboration agreements with the University of Toronto and an infrastructure
agreement between us and the University of Toronto.
ITEM 4A.
UNRESOLVED STAFF COMMENTS

Not Applicable.
ITEM 5.
OPERATING AND FINANCIAL
REVIEW AND PROSPECTS
This section of the Form 20-F has been prepared to provide a
more substantive discussion on our business and to assist the reader in
analyzing the consolidated financial statements for the year ended October 31,
2007. This discussion and analysis of financial condition and results of
operations should be read in conjunction with the consolidated financial
statements and related notes in this report, which are prepared in accordance
with Canadian GAAP and are stated in United States dollars. These principles are
also in conformity in all material respects with U.S. GAAP as described in Note
16 to our 2007 consolidated financial statements.
I. OVERVIEW
The Company: We are a development stage Company that
currently operates in a single segment as a developer of non-volatile magnetic
memory technology (the "Technology"). Non-volatile memory implies the ability to
retain information after power has been shut off. Our Technology is based on our
ability to use magnetic materials in combination with a sensor to record a state
of magnetization as a mechanism of data storage.
A.     Operating Results
The following table sets forth certain selected financial information of our
company:Selected statement of operations and deficit information
(all amounts in United States dollars)
2007
    2006
    2005
    2004
    2003Interest and other
    income
    $2,586
    $(9,930)
    $(8,703)
    $(4,746)
    $(20,121)Loss for the year
    2,811,378
    4,058,180
    4,035,483
    2,314,298
    1,767,965Loss per share-basic and diluted
    0.04
    0.06
    0.07
    0.04
    0.04Selected balance sheet information(all amounts in United States dollars)
2007
    2006
    2005
    2004
    2003Working capital
    (deficiency)
    $(1,531,855)
    $(448,923)
    $(74,831)
    $34,685
    $100,670Property and equipment
    -
    -
    -
    2,925
    3,768Total Assets
    329,232
    465,440
    728,375
    474,234
    350,138Shareholders equity (deficiency)
    (1,531,855)
    (448,923)
    (74,831)
    37,610
    104,438
                    
                  
                
              
            
          
        
      
    
  

24

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Fiscal 2007 Compared to Fiscal 2006

The Company remains in pre-revenue mode. We reported interest income totaling
$2,586 in 2007, compared to $9,930 in 2006.
Administration costs were consistent between years  in 2007 the Company
reported $223,177 of administration costs (2006: $268,241). These costs relate
to public company filings, office support costs, Annual Meeting costs,
communication costs etc.
Professional, management and consulting fees totaled
$1,250,984 in 2007 (2006: $1,017,859). The major components of the costs in 2007
include legal fees pertaining to intellectual property filings of approximately
$220,000, other legal expenses totaling $26,000 and audit and filing-related
expenses totaling approximately $100,000. Management and consulting fees
incurred in 2007 totaled $309,000 paid to the Chairman (2006: $133,600),
$116,000 to each of the President and the CFO (2006: $72,000 in each case) and
$266,000 paid to the Companys CTO (2006: $266,000). The Company has paid a
total of approximately $100,000 to other consultants during the year (2006:
$86,000).
Wages and salaries totaled $111,109 in 2007 (2006: $172,169). There are three
employees on payroll and in 2007 we recovered a portion of their payroll costs
from other companies for whom services were provided.
Research and development costs in 2007 totaled $682,331
(2006: $368,969). In 2007, the Company incurred incremental costs associated
with the services provided by SSI of approximately $300,000 as compared to
approximately $50,000 in the prior year. We incurred approximately $330,000 with
respect to work performed at the University of Toronto, in 2007, comparable to
the costs incurred in 2006.
Travel and entertainment costs totaled $141,200 in 2007
(2006: $195,607). In 2006, the Company incurred considerable travel expenses
pertaining to our Chief Technology Officer, these costs were not replicated in
2007. Other travel costs incurred in 2007 relate to costs incurred with respect
to visits to the California-based foundry, travel costs associated with the
attempted European financing and costs associated with a preliminary due
diligence visit to a European-based potential strategic partner.
Stock compensation expense in 2007 totaled $269,216. The
Company issued a total of 775,000 stock options in 2007 and 250,000 common share
purchase warrants associated with the bridge loan financing that it completed in
September 2007. The total non-cash costs associated with these options and
warrants was calculated in accordance with the Black Scholes option-pricing
model. In 2006, the comparable expense was $2,058,580, relating primarily to a
total of 4.6 million stock options granted to officers, directors and employees
in July 2006.
The Companys functional currency is the U.S. dollar. It has
ongoing exposure to Canadian dollar denominated expenses. Given fluctuations in
the prevailing exchange rates from time to time, the Company reports foreign
exchange gains or losses relating to the translation of its statements into U.S.
dollars. The foreign exchange loss in 2007 was $135,947 reflecting the
significant appreciation of the Canadian dollar against the U.S. dollar in 2007.
The foreign exchange gain in 2006 was $13,295.
Fiscal 2006 Compared to Fiscal 2005

Professional, management and consulting fees declined to
$1,017,859 in 2006 from $1,303,662 in 2005. The Company continues to incur
annual cash expense of approximately $260,000 with respect to our CTO and
$133,600 with respect to our Chairman. We reduced the compensation of our
President and our CFO to $65,000 each in 2006 from $165,000 each in 2005. The
Company also incurred less legal fees in 2006 as the level of contractual and
intellectual property filings were reduced.
Research and development expenses totaled $368,969 in 2006
compared to $362,141 in 2005. In 2006 the expense included approximately
$212,000 in payments to the University of Toronto, $50,000 in payments to
Professor Harry Ruda and additional expenses with respect to the California
based engineering consulting firm that was engaged in 2006 with respect to the
Company's commercialization efforts. In 2005 the expenses related totally to the
University of Toronto.
Travel and entertainment expenses were $195,607 in 2006
compared to $169,739 in 2005. The Company continues to incur approximately
$60,000 per year in travel costs pertaining to our CTO. In 2006 we incurred
costs relating to a mid-year trip to Japan for three of our Board members who
visited Omron Inc. Additionally, we incurred travel costs associated with a new
engineering consulting firm engaged in 2006.
25Administration costs were $268,241 in 2006 compared to
$320,383 in 2005. We recovered more of these costs from other related companies
who share the Micromem office space in 2006. Additionally, we reduced our
investor relations expenses in mid-2006 which was previously provided on a fixed
monthly fee basis.
Stock compensation expense was $2,058,560 in 2006 compared to
$1,721,742 in 2005. In 2006 the Company awarded a total of 5,050,000 stock
options to directors, officers and employees as compared to 4,700,000 options
granted in 2005. The stock compensation expense as reported has been calculated
in accordance with the Black Scholes option-pricing model.
The exercise of stock options by directors, officers and
employees continues to be a source of financing to the Company. In 2006 a total
of 3,550,000 options were exercised and the Company realized cash proceeds of
$1,064,980; in 2005 a total of 1,820,000 stock options were exercised and the
Company realized proceeds of $553,600.
We also raised the following cash in 2006:
a.
$485,548 from the exercise of
outstanding warrants by investors (2005: $206,500 from the exercise of 1,806,875
warrants).
b.
$75,000 from a private place
financing (2005: $472,500 from private placement financings).
Fiscal 2005 Compared to Fiscal 2004

In fiscal 2005, we established certain goals and milestones
relating to our technology. This included further development and optimization
of our 1 bit prototype device and initial work on the development of an array.
Additionally, we set the objective of initiating discussions with potential
joint development partners. Finally, we set the objectives of consolidating our
patent position and improving our financial reporting capabilities and internal
controls.
In June 2005, we completed the renegotiation of our license agreement with
the University of Toronto and the Ontario Centres of Excellence and signed the
new license agreement.
We expanded our patent portfolio with 6 new filings in 2005.
We continue to work with the University of Toronto and successfully developed
prototype applications for commercialization in future.
We hired additional accounting staff and retained independent firm of
Chartered Accountants to conduct an independent review of internal control and
reporting procedures.
To accommodate this activity and additional expense, we raised approximately
$2.3 million of additional capital in 2005.
We had no operating revenues in either year. The only income reported in 2005
was interest income of $8,703, as compared to $4,746 in 2004.
Operating costs and expenses increased from $2,319,044 in 2004 to $4,044,186
in 2005. The significant changes included:
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.

$133,600 of
deferred compensation expense relating to our Chairman of the Board of
Directors, as compared to an expense of nil 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 nil deferred compensation in 2004
during which we hired a CFO in mid-year);

26

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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; and

vi.

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.

a.

Wages and
salaries 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.

b.

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.

c.

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.

d.

Research and
Development expenses were $362,141 in 2005 as compared to $378,410 in 2004. This
increase reflects several payments made by the Company to the UofT in
furtherance of our development efforts. These payments include:

i.

Cost share
payment for EMK proposal number PN01069 in the aggregate amount of $75,000.

ii.

A payment of
$81,000 relating to proposal EE40103.

iii.

A
direct payment from the Company to the UofT in the amount of $250,000 Canadian
funds (approximately $200,000 U.S. funds at the then prevailing exchange rates)
reflecting partial payment of a sponsored research agreement pursuant to the
terms of our license agreement with the UofT.

We reported a net loss of $4,035,483, or $0.07 per share, in 2005, as
compared to a net loss of $2,314,298, or $0.04 per share in 2004.

Fiscal 2004 Compared to Fiscal 2003

In both 2004 and 2003 we continued to develop our memory
technology. We signed Research Collaboration Agreements with Materials and
Manufacturing Ontario in 2002 and 2003 and with Communications and Information
Technology Ontario, the University of Toronto and Dr. Harry Ruda in 2002. We
entered into an Infrastructure Agreement with the University of Toronto in 2002.
In 2004, we continued these business relationships and met our requirements
under the terms of these agreements.

In 2004, the research milestones that were contemplated in
the various agreements were met on the timetable originally contemplated. In
August 2004, we filed a provisional patent application with respect to certain
of these initiatives. Additionally, we entered into negotiations with Dr.
Cynthia Kuper to serve as our acting Chief Technology Officer. Dr. Kuper joined
us in this capacity subsequent to October 31, 2004.

We had no operating revenue in either year. The only income
reported in 2004 was interest income of $4,746, as compared to interest income
of $20,121 in 2003.

Operating Costs and Expenses increased from $1,788,086 in
2003 to $2,319,044 in 2004. The significant differences included:

- 

27

---

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 our
  acting Chief Technology Officer who became employed as the Chief Technology
  Officer subsequent to the year-end.
  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 United States 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. 

We reported a net loss of $2,314,298 for 2004, or $0.04 loss per share as
compared to a loss of $1,767,965 for 2003, or $0.04 loss per share.

|Unaudited quarterly financial information |          |              |                  
|----------------------------------------- | -------- | ------------ | -----------------
|(all amounts in United States dollars)    |          |              |                  
|Quarter ended                             | Total    | Net Loss     | Loss Per share   
|                                          | Revenues |              | Basic and diluted
|October 31, 2007                          | $2,166   | ($1,328,604) | 0.02             
|July 31, 2007                             | 420      | (600,100)    | 0.01             
|April 30, 2007                            | -        | (524,906)    | 0.005            
|January 31, 2007                          | -        | (357,766)    | 0.005            
|October 31, 2006                          | $7,687   | ($2,359,560) | 0.04             
|July 31, 2006                             | 1,024    | (530,370)    | 0.01             
|April 30, 2006                            | -        | (333,768)    | 0.005            
|January 31, 2006                          | 1,219    | (834,482)    | 0.005            
|                                          |          |              |                  
|October 31, 2005                          | 7,070    | (1,380,802)  | 0.025            
|July 31, 2005                             | 1,043    | (1,726,931)  | 0.035            
|April 30, 2005                            | 301      | (474,227)    | 0.005            
|January 31, 2005                          | 289      | (453,523)    | 0.005            
|                                          |          |              |                  
|October 31, 2004                          | 117      | (429,289)    | 0.01             
|July 31, 2004                             | 450      | (1,621,839)  | 0.03             
|April 30, 2005                            | 3,658    | (70,876)     | 0.00             
|January 31, 2004                          | 521      | (192,294)    | 0.00             

28

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B.     Liquidity and Capital Resources
Liquidity
We are a development stage company. We currently have no cash
flow from operations and will have none until we are in a position to either
license or directly produce and sell products utilizing our memory technology.
We currently have no lines of credit in place and must obtain
equity financing from investors and from persons who hold outstanding options
and warrants in order to meet our cash flow needs until we can generate
revenues. At October 31, 2007, we had approximately $245,000 cash on hand and
our monthly cash expenses approximate $150,000. Since October 31, 2007, we have
raised an additional $1,138,727 through the exercise of stock options and
private placements.
We have granted to our directors, officers and other
employees a number of options to purchase shares at prices that are at or above
market price on the date of grant. None of the optionees has any obligation to
exercise their options and there can be no guarantee that we will realize any
funds from these options.
Capital Resources
We had no commitments for capital expenditures as of October 31, 2007 or
2006.
In March 2001, we and our wholly owned subsidiary, Pageant
International, completed the Asset Purchase Agreement to acquire the VEMRAM
patents, VEMRAM technology and related assets. The total consideration payable
in respect of the purchased assets under the Asset Purchase Agreement was $50
million in the form of cash and shares. Of this amount, $10 million was paid at
closing through a cash payment of $2.0 million and the issuance by us of
2,007,831 of our common shares valued at $3.98 per share. The balance of $40
million was to have been payable in two equal amounts of $20 million each upon
achievement of certain stipulated milestones provided that a minimum of 50% of
each $20 million payment would be in the form of our common shares. None of the
stipulated milestones were met and therefore no amounts were paid toward the
balance of the $40 million purchase price. See "Information on the Company  4.
History and Development of the Company".
As no further payments toward the purchase price were made to
Estancia Limited under the Asset Purchase Agreement, Pageant International was
deemed to have conveyed back, as of March 9, 2004, a percentage of the VEMRAM
patents and to have granted a gross profits royalty to Estancia Limited such
that Pageant International would remain holding a 60% interest in the VEMRAM
patents and it would be required to pay a 32% gross profits royalty to Estancia
Limited in respect of the VEMRAM technology.
Critical Accounting Policies

Our significant accounting policies are set forth in Note 3
to our consolidated financial statements, which should be read in conjunction
with management's discussion of our critical accounting policies and estimates
set forth below.
Our financial statements are prepared in conformity with
Canadian GAAP, which in our case, conform in all material respects with U.S.
GAAP. Management is required to make estimates and assumptions which can affect
the reported balances. In determining estimates of net recoverable amounts and
net realizable values, or whether there has been a permanent impairment in
value, we rely on assumptions regarding applicable industry performance and
prospects, as well as general business and economic conditions that prevail and
are expected to prevail. Assumptions underlying asset valuations are limited by
the availability of reliable comparable data and the uncertainty of predictions
concerning future events.
Accounts recorded in foreign currency have been converted to
United States dollars as follows:
  Current Assets and Current Liabilities
  at the prevailing exchange rates at the end of the year;
  Other Assets at historical rates;
  Revenues and expenses are translated at
  the average monthly exchange rate per quarter which rate approximates the rate
  of exchange prevailing at the transaction dates; and
  

  29

---

Gains and losses resulting
  from the fluctuation of foreign exchange rates are included in the
  determination of income. 

Until October 31, 2004, for all awards of employee
stock-based compensation granted after January 1, 2002, we recognized employee
stock-based compensation costs under the intrinsic value-based method and
provided proforma disclosure of the impact on net income and earnings per share
as if the fair value-based method has been applied. Effective November 1, 2004,
we have adopted the fair value method of accounting for employee stock-based
compensation costs. Accordingly, the closing deficit at October 31, 2004 and in
prior periods has been restated for the effect of the stock-based compensation
costs that we had incurred to that date, which expense previously was disclosed
on a proforma basis. The stock-based compensation expense for options granted
during the fiscal years ending October 31, 2005 - 2007 has been reflected as an
expense in the consolidated statement of operations.
We are a development stage company. Research and development costs are
expensed in the period incurred.

30

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Commitments

|Summary of commitments:                                                    | Date executed:             
|-------------------------------------------------------------------------- | ---------------------------
|A. Research collaboration agreements                                       |                            
|(1) Materials and Manufacturing Ontario                                    | October 24, 2002 (expired) 
|(2) University of Toronto                                                  | November 1, 2002 (expired) 
|(3) Communications and Information Technology
    Ontario                  | December 10, 2002 (expired)
|(4) Revised Licensed Agreement  University of
    Toronto                 | June 2005                  
|                                                                           |                            
|B. Technology Development Agreement, Pageant
    Technologies Incorporated | March 14, 2001             
|                                                                           |                            
|C. Operating Leases                                                        | 2007  2010                
|D. Consulting and Employment Contracts                                     |                            
|(1) Chairman of the Board of Directors                                     | May 29, 2005               
|(2) Chief Technology Officer                                               | January 2007*              

* Four months termination notice served on November 18, 2007

A summary of our financial commitments as of October 31, 2007 is as below:

|                                 | Payments due by period
|-------------------------------- | ----------------------
|                                 | Total                 
|                                 |                       
|                                 |                       
|Long term debt obligations       | -                     
|                                 |                       
|Capital Lease obligations        | -                     
|                                 |                       
|Operating lease obligations      | 309,000               
|                                 |                       
|Purchase obligations             | -                     
|                                 |                       
|Management contracts             |                       
| Chairman                       | 316,000               
| CTO                            | 97,000                
|                                 |                       
|Research collaboration agreement | -                     
|All other                        | 202,000               
|Total:                           | 924,000               

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.

31

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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.
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;
a.
For all other
sublicenses of the rights granted herein to a non-affiliate, the University of
Toronto shall receive 20% of any Net Fees and/or Net Royalties that shall be
received by us in respect of such sublicenses; and
b.
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 4 1.1.
or 4 1.2 shall be waived by the University of Toronto.
32

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As a condition to entering the license agreement, we have
agreed that we will enter into a further research agreement with a funding
commitment of no less than CDN $500,000 to continue the further research and
development of inventions and our intellectual property. In August 2005, we made
an initial payment of $250,000 and, subsequent to October 31, 2005, we made the
second payment of $250,000 under the terms of this further research agreement.
We believe that there are substantial market opportunities
available to commercialize our technology in conjunction with strategic
partners, and we are currently pursuing such opportunities. We plan to complete
our research initiatives and enter into agreements with strategic partners so as
to commercialize our Technology under licensing and other arrangements.
B.     Technology Development Agreement:
On March 14, 2001, our subsidiary, Pageant International,
entered into a three-year technology development agreement with Estancia Limited
and Mr. Lienau to continue the development of the technology. Under the terms of
the agreement, Pageant International committed to pay Estancia Limited $215,000
per year, payable on a monthly basis in arrears, and committed to incur
expenditures in connection with development expenses of up to a maximum of
$500,000 per agreement year.
On April 23, 2002, the technology development agreement was
amended to extend its term for an additional eight-month period through November
2004. The go-forward payments were renegotiated as $62,707 between the months of
May and October 2002, $197,086 during fiscal 2003 and $143,330 during fiscal
2004.
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:

|2008  2010 (annually) | $127,000
|---------------------- | --------

D.     Consulting and employment contracts:

1.     
On May 29, 2005, we entered into a new employment agreement with the Chairman of
the Board of Directors. The agreement commenced on January 1, 2005 and expires
on September 30, 2009. Under the terms of the agreement, the Chairman of the
Board of Directors has been retained to provide certain management services to
us. We have agreed to provide compensation based on a percentage of the increase
of the market capitalization on a year-over-year basis commencing as of December
31, 2005. This compensation is subject to a minimum annual amount of $150,000
Canadian funds or (approximately $158,000 U.S. funds at current exchange rates).
At our option, we can pay either cash or issue common shares as compensation
providing that the cumulative maximum number of shares that we can issue under
the agreement is 2,000,000 common shares. At December 31, 2007 $309,000 of cash
compensation for the 2007 fiscal year has been provided for (2006: $133,600).

2.     
In January 2005, we entered into an employment agreement with an arm's length
individual, Dr. Kuper, for her services as our Chief Technology Officer. The
agreement extended for 2 years with a cancellation clause which could be
executed by us at any time with 4 months notice. The base remuneration
stipulated in the contract was $260,000 per year. We also granted the Chief
Technology Officer 100,000 options to purchase our common shares exercisable at
$0.68 per share which expired on December 31, 2005, 300,000 options to purchase
our common shares exercisable at $0.80 per share which expired on March 22, 2007
and 100,000 options to purchase our common share at $0.68 per share which option
expires on May 2, 2008.

In September 2006 we extended the employment agreement with
Dr. Kuper for an additional two years commencing in January 2007 on the same
terms, conditions and cancellation provisions as reflected in the original
contract. Dr. Kuper was granted additional 200,000 stock options in August 2006
each option enabling her to purchase one common share for $0.80 and which will
expire if unexercised on May 2, 2008.

33

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On November 18, 2007 we provided the required four months written notice to
terminate the agreement without cause.
As discussed in Item 3-Risk Factors on Page 8 of this
report, Dr. Kuper has filed a claim against the Company in February 2008 citing
wrongful dismissal and making a number of allegations against the Company. The
Company vigorously denies Dr. Kupers claims which it considers malicious and
frivolous. The dispute has been referred to the Companys Audit Committee and
legal counsel has been engaged to advise the Company of its options and an
appropriate response. April 21, 2008 has been set for mediation of this dispute.
Contingencies:
A.    
We have agreed to indemnify our directors and officers and certain of our
employees in accordance with our By-laws.  We maintain insurance policies
that may provide coverage against certain claims.
B.     
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.
C.    
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.
D.    
The former CTO has filed a claim against the Company. See "Item 3 - Key
Information - Risk Factors" on page 8 of this report.
Translation of Foreign Currencies
Our functional and reporting currency is the United States
dollar. Accounts recorded in foreign currency have been converted to United
States dollars as follows:
Monetary assets and liabilities are translated at exchange
rates at the consolidated balance sheet dates;
  Non-monetary assets are translated using the historical rate
of exchange in effect at the translation dates;
  Revenues and expenses are translated using the 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
We are a development stage company. Research and development
costs are expensed in the period incurred.
Our research and development activities have been related
primarily to research and development of a magnetic random access memory device
through research collaboration agreements. Our research and development expenses
for the year ended October 31, 2007 were $682,331, October 31, 2006 were
$368,969, for the year ended October 31, 2005 were $362,141, for the year ended
October 31, 2004 were $378,410, for the year ended October 31, 2003 were
$490,914 and for the year ended October 31, 2002 were $1,601,624.
34

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Trend Information
The digital memory industry and, more broadly, the
semiconductor industry, have historically been characterized by wide
fluctuations in demand for and supply of semiconductors and memory technologies.
Prior experience has shown that restructuring of operations, resulting in
significant restructuring charges, may become necessary if an industry downturn
were to occur.
Our prospects for revenues are dependent upon the successful
completion of our technology development and the incorporation of any technology
that may be developed under or pursuant to our research collaboration
agreements.
Off-Balance Sheet Arrangements
We are not party to any material off-balance sheet arrangements. In addition,
we have no unconsolidated special purpose financing or partnership entities.
Transactions With Related Parties, Directors & Officers

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

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

35

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ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A.     Directors and Executive Officers
The Directors, Executive Officers and other key personal of Micromem as at
October 31, 2007 are set forth below:

|Name              | Age | Position                                           
|----------------- | --- | ---------------------------------------------------
|                  |     |                                                    
|Salvatore Fuda    | 72  | Chairman of the Board of Directors                 
|Joseph Fuda       | 47  | President, Chief Executive Officer and
    Director
|Manoj Pundit      | 43  | Secretary and Vice President                       
|Andrew Brandt     | 69  | Director                                           
|David Sharpless   | 57  | Director                                           
|Steven Van Fleet  | 53  | Director                                           
|Larry Blue        | 51  | Director                                           
|Dan Amadori       | 56  | Chief Financial Officer                            
|Cynthia Kuper     | 35  | Chief Technology Officer                           
|Oliver Nepomuceno | 39  | Director                                           

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

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

Manoj Pundit previously served as Micromem's Executive
Vice President and General Counsel and joined the Board of Directors in March
2001. He served as a director of Micromem until June 28, 2006. He did not stand
for reelection to the Board at that time. He has also been a partner, since
December 1996, at Chitiz Pathak LLP (and predecessor firms), a Toronto law firm.
Mr. Pundit holds a LL.M. in Taxation from Osgoode Hall Law school and a LL.B.
and B.Sc. (Math) from the University of Alberta. Mr. Pundit served as Vice
President and Secretary of Micromem Technologies Inc. from June 29, 2006 until
he resigned from this position in February 2008.

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

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

36

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Steven Van Fleet currently serves as a technology
consultant to a number of companies. He was the principal of the R&V Group LLC,
an RFID business consulting and technology development company until 1996.
Between 1999-2003 he served as Program Director for the Silent Commerce/Smart
Packaging Initiative at International Paper Company. From January 1999 to
November 1999, he was Program Director for Process and Product Uniformity and
from March 1996 to December 1998 he was the Director for Control Systems
Development at International Paper in Cincinnati, Ohio. He is also presently on
the Board of Overseers for the Massachusetts Institute of Technology Auto ID
Center. Mr. Van Fleet has been a director of Micromem since 2002.
Larry Blue is President of Hi-G-Tek Inc. a privately-held
technology company based in Maryland. Previously he was the Vice President and
General Manager of Symbol Technologies Inc. and was appointed to the Micromem
Board of Directors on November 7, 2005. Previously Mr. Blue had senior
management roles with Hughes Network Systems and with IBM in Research Triangle
Park.
Dan Amadori has served as Chief Financial Officer of Micromem
since June 2004. He has also served as Chief Financial Officer of Leader Capital
and Echo Power Generation Inc. since June 2004. He served as a Director and
Chair of the Audit Committee of Ontex Resources between September 2003 and March
2005. He is President of Lamerac Financial Corp., a financial advisory firm and
has held that position since October 1988. Mr. Amadori is a Chartered Accountant
and holds an MBA from the Ivey School of Business.
Cynthia Kuper has served as our Chief Technology Officer
since January 2005 until four months notice was served in November 2007 to
terminate her employment agreement. Prior thereto, she served as our acting
Chief Technology Officer since September 2004. Dr. Kuper has a B.S. in Chemistry
and a Ph.D. in Physical Chemistry from Temple University. In 2000 she founded a
nanotechnology start-up company, Versilant Nanotechnologies. In that same year,
Dr. Kuper founded K1 Consulting, a consulting firm providing services to
start-ups, medium sized and large conglomerate companies and investors in
nanotechnology.
On November 18, 2007 the Company served four months notice of
termination without cause of the employment agreement with Dr. Kuper. Dr. Kuper
has filed a claim against the Company in February 2008 citing wrongful dismissal
and making a number of allegations against the Company. The Company vigorously
denies Dr. Kupers claims which it considers malicious and frivolous. The
dispute has been referred to the Companys Audit Committee and legal counsel has
been engaged to advise the Company of its options and an appropriate response.
April 21, 2008 has been set for mediation of this dispute. See Item 3-Key
Information "Risk Factors" on page 8 of this report.
Oliver Nepomuceno has served as a director of Micromem
since June 26, 2006. He is a resident of Switzerland and continues to serve as a
Financial Advisor and as a member of the Board of Directors of Intel Trust, a
private wealth management company located in Switzerland.
There are no arrangements or understandings between any
director and any other person pursuant to which the director was selected as a
director or executive officer. Each director holds office until the next annual
meeting of shareholders or until his or her successor is elected or appointed,
unless his or her office is earlier vacated according to the provisions of our
By-laws or the
Business Corporations Act (Ontario).
Other than a father/son relationship between Salvatore Fuda (father) and
Joseph Fuda (son), there is no family relationship between any director or
executive officer and any other director or executive officer.
37

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B.     Compensation

|                                    | Annual Compensation | Long-Term Compensation |                
|----------------------------------- | ------------------- | ---------------------- | ---------------
|                                    |                     |                        |                
|Name and
    Principal
    Position | Year                | Salary
    (US$)       | Bonus
    (US$)
|Joseph Fuda                         | 2007                | 72,000                 | 50,000         
|Chief                               | 2006                | 65,000                 | -              
|Executive                           | 2005                | 81,000                 | -              
|Officer 1                           | 2004                | -                      | -              
|                                    | 2003                | -                      | -              
|                                    |                     |                        |                
|Salvatore                           | 2007                | -                      | -              
|Fuda,                               | 2006                | -                      | -              
|Chairman of                         | 2005                | -                      | -              
|the Board of                        | 2004                | -                      | -              
|Directors                           | 2003                |                        |                
|Former Chief                        |                     |                        |                
|Executive                           |                     |                        |                
|Officer and                         |                     |                        |                
|President 1                         |                     |                        |                
|Manoj Pundit,                       | 2007                | -                      | -              
|Executive                           | 2006                | -                      | -              
|Vice                                | 2005                | -                      | -              
|President and                       | 2004                | -                      | -              
|General                             | 2003                | -                      | -              
|Counsel 4                           |                     |                        |                
|Andrew                              | 2007                | -                      | -              
|Brandt                              | 2006                | -                      | -              
|Director                            | 2005                | -                      | -              
|                                    | 2004                | -                      | -              
|                                    | 2003                | -                      | -              
|Stephen                             | 2005                | -                      | -              
|Fleming                             | 2004                | -                      | -              
|Director                            | 2003                | -                      | -              
|Charles                             | 2005                | -                      | -              
|Harnick                             | 2004                | -                      | -              
|Director                            | 2003                | -                      | -              
|George A                            | 2005                | -                      | -              
|Kennedy                             | 2004                | -                      | -              
|Director                            | 2003                | -                      | -              

38

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*

|David        | 2007 | -       | -      | - | -          | - | - | -      
|------------ | ---- | ------- | ------ | - | ---------- | - | - | -------
|Sharpless    | 2006 | -       | -      | - | 300,000 13 | - | - | -      
|Director     | 2005 | -       | -      | - | -          | - | - | -      
|             | 2004 | -       | -      | - | 400,000 2  | - | - | -      
|             | 2003 | -       | -      | - | 400,000 3  | - | - | -      
|             | 2002 | -       | -      | - | -          | - | - | -      
|Steven Van   | 2007 | 30,000  | -      | - | 350,00014  | - | - | -      
|Fleet        | 2006 | 86,000  | -      | - | 300,000 13 | - | - | -      
|Director     | 2005 | 24,000  | -      | - | 300,000 9  | - | - | -      
|             | 2004 | -       | -      | - | 300,000 2  | - | - | -      
|             | 2003 | -       | -      | - | 300,000 3  | - | - | -      
|Dan Amadori  | 2007 | 72,000  | 50,000 | - | -          | - | - | -      
|Chief        | 2006 | 65,000  | -      | - | 400,000 13 | - | - | -      
|Financial    | 2005 | 74,000  | -      | - | 450,000 9  | - | - | 100,000
|Officer 8    | 2004 | 24,000  | 6,000  | - | 300,000 2  | - | - | 6,000  
|             |      |         |        |   |            |   |   |        
|Cynthia      | 2007 | 260,000 | -      | - | -          | - | - | -      
|Kuper        | 2006 | 260,000 | -      | - | 300,000 15 | - | - | -      
|Acting Chief | 2005 | 260,000 | -      | - | 300,000 10 | - | - | 10,000 
|Technology   | 2004 | -       | -      | - | 100,000 7  | - | - | -      
|Officer6     |      |         |        |   |            |   |   |        
|             |      |         |        |   |            |   |   |        
|Antonio      | 2005 | -       | -      | - | -          | - | - | -      
|Lopes        | 2004 | -       | -      | - | -          | - | - | 14,000 
|Former Chief | 2003 | -       | -      | - | 300,000 3  | - | - | 20,789 
|Financial    |      |         |        |   |            |   |   |        
|Officer 8    |      |         |        |   |            |   |   |        
|Larry Blue   | 2007 | -       | -      | - | -          | - | - | -      
|Director     | 2006 | -       | -      | - | 300,000 13 | - | - | -      
|             | 2005 | -       | -      | - | 300,000 12 | - | - | -      

39

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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
expire on May 5, 2008 if unexercised.
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 had
an exercise price of $0.68 and expired on December 31, 2005 unexercised.
8.
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 on May 27, 2010.
10.
Each option
entitles the holder to purchase one of our common shares at a price of $0.80.
These options expired on March 22, 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 on June 16, 2009.
12.
Each option
entitles the holder to purchase one of our common shares at a price of $0.60 per
share prior to expiry on November 24, 2009.
13.
Each option
entitles the holder to purchase one of our common shares at a price of $0.80 per
share prior to expiry on July 6, 2011.
14.
Each option
entitles the holder to purchase one of our common shares at a price of $0.36 per
share prior to April 15, 2012.
15.
200,000 options
entitle the holder to purchase one of our common shares at a price of $0.80 per
share, and 100,000 options at $0.68 per share. These options expire on May 2,
2008 if unexercised.
The aggregate direct compensation paid or accrued on behalf
of all other directors, as a group during 2006 and 2005 was zero. None of the
non-employee directors have agreements with us that provide for benefits upon
termination of service.
40

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Our Board of Directors compensation policy is as follows.
Directors do not receive cash compensation for serving as directors. Instead
they have been awarded stock options over the years. These options are set at
each annual meeting and approved by the shareholders.
We have adopted a stock option plan. Options are offered to
directors, executive officers and employees to purchase our common shares at an
exercise price equal to or above the market price for the common shares at the
date that the options are granted. 5,300,000 options were granted during 2003
and were exercised in 2004. In 2004, 7,150,000 options were granted and were
outstanding at October 31, 2004. These options have vested and are exercisable
at $0.30 per share. In 2005, 1,800,000 of these options were exercised and in
2006 3,550,000 of these options were exercised. In January 2007, 1,000,000 of
these options were exercised.
120,000 options were granted in 2004 at an exercise price of
$0.68. In 2005, 20,000 of these options were exercised and at December 31, 2005
the remaining 100,000 options expired.
In 2005, we issued 2,500,000 options exercisable at $0.72,
1,800,000 options exercisable at $0.65, 100,000 options exercisable at $0.91 and
300,000 options exercisable at $0.80. These options are fully vested and expire
in 5 years if unexercised.
In 2006, we issued 300,000 options at $0.60, 50,000 options at
$0.72 and 4,600,000 options at $0.80. These options are fully vested and expire
in 5 years if unexercised.
In 2007, we issued 350,000 options at $0.36 which expire in
April 2012 if unexercised; 150,000 options at $0.70 which expire on May 31, 2008
if unexercised; 50,000 options at $0.50 which expire in May 2012 if unexercised
and  225,000 options at $0.60 which expire in October 2012 if unexercised. These
options are fully vested.
C.     Board of Directors Practices
Our Board of Directors meets as a full Board of Directors on
an as required basis during the fiscal year. In 2007 our Board of Directors met
on February 25, 2007 and on April 5, July 27 and October 11, 2007.
Our Audit Committee of the Board of Directors has met on a
quarterly basis during fiscal 2007 for the purpose of approving the quarterly
financial statements. In addition, our Audit Committee has received periodic
reports from management.
All matters pertaining to our financing, contractual
arrangements and Board of Directors and management compensation are approved by
the Board of Directors. All Board of Directors meeting minutes and directors
resolutions are maintained by us on an up-to-date basis.
The Audit Committee approved an independent review of our
internal reporting and control procedures, which review was completed during
fiscal 2005 by an independent firm of chartered accountants. Their report has
been submitted and management has now implemented certain recommendations under
the supervision of the Audit Committee.
In July 2007, the Board of Directors approved the formation
of a Technical Advisory Committee. Two independent directors were named to the
committee and an arm's length industry consultant was contracted to also sit on
the committee. The committee's mandate is to supervise and coordinate the
ongoing technical developments, initiatives and discussions in which the Company
is currently engaged.
The members of the Board of Directors are appointed to a
one-year term at our annual meeting.
Audit Committee

The Board of Directors has appointed an Audit Committee
consisting of three independent directors. The members of the Audit Committee
are Andrew Brandt, Oliver Nepomuceno and David Sharpless (Chairman) each of whom
shall serve in such capacity until our next annual meeting. The Audit Committee
is responsible for the integrity of our internal accounting and control systems.
The committee receives and reviews our financial statements and makes
recommendations thereon to the Board of Directors prior to its approval by the
full Board of Directors. The Audit Committee communicates directly with our
external auditors in order to discuss audit and related matters whenever
appropriate.
Compensation Committee
The Board of Directors also intends to appoint a Compensation
Committee. Our executive compensation will be administered by the Compensation
Committee which will meet on executive compensation matters as and when
required. Currently these matters are handled by the Audit Committee.
41

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D.     Employees
We have seven officers and employees of which three serve in
a management capacity and four serve in an administrative capacity. This
includes a Chairman of the Board of Directors, a Chief Executive Officer and
President, a Chief Financial Officer, and four support staff, all of whom work
from our executive offices in Toronto, Canada. All research and development is
outsourced to several different groups.
We served four months notice to termination without cause our
employment agreement with Dr. Cynthia Kuper on November 18, 2007. Dr. Kuper has
filed a claim against the Company in February 2008 citing wrongful dismissal and
making a number of allegations against the Company. The Company vigorously
denies Dr. Kupers claims which it considers malicious and frivolous. The
dispute has been referred to the Companys Audit Committee and legal counsel has
been engaged to advise the Company of its options and an appropriate response.
April 21, 2008 has been set for mediation of this dispute. See Item 3-Key
Information "Risk Factors" on page 11 of this report.
We consider our relations with our employees to be
satisfactory. We had 8 employees as of October 31, 2007 and 2006; we had 7
employees as of October 31, 2005.A. Share Ownership

|NAME                 | SHARES OWNED | OPTIONS HELD | OPTION   | EXPIRY DATE | % OF TOTAL1
|-------------------- | ------------ | ------------ | -------- | ----------- | -----------
|                     |              |              | EXERCISE |             |            
|                     |              |              | PRICE    |             |            
|Joseph Fuda          | 51,780       | 1,800,000    | $0.72    | 6/30/2010   |            
|Chief Executive      |              | 900,000      | $0.80    | 7/6/2011    | 3.82%      
|Officer and Director |              |              |          |             |            
|Salvatore Fuda       | 2,755,2922   | 1,800,000    | $0.65    | 6/16/2009   |            
|Chairman of the      |              | 1,000,000    | $0.80    | 7/6/2011    | 8.1%       
|Board of Directors   |              |              |          |             |            
|and Director         |              |              |          |             |            
|Manoj Pundit         | 2,478        | 100,000      | $0.80    | 3/15/2008   | 0.14%      
|Executive Vice-      |              |              |          |             |            
|President, General   |              |              |          |             |            
|Counsel and          |              |              |          |             |            
|Director             |              |              |          |             |            
|Andrew Brandt        | 100,000      | 300,000      | $0.80    | 7/6/2011    | 0.57%      
|Director             |              |              |          |             |            
|David Sharpless      | 100,000      | 300,000      | $0.80    | 7/6/2011    | 0.57%      
|Director             |              |              |          |             |            
|Steven Van Fleet     | -            | 350,000      | $0.36    | 4/15/2012   | 1.28%      
|Director             |              | 300,000      | $0.72    | 5/27/2010   |            
|                     |              | 300,000      | $0.80    | 7/6/2011    |            
|Dan Amadori          | 254,000      | 50,000       | $0.91    | 6/17/2009   | 1.29%      
|Chief Financial      |              | 200,000      | $0.72    | 5/27/2010   |            
|Officer              |              | 400,000      | $0.80    | 6/30/2010   |            
|Cynthia Kuper        | -            | 100,000      | $0.68    | 5/2/2008    | 0.86%      
|Chief Technology     |              | 200,000      | $0.80    | 5/2/2008    |            
|Officer              |              |              |          |             |            
|Jason Baun           | -            | 50,000       | $0.91    | 6/17/2009   | 0.43%      
|Investor Relations   |              | 50,000       | $0.63    | 12/2/2010   |            
|                     |              | 200,000      | $0.80    | 7/6/2011    |            
|Larry Blue           | -            | 300,000      | $0.60    | 11/3/2009   | 0.85%      
|Director             |              | 300,000      | $0.80    | 7/6/2011    |            
|Oliver Nepomuceno    | 900,000      | 300,000      | $0.80    | 7/6/2011    | 1.73%      
|Director             |              |              |          |             |            
|Stephen Fleming      | 200,000      | 100,000      | $0.30    | 7/18/2009   | 0.43%      
|Director of          |              |              |          |             |            
|Subsidiary           |              |              |          |             |            

1

2

42

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ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. Major Shareholders

No shareholder holds greater than 5% of the common shares
outstanding. As of the date of this 20-F report approximately 73% of the issued
and outstanding common shares are held by Canadian investors and approximately
27% of the issued and outstanding shares are held by U.S. investors.
B. Other Related Party Transactions
During the fiscal year ended October 31, 2007, we paid
$15,000, as compared to $40,000 in 2006, to a law firm in which Manoj Pundit, an
officer of the Company (until February 2008 when he resigned), is a partner.
C. Interests of Experts and Counsel

Manoj Pundit, a partner of Chitiz Pathak LLP, who serves as
legal counsel to us, holds 2,478 common shares and options to purchase 100,000
common shares of Micromem at $0.80 per share.
ITEM 8. FINANCIAL INFORMATION
A.     Consolidated Statements
See "Item 17  Financial Statements."
B. Dividend Policy
We have never paid a dividend on our securities. We do not anticipate paying
dividends in the foreseeable future.
C. Significant Changes
Except as otherwise disclosed in this report, there has been no significant
change in our financial position since October 31, 2007.
D.     Legal Proceedings

Our subsidiary, Pageant Technologies (USA) Inc. was 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 property was also seeking damages
from Pageant Technologies (USA) Inc. Pageant Technologies (USA) Inc. assigned
its rights under the lease to Clear Blue Laboratories, Inc., however, Pageant
Technologies (USA) Inc. was allegedly obligated to pay the lease payments should
the assignee default under the contract. The landlord was claiming damages of
approximately $887,000. This matter was settled pursuant to a settlement
agreement at no cost to us in 2005.
April 21, 2008 has been set as the mediation date for a dispute that the
Company has with its former Chief Technology Officer. See "Item 3-Key Information-Risk Factors".
ITEM 9. THE OFFER AND LISTING
The table below sets forth the high and low sales prices for
common shares in U.S. Dollars as reported for the periods specified. Our fiscal
year ends October 31. Our common shares are not traded in Canada.
43

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

|Period               | High | Low 
|-------------------- | ---- | ----
|                     |      |     
|Last six months:     |      |     
|January 2008         | 0.65 | 0.55
|December 2007        | 0.85 | 0.51
|November 2007        | 0.72 | 0.55
|October 2007         | 0.72 | 0.55
|September 2007       | 0.79 | 0.45
|August 2007          | 0.65 | 0.35
|Last eight quarters: |      |     
|Q4 2007              | 0.79 | 0.35
|Q3 2007              | 0.55 | 0.35
|Q2 2007              | 0.63 | 0.35
|Q1 2007              | 0.68 | 0.39
|Q4 2006              | 0.90 | 0.53
|Q3 2006              | 1.33 | 0.68
|Q2 2006              | 1.20 | 0.43
|Q1 2006              | 0.72 | 0.47
|Last five years:     |      |     
|2007                 | 0.85 | 0.35
|2006                 | 1.33 | 0.43
|2005                 | 1.15 | 0.37
|2004                 | 1.17 | 0.15
|2003                 | 0.31 | 0.05

On February 28, 2008, the last reported sale price for our common shares on
the NASD OTC Bulletin Board was $ 1.07.

44

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ITEM 10. ADDITIONAL INFORMATION
A.     Share Capital

At October 31, 2007 the Company reports 72,946,167 common
shares outstanding (2006: 69,191,299). Additionally the Company has 10,325,000
stock options outstanding with a weighted average exercise price of $0.55 (2006:
11,550,000 options outstanding with a weighted average exercise price of $.53)
and a total of 4,471,328 outstanding warrants to acquire common shares with a
weighted average exercise price of $.53 (2006: 4,848,818 outstanding warrants
with a weighted average exercise price of $.53).
B.     Memorandum and Articles of Incorporation
Articles of Incorporation
Incorporation Details and Objects of Micromem Technologies Inc.
Micromem Technologies Inc. was incorporated under the laws of
the Province of Ontario, Canada, on October 21, 1985 as Mine Lake Minerals Inc.
We subsequently changed our name to Avanti Capital Corp. by filing Articles of
Incorporation of Amendment on June 23, 1988 and to AvantiCorp International Inc.
on April 30, 1992 before becoming Micromem Technologies Inc. on January 14,
1999. The Articles of Incorporation of Incorporation place no restrictions on
the nature of the business to be carried on by Micromem.
Summary of Directors Powers and Authorities
The rights, duties, powers and authorities of our Board of
Directors are set out in the Articles of Incorporation and By-laws and the
statutory provisions of the Business Corporations Act (Ontario). The
following is a selected summary of the Articles of Incorporation, By-laws and
applicable provisions of the Business Corporations Act (Ontario) as they relate
to selected rights, duties, powers and authorities of our Board of Directors.
The Articles of Incorporation provide for a minimum of three
and a maximum of 12 directors. The Business Corporations Act (Ontario)
prescribes that an offering corporation must have a minimum of three directors,
a majority of whom are Canadian residents and at least one third of whom are not
officers or employees of us or our affiliates. The Board of Directors may,
between annual shareholders meetings, appoint one or more additional directors
to serve until the next annual shareholders meeting provided that the number of
directors so added may not exceed by one-third (1/3) the number of directors
required to have been elected at the last annual meeting of shareholders.
The Chairman of the Board of Directors or any one director
may call a meeting upon the provision of forty-eight hours notice to each
director in the manner prescribed in our By-laws. Any such notice shall include
the items of business to be considered at the meeting. A majority of the
directors constitute a quorum provided that half of those directors present are
Canadian residents. Business cannot be transacted without a quorum. A quorum of
directors may vote on any matter of business properly brought before the meeting
provided that where a director is a party to a material contract or proposed
material contract or has a material interest in the matter to be considered,
such director must disclose his or her interest at the earliest possible date,
request the conflict be noted in the minutes of the meeting, and with a few
limited exceptions enumerated in the By-laws, refrain from voting on the matter
in which the director has a material interest. There is no limitation on the
Board of Directors to vote on matters of their remuneration provided such
remuneration is disclosed in the financial statements and annual shareholder
proxy materials.
The Board of Directors has broad borrowing powers and may, without
authorization from the shareholders:
borrow money on the credit of
  Micromem;
  issue, re-issue, sell or pledge
  debt obligations of Micromem;
  subject to restrictions respecting financial assistance
  prescribed in the Business Corporations Act (Ontario), give a guarantee on
  behalf ofMicromem to secure the performance of an obligation of any
  person; and
  

  45

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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. 

A person is qualified to be or stand for election as a
director provided such person is at least 18 years of age, is not a bankrupt and
is not found to be of unsound mind by a court in Canada or elsewhere. There is
no requirement for a director to hold common shares.
Securities of Micromem
Our authorized capital consists of an unlimited number of
common shares, of which 72,946,167 shares were issued and outstanding as of
October 31, 2007, and 2,000,000 special, redeemable, voting preference shares,
referred to herein as special shares, none of which were outstanding, as of
October 31, 2007.
Holders of our common shares will be entitled to receive
notice of, attend and vote at all meetings of the shareholders of Micromem. Each
common share carries one vote at such meetings. In the event of the voluntary or
involuntary liquidation, dissolution or winding-up of Micromem, after payment of
all outstanding debts, the remaining assets of Micromem available for
distribution will be distributed to the holders of our common shares. Dividends
may be declared and paid on our common shares in such amounts and at such times
as the directors shall determine in their discretion in accordance with the
Business Corporations Act (Ontario). There are no pre-emptive rights, conversion
rights, redemption provisions or sinking fund provisions attaching to the common
shares. Common shares are not liable to further calls or to assessment by
Micromem; provided, however, that pursuant to the provisions of the Business
Corporations Act (Ontario), Micromem has a lien on any common share registered
in the name of a shareholder or the shareholder's legal representative for a
debt owed by the shareholder to Micromem.
Holders of special shares are entitled to receive notice of,
attend and vote at all meetings of the shareholders of Micromem. Each special
share carries one vote at such meetings. In the event of the voluntary or
involuntary liquidation, dissolution or winding-up of Micromem, after payment of
all outstanding debts, the holders of the special shares shall be entitled to
receive, before any distribution of any part of the assets of Micromem among the
holders of any other shares, the amount paid up on the special shares. The
special shares are redeemable at the option of Micromem for the amount paid up
on the shares. Dividends may not be declared or paid on the special shares and
transfer of the Special Shares is restricted without the approval of the
Directors of Micromem and the prior written consent of the Ontario Securities
Commission. The number of special shares that may be issued and outstanding at
any time is limited to 500,000. There are no pre-emptive rights, conversion
rights or sinking fund provisions attaching to the special shares. Special
shares are not liable to further calls or to assessment by Micromem; provided,
however, that pursuant to the provisions of the Business Corporations Act
(Ontario), Micromem has a lien on any special shares registered in the name of a
shareholder or the shareholder's legal representative for a debt owed by the
shareholder.
46

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Rights and Privileges of Shareholders
Only the registered holders of our common shares and special
preference shares on the record date are entitled to receive notice of and vote
at annual and special meetings of shareholders. Where the items of business
affect the rights of shareholders other than the holders of common shares, a
special majority of two-thirds of the votes cast by the affected shareholders at
the meeting called for such purpose is required to approve the item of business.
Beneficial holders of common shares and special shares are also entitled to
receive proxy materials in respect of meetings of shareholders in accordance
with Canadian Securities Administrators National Instrument 54-101, provided
that such proxies are limited in scope to instructing the registered shareholder
(usually a brokerage house) on how to vote on behalf of the beneficial
shareholder. There are no restrictions on the number of shares that may be held
by non-residents other than restrictions set out in the Investment Canada Act
(Canada). See "Additional Information - D. Exchange Controls".
There are no provisions in the By-laws regarding public
disclosure of individual shareholdings. Notwithstanding this, applicable
Canadian securities legislation requires certain public disclosure of persons
owning or acquiring common shares in excess of 10% of a corporation's issued and
outstanding share capital.
C.     Material Contracts
1.     
Equipment Transfer Agreement dated March 1, 2003 (now expired), by and between
Micromem and the Governing Council of the University of Toronto, pursuant to
which we conveyed equipment having an estimated value of $200,000 (CDN $297,600)
to the University of Toronto for incorporation into the University's magnetic
memory facility for the research and development and fabrication of magnetic
memory.
2.     
Collaborative Research Agreement dated December 10, 2002 (now expired), by and
among Micromem, Communications and Information Technology Ontario, the
University of Toronto and Dr. Harry Ruda, Professor of Physics at the University
of Toronto, pursuant to which: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"; andin 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 (now expired), by and
among Micromem, Materials and Manufacturing Ontario, the University of Toronto
and Dr. Harry Ruda, Chair Professor in Nanotechnology, pursuant to which:
  Micromem has engaged the University of
  Toronto to conduct research and development of magnetic memory technology; andMicromem 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 (now
expired), 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;47

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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; andMicromem 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; andPageant 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.
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 extended for 2 years
with a cancellation clause which could be executed by us at any time with 4
months notice provided. The base remuneration stipulated in the contract is
$260,000 per year. We also granted the Chief Technology Officer 100,000 options
to purchase our common shares exercisable at $0.68 per share which expired on
December 31, 2005, 100,000 options to acquire common shares at $0.68 per share
which options expired on March 22, 2007 and 200,000 options to acquire common
shares at $0.80 which options expire on May 2, 2008.
In October 2005, the Company extended
the consulting contract for 2 more years commencing in January 2007 on the same
terms, conditions and cancellation clauses. On November 18, 2007 the Company
served Dr. Kuper with the required four months written notice of termination of
her employment agreement. As discussed in the Risk Section of this report, on
Page 8, Dr. Kuper has filed a claim against the Company in February 2008 citing
wrongful dismissal and making a number of allegations against the Company. The
Company vigorously denies Dr. Kupers claims which it considers
malicious and groundless. The dispute has been referred to the Companys Audit
Committee, legal counsel has been engaged to advise the Company of its options
and an appropriate response. A date of Monday, April 21, 2008 has been set for
mediation of this dispute.
48

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10.   
On May 29, 2005, we entered into a new employment agreement with the Chairman of
the Board of Directors. The agreement commenced on January 1, 2005 and expires
on September 30, 2009. Under the terms of the agreement, the Chairman of the
Board of Directors has been retained to provide certain management services to
us. We have agreed to provide compensation based on a percentage of the increase
of the market capitalization on a year-over-year basis commencing as of December
31, 2005 subject to a minimum annual compensation amount of $150,000 (Canadian
funds  approximately $158,000 in U.S. funds at current exchange rates). At our
option, we can pay either cash or issue common shares as compensation providing
that the cumulative maximum number of shares that we can issue under the
agreement is 2 million common shares. The Company has reported $309,000 of costs
associated with this contract in 2007 and $133,600 in each of the 2005 and 2006
fiscal years.
D.     Exchange Controls

As of the date hereof, we are not aware of any governmental
laws, decrees or regulations in Canada that restrict the export or import of
capital, including, but not limited to, foreign exchange controls, or that
affect the remittance of dividends or other payments to nonresident holders of
our common shares.
We are not aware of any limitations under the laws of Canada
or the Province of Ontario, or in the Articles of Incorporation or any other of
our constituent documents on the right of nonresidents of Canada or persons who
are not Canadian citizens to hold and/or vote common shares.
E.     Taxation
Certain Canadian Income Tax Consequences

This discussion under this heading summarizes the principal
Canadian federal income tax consequences of acquiring, holding and disposing of
common shares for a shareholder who is not a resident of Canada but is a
resident of the United States and who will acquire and hold a common share as
capital property for the purposes of the Income Tax Canada, also referred to as
the Canadian Tax Act. This summary does not apply to a shareholder who carries
on business in Canada through a permanent establishment situated in Canada or
performs independent personal services in Canada through a fixed base in Canada
if the shareholder is effectively connected with such permanent establishment or
fixed base. This summary is based on the provisions of the Canadian Tax Act and
the regulations thereunder and on an understanding of the administrative
practices of Canada Customs & Revenue Agency, and takes into account all
specific proposals to amend the Canadian Tax Act or regulations made by the
Minister of Finance of Canada as of the date hereof. It has been assumed that
there will be no other relevant amendments of any governing law although no
assurance can be given in this respect. This discussion is general only and is
not a substitute for independent advice from a shareholder's own Canadian and US
tax advisors.
The provisions of the Canadian Tax Act are subject to income
tax treaties to which Canada is a party, including the Canada-United States
Income Tax Convention (1980), as amended.
Dividends on common shares and Other Income
Under the Canadian Tax Act, a non-resident of Canada is
generally subject to Canadian withholding tax at the rate of 25 percent on
dividends paid or deemed to have been paid to him or her by a corporation
resident in Canada. We are responsible for the withholding of tax at the source.
The Canada-United States Income Tax Convention (1980) limits the rate to 15
percent if the shareholder is a resident of the United States and the dividends
are beneficially owned by and paid to such shareholder, and to 5 percent if the
shareholder is also a corporation that beneficially owns at least 10 percent of
the voting stock of the payor corporation.
The amount of a stock dividend (for tax purposes) would
generally be equal to the amount of our paid up or stated capital and increased
by reason of the payment of such dividend. We will furnish additional tax
information to shareholders in the event of such a dividend. Interest paid or
deemed to be paid on our debt securities held by non-Canadian residents may also
be subject to Canadian withholding tax, depending upon the terms and provisions
of such securities and any applicable tax treaty.
The Canada-United States Income Tax Convention (1980)
generally exempts from Canadian income tax dividends paid to a religious,
scientific, literary, educational or charitable organization or to an
organization constituted and operated exclusively to
administer a pension, retirement or
employee benefit fund or plan, if the organization is a resident of the United
States and is exempt from income tax under the laws of the United States.
49

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Dispositions of Common Shares
Under the Canadian Tax Act, a non-resident of Canada is
subject to Canadian tax on taxable capital gains, and may deduct allowable
capital losses, realized on a disposition of "taxable Canadian property". common
shares will constitute taxable Canadian property of a shareholder at a
particular time if the shareholder used the shares in carrying on business in
Canada, or if at any time in the five years immediately preceding the
disposition 25 percent or more of the issued shares of any class or series in
the capital stock of Micromem belonged to one or more persons in a group
comprising the shareholder and persons with whom the shareholder did not deal at
"arm's length" and in certain other circumstances.
The Canada-United States Income Tax Convention (1980)
relieves United States residents from liability for Canadian tax on capital
gains derived on a disposition of shares unless:
the value of the shares is derived principally from "real
property" in Canada, including the right to explore for or exploit natural
resources and rights to amounts computed by reference to production, the
shareholder was resident in Canada for 120 months during any period of 20
consecutive years preceding, a and at anytime during the 10 years immediately
preceding, the disposition and the shares were owned by them when they ceased to
be resident in Canada, or the shares formed part of the business property of a
"permanent establishment" that the holder has or had in Canada within the 12
months preceding the disposition.
Certain United States Federal Income Tax Consequences

The following is a general summary of certain United States
federal income tax consequences, under current law, generally applicable to a US
Holder (as defined below). This summary does not address all potentially
relevant United States federal income tax matters and it does not address
consequences peculiar to persons subject to special provisions of United States
federal income tax law, such as those described below as excluded from the
definition of a US Holder. United States alternative minimum tax considerations
are not addressed in this summary. In addition, this summary does not cover any
state, local or foreign tax consequences.
The following summary is based upon the Internal Revenue Code
of 1986, as amended (the "Code"), Treasury Regulations, published Internal
Revenue Service ("IRS") rulings, published administrative positions of the IRS,
and court decisions that are currently applicable, any of which could be
materially and adversely changed, possibly on a retroactive basis, at any time.
This summary does not consider the potential effects, both adverse and
beneficial, of any recently proposed legislation which, if enacted, could be
applied (possibly on a retroactive basis) at any time (including, without
limitation, changes in applicable tax rates).
This summary is for general information only and it is not
intended to be, nor should it be construed to be, legal or tax advice to any
holder or prospective holder of common shares, and no opinion or representation
with respect to the United States federal income tax consequences to any such
holder or prospective holder is made. Accordingly, holders and prospective
holders of common shares should consult their own tax advisors about the
federal, state, local, and foreign tax consequences of purchasing, owning and
disposing of common shares.
US Holders

As used herein, a "US Holder" means an owner of common shares
who is a citizen or individual resident (as defined under United States tax
laws) of the United States; a corporation or other entity taxable as a
corporation created or organized in or under the laws of the United States or of
any political subdivision thereof; an estate the income of which is taxable in
the United States irrespective of source; or a trust if (a) a court within the
United States is able to exercise primary supervision over the trust's
administration and one or more United States persons have the authority to
control all of the substantial decisions of the trust or (b) the trust was in
existence on August 20, 1996 and has properly elected to continue to be treated
as a United States person. This summary does not address the tax consequences
to, and "US Holder" does not include, tax-exempt persons or organizations;
qualified retirement plans, individual retirement accounts and other
tax-deferred accounts; broker-dealers; non-resident alien individuals or
entities; persons or entities that have a "functional currency" other than the
US dollar; persons who hold common shares as part of a straddle, hedging or
conversion transaction; and persons who acquire their common shares as
compensation for services. This summary is limited to US Holders who own common
shares as capital assets and who hold the common shares directly (e.g., not
through an intermediary entity such as a corporation, partnership, LLC or
trust). This summary does not address the consequences to a
person or entity of the ownership, exercise or disposition of any options,
warrants or other rights to acquire common shares.
50

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Distributions to US Holders Who Own Common Shares

Subject to the discussion below concerning the potential
status of the Company (or any of its subsidiaries that are classified as
corporations for United States federal income tax purposes ("Related Entities"))
as a "passive foreign investment company" ("PFIC"), the gross amount of any
distribution by the Company (including any Canadian taxes withheld therefrom)
with respect to common shares generally should be included in the gross income
of a US Holder as foreign source dividend income to the extent such distribution
is paid out of current or accumulated earnings and profits of the Company, as
determined under United States federal income tax principles. To the extent that
the amount of any distribution exceeds the Company's current and accumulated
earnings and profits in that taxable year, the distribution is treated as a
tax-free return of capital to the extent of the US Holder's adjusted tax basis
in the common shares. Thereafter, to the extent that such distribution exceeds
the US Holder's adjusted tax basis in the common shares, it is taxed as a
capital gain.
Dividends received by non-corporate US Holders may be subject
to United States federal income tax at lower rates (generally 15%) than other
types of ordinary income in taxable years beginning on or before December 31,
2010, if certain conditions are met. These conditions include neither the
Company nor a Related Entity being classified as a PFIC (discussed below), the
Company being a "qualified foreign corporation", the US Holder's satisfaction of
a holding period requirement, and the US Holder not treating the distribution as
"investment income" for purposes of the investment interest deduction rules.
In the case of US Holders that are corporations, distributions from the
Company generally are not eligible for the dividends received deduction.
Dispositions of Common Shares of the Company

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

There are two regimes applicable to foreign corporations
under United States federal income tax law that potentially may apply to the
Company - the "controlled foreign corporation" ("CFC") regime and the PFIC
regime.
Generally, a foreign corporation is not a CFC unless more
than fifty percent (by vote or value) of its stock is owned by "U.S.
Shareholders" (generally, United States persons who have ten percent or more of
the votes of the foreign corporation). This classification generally results in
the inclusion of certain income of the CFC in the U.S. Shareholders' income as a
deemed dividend. If the Company were a CFC, the United States federal tax
consequences summarized herein could be materially and adversely different.
PFIC status is not conditioned on a certain level of
ownership of the foreign corporation by United States persons, however. The
Company or any Related Entity would be considered a PFIC if during any taxable
year, 75% or more of its gross income consists of certain types of "passive"
income, or if the average value during a taxable year of its "passive assets"
(generally, assets that generate passive income) is 50% or more of the average
value of all assets held by it. Passive income generally includes items such as
dividends, interest, rents and royalties, although there are various "look
through" rules that treat dividends from related persons, for example, as
non-passive under certain conditions.
If the Company is classified as a PFIC, a US Holder is
subject to increased United States federal income tax liability in respect of
gain recognized on the disposition of his, her or its common shares or upon the
receipt of certain distributions, unless such person makes a "qualified electing
fund" election to be taxed currently on his, or her or its pro rata
portion of the Company's income and gain (whether or not such income or gain is
distributed in the form of dividends or otherwise), and the Company provides
certain annual statements which include the information necessary to determine
inclusions and assure compliance with the PFIC rules. As an alternative to the
foregoing rules, a US Holder may make a "mark-to-market" election to include in
income each year as ordinary income an amount equal to the increase in value of
his, her or its common shares for that year or to claim a deduction for any
decrease in value (but only to the extent of previous mark-to-market gains).
51

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The PFIC rules are very complex. The Company can give no assurance as to its
status as a PFIC for the current or any future year. US Holders should consult
their own tax advisors with respect to the PFIC issue and its applicability to
their particular situation.
Foreign Tax Credit

A US Holder who pays (or has withheld from distributions)
Canadian income tax with respect to the common shares may be entitled to either
a deduction or a tax credit for such foreign tax paid or withheld, at the option
of the US Holder. Generally, it is more advantageous to claim a credit because a
credit reduces United States federal income tax on a dollar-for-dollar basis,
while a deduction merely reduces the taxpayer's income subject to tax. This
election is made on a year-by-year basis and generally applies to all foreign
taxes paid by (or withheld from) the US Holder during that year. Unused foreign
tax credits can generally be carried back one year and carried forward ten
years.
There are significant and complex limitations which apply to
the foreign tax credit, among which is the general limitation that the credit
cannot exceed the proportionate share of the US Holder's United States income
tax liability that the US Holder's foreign source income bears to its worldwide
taxable income. This limitation is designed to prevent foreign tax credits from
offsetting United States source income. In determining this limitation, the
various items of income and deduction must be classified into foreign and
domestic sources. Complex rules govern this classification process.
In addition, this limitation is calculated separately with
respect to specific "baskets" of income. Foreign taxes assigned to a particular
class of income generally cannot offset United States tax on income assigned to
another class. The "basket limitation" has changed significantly for tax years
after 2006, due to recent US tax legislation.
US Holders should consult their own tax advisors concerning their ability to
utilize foreign tax credits, especially in light of the changes made by recent
legislation.
Currency Fluctuations

For United States federal income tax purposes, the amount
received by a US Holder as payment with respect to a distribution on, or
disposition of common shares, if paid in Canadian dollars, is the US dollar
value at the date of the payment, regardless of whether the payment is later
converted into US dollars. In such case, the US Holder may recognize additional
ordinary income or loss as a result of currency fluctuations between the date on
which the payment is made and the date the payment is converted into US dollars.
Circular 230 Disclosure
Any tax statement made herein regarding any US federal tax is
not intended or written to be used, and cannot be used, by any taxpayer for
purposes of avoiding any penalties. Each taxpayer should seek advice based on
the taxpayer's particular circumstances from an independent tax advisor.
F. Dividends and Paying Agents
Not applicable.
G. Statement by Experts
Not Applicable.
H. Documents on Display

We have filed the documents referred to herein and other
information with the SEC, the Ontario Securities Commission and the Alberta
Securities Commission. You may inspect and copy such material at the public
reference facilities maintained by the SEC 100 Fifth Street, N.E., Washington,
D.C. 20549. You may also obtain copies of such material from the SEC at
prescribed rates by writing to the Public Reference Section of the SEC, 100
Fifth Street, N.E., Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for further information on the public reference rooms.
52

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The SEC maintains an Internet website at www.sec.gov that contains reports, proxy
statements, information statements and other material that are filed through the
SEC's Electronic Data Gathering, Analysis and Retrieval ("EDGAR") system.
Documents filed with the Ontario Securities Commission and the Alberta
Securities Commission can be accessed through an Internet website at www.sedar.com that contains reports, proxy
statements, information statements and other material that are filed through the
System for Electronic Document Analysis and Retrieval ("SEDAR").
Additional
information is also available on our website at www.micromeminc.com. Such information on our website is not part of
this Form 20-F.
I. Subsidiary Information
Not Applicable.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not Applicable.
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
Not Applicable.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND
USE OF PROCEEDS
Not Applicable.
ITEM 15. CONTROLS AND PROCEDURES
We operate as a development stage company and have
historically had only limited accounting personnel and resources with which to
address our internal control procedures.
In anticipation of the implementation of Rules 13a-15(c) of
the Securities Exchange Act of 1934 as amended (the Exchange Act"), also
referred to as Section 404 of the Sarbanes-Oxley Act of 2002, we engaged, in
2005, an independent firm of external accountants - a different firm from our
independent registered public accounting firm - to complete an in-depth review
of our internal accounting procedures and controls. The firm's evaluation was
only interim, and did not meet the requirements of Rule 13a-15(c). The
independent firm of external accountants made several recommendations which we
reviewed and evaluated at that time.
Our management, with the participation of our Chief Executive
Officer and Chief Financial Officer, evaluated the effectiveness of our
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Exchange Act as of October 31, 2005. Based on management's evaluation
in 2005, our Chief Executive Officer and Chief Financial Officer concluded that,
as of October 31, 2005, our disclosure controls and procedures were (1) not
effective, in that they were not designed to ensure that material information
relating to us is made known to our Chief Executive Officer and Chief Financial
Officer by others within our organization, as appropriate to allow timely
decisions regarding required disclosures, and (2) not effective, in that they
did not ensure that information required to be disclosed by us in our reports
that we file or submit under the Exchange Act is recorded, processed, summarized
and reported within the time periods specified in the SEC's rules and forms.
When our independent registered public accountants audited
our financial statements as of and for the year ended October 31, 2005, they
identified significant deficiencies in our disclosure controls and procedures.
Significant deficiencies noted were that:
53

---

we lacked certain formalized accounting policies and procedures
  including written procedures for the monthly, quarterly and annual closing of
  our financial books and records;

our
  staff was not always subject to timely review and supervision; and

security practices over our information technology were not sufficiently
  robust.

Since 2005 we have been committed to improving and enhancing
our disclosure controls and procedures. In connection with the deficiencies
described above, we implemented additional controls and procedures commencing in
the fourth quarter of 2005 and continuing thereafter. The additional controls
and enhanced procedures included:

- 

monthly analytical reviews by both the Chief Executive Officer and Chief
  Financial Officer;

prompt review of all financial statements and immediate reconciliation of our
  financial results;

our
  Audit Committee has met formally on a quarterly basis and on an informal basis
  as required to assess our financial performance and to review the progress
  management has made in upgrading its accounting procedures and controls;
  interaction of our Audit Committee with our independent registered public
  accounting firm in 2007 on reporting and control related matters, and



We replaced our previous controller in 2006 with a more
experienced individual. Additionally, we engaged an additional experienced
person in 2006 to supervise and review the work of our controller and to
interact directly with our Chief Financial Officer.

Our CFO has attended professional development courses dealing
with SEC related filings.

In 2006 our Board of Directors adopted formal disclosure
controls and policies and appointed a Chief Information Officer to implement
these policies.

When our independent registered public accountants audited
our financial statements as of and for the year-ended October 31, 2007 they
identified a reportable condition relating to our operating controls relating to
our outsourced research and development efforts at the University of Toronto.
They reported that the relationship with the University of Toronto had not been
managed in a manner which would prevent unauthorized charges on a timely basis
which could result in disputed charges and additional costs.

In July 2007 we formed a Technical Advisory Committee
consisting of independent directors and an outside consultant to supervise and
to report on our technical developments on a timely basis.

The foregoing remedial measures did not materially increase
our expenses. With the implementation of the above controls and procedures, we
believe that we have significantly improved our disclosure controls and
procedures.

The Company believes that it currently maintains appropriate
information systems, procedures and controls to ensure that information used
internally and disclosed internally is complete, accurate, reliable and timely.
The disclosure controls and procedures are designed to provide reasonable
assurance that information required to be disclosed in its various reports are
recorded, processed, summarized and reported accurately.

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

Changes in Internal Control Over Financial Reporting.
Other then as stated above, no change in our internal controls over financial
reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act,
occurred during the fiscal year ended October 31, 2007 that has materially
affected or is reasonable likely to materially affect, our internal controls
over financial reporting.

54

---

Other Matters. In anticipation of the implementation of
Rules 13a-15(c) of the Exchange Act, also referred to as Section 404 of the
Sarbanes-Oxley Act of 2002, with the participation of our management, we engaged
an independent registered public accounting firm, to complete an in-depth review
of our internal accounting procedures and controls. The firm's evaluation was
only interim, and did not meet the requirements of Rule 13(a)-15(c). The
independent firm of chartered accountants made several recommendations which
will help us improve our internal accounting procedures and controls, and, as
discussed above, implemented certain of these recommendations in 2006. To date,
management has not conducted a separate evaluation of their internal controls
over financial reporting.
Item 15T. Controls and Procedures
Not applicable
PART III
Item 16. (Reserved)
Not Applicable.
Item 16A. Audit Committee Financial Expert
Our Board of Directors has determined that a member of the
Board of Directors, David Sharpless, is an audit committee financial expert and
that he is independent, as defined in the Marketplace Rules of the Nasdaq Stock
Market.
Item 16B. Code of Ethics
We have adopted a Code of Ethics to impose certain policies
relating to ethical conduct on all of our Directors and employees, including our
Chief Executive Officer, Chief Financial Officer, principal accounting officer
and persons performing similar functions. We undertake to provide a copy of our
Code of Ethics to any holder of our securities upon request, without charge.
Item 16C.  Principal Accountant Fees and Services
On September 28, 2005, the Audit Committee of the Board of
Directors replaced Grant Thornton LLP, as our independent firm of Chartered
Accountants and engaged Schwartz Levitsky Feldman LLP as our new independent
firm of Chartered Accountants.
The following table presents fees for professional audit
services rendered by our auditors for the audit of our consolidated financial
statements for the years ended October 31, 2007 and 2006, and fees billed for
other services rendered by our auditors including our offerings of securities
and tax services.

|                   | 2007    | 2006   
|------------------ | ------- | -------
|                   |         |        
|Audit Fees         | $75,000 | $60,000
|Audit Related Fees | -       | -      
|Tax Fees           | -       | -      
|All Other Fees     | 18,000  | 5,000  

Audit Fees

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

In 2006, we paid a total of $60,000 to Schwartz Levitsky Feldman LLP for audit
services, which included work related to the annual audit.

55

---

Audit Related Fees
We did not pay any audit related fees to Schwartz Levitsky Feldman LLP during
2007 or 2006.
Tax Fees
We did not pay any tax related fees to Schwartz Levitsky Feldman LLP for
services in 2006 or 2007.
All Other Fees
Schwartz Levitsky Feldman LLP billed us $8,000 for other services during
2007; $5,000 in 2006.
Grant Thornton LLP billed us $10,000 for other services in 2007.
Item 16D. Exemptions from the Listing Standards for Audit Committees
Not applicable.
Item 16E. Purchases of Equity by the Issuer and Affiliated Purchasers.
Not applicable.
Item 17. Financial Statements.
56

INDEPENDENT AUDITORS REPORT
To the Shareholders of 
Micromem Technologies Inc. 
(A Development Stage Company)
We have audited the consolidated balance sheets of Micromem
Technologies Inc. as at October 31, 2007 and 2006, and the consolidated
statements of operations, comprehensive loss and deficit and cash flows for each
of the years in the three-year period ended October 31, 2007. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with Canadian generally
accepted auditing standards and with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform an audit to obtain reasonable assurance whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements
present fairly, in all material respects, the financial position of the Company
as of October 31, 2007 and 2006 and the results of its operations and its cash
flows for each of the years in the three-year period ended October 31, 2007 in
accordance with Canadian generally accepted accounting principles.
Canadian generally accepted accounting principles may vary in
certain significant respects from US generally accepted accounting principles.
Information relating to the nature and effects of such changes is presented in
note 16 to the consolidated financial statements.
The consolidated statement of operations, comprehensive loss
and deficit, cash flows and shareholders deficiency for the cumulative period
from September 3, 1997 to October 31, 2004 were audited by other auditors who
expressed opinions without reservation on those statements in their reports
dated February 11, 2006, December 5, 2003, January 27, 2003, November 16, 2001,
December 13, 2000, February 25, 2000 and December 20, 1999.
"SCHWARTZ LEVITSKY FELDMAN LLP"Toronto, Ontario, Canada
    Chartered AccountantsFebruary 28, 2008
    Licensed Public Accountants1167 Caledonia RoadToronto, Ontario M6A 2X1Tel: 416 785 5353Fax: 416 785 5663F-1

COMMENTS BY AUDITORS FOR US READERS ON CANADA  US REPORTING
DIFFERENCE
In the United States, reporting standards for auditors require that the
following information be included in the auditors report:
The addition of an explanatory paragraph (following the
opinion paragraph) when the financial statements are affected by conditions and
events that cast substantial doubt on the Companys ability to continue as a
going concern, such as those described in note 2 to the consolidated financial
statements. Our report to the shareholders dated February 28, 2008 is expressed
in accordance with Canadian reporting standards, which do not permit a reference
to such events and conditions in the auditors report when these are adequately
disclosed in the consolidated financial statements.
In the introductory paragraph of the auditors report, it
would be required to state that the cumulative statements of operations,
comprehensive loss and deficit, cash flows and shareholders deficiency for the
period from September 3, 1997 to October 31, 2004 were audited by other auditors
whose reports have been furnished to us and reference would have been made to
the opinion of the other auditors, in so far as it relates to the cumulative
financial information for the Company for the period from September 3, 1997
through October 31, 2004. Our opinion on the consolidated financial statements
would refer to the reports of the other auditors for the period from September
3, 1997 to October 31, 2004. Our report to the shareholders dated February 28,
2008 is expressed in accordance with Canadian reporting standards, which do not
permit reference to the reports of other auditors in our auditors report in the
introductory paragraph.


"SCHWARTZ LEVITSKY FELDMAN LLP"Toronto, Ontario, Canada
    Chartered AccountantsFebruary 28, 2008
    Licensed Public Accountants1167 Caledonia RoadToronto, Ontario M6A 2X1Tel: 416 785 5353Fax: 416 785 5663F-2

MICROMEM TECHNOLOGIES INC.(A DEVELOPMENT STAGE COMPANY)
Consolidated Balance Sheet(Expressed in United States dollars) 
(See Note 2 - Going Concern)
As at
    October 31, 2007
    October 31, 2006(as restated - Note 9)AssetsCurrent assets:Cash and cash equivalents
    $244,575
    $406,702Deposits and other receivables (Note 5)
    84,657
    58,738329,232
    465,440Property and equipment (Note 6)
    -
    -Patents and trademarks (Note 7)
    -
    -Royalty rights (Note 4 and Note 10)
    -
    -329,232
    465,440Liabilities and Shareholders' DeficiencyCurrent liabilities:Accounts payable and accrued liabilities (Note 5)
    1,861,087
    914,363Shareholders' Deficiency:Share capital: (Note 8)Authorized:2,000,000 special preference shares, redeemable,
    votingUnlimited common shares without par valueIssued and outstanding:72,946,167 common shares ( 2006: 69,191,299)
    37,166,397
    36,693,353Contributed surplus (Notes 8 and 9)
    22,691,336
    21,435,934Deficit accumulated during the development stage
    (61,389,588)
    (58,578,210)(1,531,855)
    (448,923)$329,232
    $465,440Management Compensation and Related Party Transactions (Note 12) 
Commitments (Note 13) 
Contingencies (Note 14)
"Joseph Fuda" (Signed)Joseph Fuda, Director
"David Sharpless" (Signed)David Sharpless, Director
See accompanying notes.
F-3
MICROMEM TECHNOLOGIES INC.(A DEVELOPMENT STAGE COMPANY)
Consolidated Statements of Operations, Comprehensive Loss and Deficit(Expressed in United States dollars)
For the year ended October 31, 2007 (with comparative data)
Period fromSeptember 3, 1997Oct. 31, 2007
    Oct. 31, 2006
    Oct. 31, 2005
    to October 31, 2007Interest and other income
    $2,586
    $9,930
    $8,703
    $552,603Costs and expenses (income):Administration
    223,177
    268,241
    320,383
    2,961,840Professional, other fees, and salaries
    (Note 12)
    1,631,309
    3,248,588
    3,178,032
    38,421,528Research and development (Notes 6 and 13)
    682,331
    368,969
    362,141
    7,808,133Travel and entertainment
    141,200
    195,607
    169,737
    1,574,126Amortization of property and equipment (Note
    6)
    -
    -
    2,925
    344,466Foreign exchange loss (gain)
    135,947
    (13,295)
    10,968
    79,480Amortization of patents and trademarks
    -
    -
    -
    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)
    -
    -
    -
    299,820Interest expense
    -
    -
    -
    75,027Loss
    on sale of property and equipment
    -
    -
    -
    65,4602,813,964
    4,068,110
    4,044,186
    61,922,514Loss before income taxes
    (2,811,378)
    (4,058,180)
    (4,035,483)
    (61,369,911)Income taxes (Note 11)
    
    -
    
    19,677Net loss and comprehensive loss for the year
    (2,811,378)
    (4,058,180)
    (4,035,483)
    (61,389,588)Deficit accumulated during thedevelopment stage, beginning of year - as restated (Note 8)
    (58,578,210)
    (54,520,030)
    (50,484,547)
    -Deficit accumulated during thedevelopment stage, end of year
    (61,389,588)
    ($58,578,210)
    ($54,520,030)
    ($61,389,588)Loss per share - basic and diluted
    (0.04)
    (0.06)
    (0.07)
    (1.15)Weighted average number of shares
    70,685,153
    66,709,353
    62,155,234
    53,192,184See accompanying notes.
F-4
MICROMEM TECHNOLOGIES INC.(A DEVELOPMENT STAGE COMPANY)
Consolidated Statement of Cash Flows(Expressed in United States dollars)
For the year ended October 31, 2007 (with comparative data)
Period fromSeptember 03, 1997Oct.31, 2007
    Oct. 31, 2006
    Oct. 31, 2005
    to October 31, 2007Cash flows from operating activities:Net loss and comprehensive loss for the period
    ($2,811,378)
    ($4,058,180)
    ($4,035,483)
    ($61,389,588)Adjustments to reconcile loss forthe period to net cash used in operating
    activities:Amortization of patents and trademarks
    
    -
    -
    67,596Amortization of property and equipment
    
    -
    2,925
    529,686Stock option expense
    269,216
    2,058,560
    1,721,742
    21,888,997Loss on sale of investment
    
    -
    -
    54,606Write down of investment
    
    -
    -
    61,020Loss on disposal of property and equipment
    
    -
    -
    65,460Write-down of royalty rights
    
    -
    -
    10,000,000Write-down of patents and trademarks
    
    -
    -
    299,820Share compensation expense
    
    -
    -
    7,285,696Non-cash wages and salaries
    
    -
    -
    34,000Decrease (increase) in deposits and other
    receivables
    (25,919)
    26,834
    (52,010)
    (76,060)Increase (decrease) in accounts payable and
    accrued liabilities
    946,724
    111,157
    366,582
    1,750,247Net cash used in operating activities
    (1,621,357)
    (1,861,629)
    (1,996,244)
    (19,428,520)Cash flows from investing activities:Purchase of property and equipment
    -
    -
    -
    (729,604)Proceeds on disposal of property and equipment
    -
    -
    -
    134,458Patents and trademarks
    -
    -
    -
    (367,416)Sale of available-for-sale Investment
    -
    -
    -
    260,641Royalty rights
    -
    -
    -
    (2,000,000)Term deposits
    -
    -
    87,243
    -Net cash provided by (used in) investing
    activities
    -
    -
    87,243
    (2,701,921)Cash flows from financing activities:Issue of common shares
    1,459,230
    1,625,528
    2,201,300
    21,794,291Net proceeds from shareholder's loan
    -
    -
    -
    544,891Loan proceeds from Avanticorp International Inc.
    -
    -
    -
    112,031Rights issue costs
    -
    -
    -
    (76,197)Net
    cash provided by financing activities
    1,459,230
    1,625,528
    2,201,300
    22,375,016Increase (decrease) in cash and cash
    equivalents
    (162,127)
    (236,101)
    292,299
    244,575Cash and cash equivalents, beginning of period
    406,702
    642,803
    350,504
    --Cash and cash equivalents, end of period
    $244,575
    $406,702
    $642,803
    $244,575Supplemental cash flow information:Interest paid
    -
    -
    -
    76,987Income taxes paid
    -
    -
    -
    66,722See accompanying notes.
F-5
MICROMEM TECHNOLOGIES INC.(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY (DEFICIENCY)
(Expressed in United States dollars)
For the year ended October 31, 2007 (with comparative data)

|                                                                                                       | Number of Shares | Share Capital | Contributed | Deferred Share | Deficit           
|------------------------------------------------------------------------------------------------------ | ---------------- | ------------- | ----------- | -------------- | ------------------
|                                                                                                       |                  |               | Surplus     | Compensation   | Accumulated during
|                                                                                                       |                  |               |             |                | Development stage 
|Micromem 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)
    (iv))                                                 | 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 12
    (a)) | -                | 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                                                      |                  |               | 4,627,752   |                |                   
|Net loss for
    the year                                                                              | -                | -             | -           | -              | (9,187,377)       
|                                                                                                       |                  |               |             |                |                   
|Balance, October 31, 2001                                                                              | 45,935,349       | 29,642,242    | 16,319,445  | -              | (31,836,769)      
|Stock options
    issued to directors/consultants                                                      |                  |               | 1,832,500   |                |                   
|Shares issued
    pursuant to compensatory agreement, March 26, 2002 (Note 12)                         | 765,588          | 1,431,545     | (1,431,545) | -              | -                 
|Net 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       | -           | -              | -                 
|Net loss for
    the year                                                                              | -                | -             | -           | -              | (1,767,965)       
|Stock options issued to directors/consultants                                                          |                  |               | 318,000     |                |                   
|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 consultant                                                                 | -                | -             | 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 2005           | 400,000          | 44,000        | -           | -              | -                 
|Private
    placement of common shares for cash                                                        | 1,028,334        | 617,000       | -           | -              | -                 
|                                                                                                       |                  |               |             |                |                   
|Net loss for
    the quarter                                                                           | -                | -             | -           | -              | (453,523)         
|Stock options issued to consultants/employers                                                          | -                | -             | 202,203     | -              |                   
|Balance at January 31, 2005                                                                            | 59,491,771       | 32,764,787    | 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        | 553,600       |             |                |                   
|Settlement of
    accounts payable for common shares.                                                  | 62,428           | 43,700        |             |                |                   

See accompanying notes.

F-6

---

MICROMEM TECHNOLOGIES INC.(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY (DEFICIENCY)
(Expressed in United States dollars)

For the year ended October 31, 2007 (with comparative data)

|                                                                             | Number of Shares | Share Capital | Contributed  | Deferred Share | Deficit               
|---------------------------------------------------------------------------- | ---------------- | ------------- | ------------ | -------------- | ----------------------
|                                                                             |                  |               | Surplus      | Compensation   | Accumulated
    during
|                                                                             |                  |               |              |                | Development stage     
|                                                                             |                  |               |              |                |                       
|Exercise of stock
    options (Note 8(b)), June, 2005                        | 1,820,000        | 553,600       |              |                |                       
|Settlement 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 as previously
    reported                       | 64,719,449       | $ 34,305,087  | $ 20,140,112 | $ -            | (54,520,030)          
|                                                                             |                  |               |              |                |                       
|Transfer to contributed surplus re financial
    advisory agreement (Note 9) |                  | (264,000)     | 264,000      |                |                       
|As restated at October 31, 2005                                              | 64,719,449       | 34,041,087    | 20,404,112   | -              | (54,520,030)          
|                                                                             |                  |               |              |                |                       
|Exercise of stock options (Note
    8(b))                                    | 150,000          | 45,000        |              |                |                       
|Stock options issued to
    consultants/employees                            |                  |               | 143,786      |                |                       
|                                                                             |                  |               |              |                |                       
|Net loss for the quarter                                                     |                  |               |              |                | (734,482)             
|Balance at January 31, 2006                                                  | 64,869,449       | 34,086,087    | 20,547,898   | -              | (55,254,512)          
|                                                                             |                  |               |              |                |                       
|Exercise of stock options (Note
    8(b))                                    | 1,600,000        | 480,000       |              |                |                       
|                                                                             |                  |               |              |                |                       
|Net loss for the quarter                                                     |                  |               |              |                | (333,768)             
|Balance at April 30, 2006                                                    | 66,469,449       | 34,566,087    | 20,547,898   | -              | (55,588,280)          
|                                                                             |                  |               |              |                |                       
|Private placement of common
    shares for cash May 2006                     | 150,000          | 75,000        |              |                |                       
|Exercise of stock options (Note
    8(b))                                    | 1,100,000        | 329,980       |              |                |                       
|Exercise of common share
    purchase warrants for cash (Note 8(d))          | 771,850          | 485,548       |              |                |                       
|                                                                             |                  |               |              |                |                       
|Net loss for the quarter                                                     |                  |               |              |                | (530,370)             
|Balance as at July 31, 2006                                                  | 68,491,299       | 35,456,615    | 20,547,898   | -              | (56,118,650)          
|                                                                             |                  |               |              |                |                       
|Exercise of stock options (Note
    8(b))                                    | 700,000          | 210,000       |              |                |                       
|Stock options issued to
    consultants/emplopyees                           |                  |               | 1,914,774    |                |                       
|                                                                             |                  |               |              |                |                       
|Net loss for the quarter                                                     |                  |               |              |                | (2,459,560)           
|Balance at October 31, 2006 as
    previously reported                       | 69,191,299       | 35,666,615    | 22,462,672   | -              | (58,578,210)          
|                                                                             |                  |               |              |                |                       
|Transfer from contributed surplus re stock
    options (Note 9)              |                  | 1,026,738     | (1,026,738)  |                |                       
|As restated at October 31, 2006                                              | 69,191,299       | 36,693,353    | 21,435,934   | -              | (58,578,210)          
|                                                                             |                  |               |              |                |                       
|Exercise of stock options (Note
    8(b))                                    | 1,000,000        | 300,000       |              |                |                       
|Transfer from contributed
    surplus                                        |                  | 190,000       | (190,000)    |                |                       
|Price adjustment on outstanding
    warrants (Note 8)                        |                  | (332,361)     | 332,361      |                |                       
|Net loss for the quarter                                                     |                  |               |              |                | (357,766)             
|Balance at January 31, 2007                                                  | 70,191,299       | 36,850,992    | 21,578,295   | -              | (58,935,976)          
|                                                                             |                  |               |              |                |                       
|Exercise of stock options (Note
    8(b))                                    | 600,000          | 180,000       |              |                |                       
|Transfer from contributed
    surplus                                        |                  | 114,000       | (114,000)    |                |                       
|Stock options issued to
    director                                         |                  |               | 96,945       |                |                       
|Exercise of warrants for cash                                                | 417,500          | 167,000       |              |                |                       
|Price adjustment on outstanding
    warrants (Note 8)                        |                  | (800,299)     | 800,299      |                |                       
|Net loss for the quarter                                                     |                  |               |              |                | (524,908)             
|Balance at April 30, 2007                                                    | 71,208,799       | 36,511,693    | 22,361,539   | -              | (59,460,884)          
|                                                                             |                  |               |              |                |                       
|Exercise of warrants for cash                                                | 60,000           | 24,000        |              |                |                       
|Price adjustment on outstanding
    warrants (Note 8)                        |                  | (193,648)     | 193,648      |                |                       
|Stock options issued to
    consultant/employee                              |                  |               | 33,914       |                |                       
|Net loss for the quarter                                                     |                  |               |              |                | (600,100)             
|Balance at July 31, 2007                                                     | 71,268,799       | 36,342,045    | 22,589,101   | -              | (60,060,984)          
|                                                                             |                  |               |              |                |                       
|Exercise of stock options (Note
    8(b))                                    | 100,000          | 72,000        |              |                |                       
|Transfer from contributed
    surplus                                        |                  | 36,122        | (36,122)     |                |                       
|Private placement of common
    shares for cash October, 2007                | 1,577,368        | 716,230       |              |                |                       
|Stock options issued to
    consultant/employees                             |                  |               | 52,873       |                |                       
|Warrants issued to consultants                                               |                  |               | 85,484       |                |                       
|Net loss for the quarter                                                     |                  |               |              |                | (1,328,604)           
|Balance at October 31, 2007                                                  | 72,946,167       | 37,166,397    | 22,691,336   | -              | (61,389,588)          

See accompanying notes.

F-7

---



MICROMEM TECHNOLOGIES INC.

(A DEVELOPMENT STAGE COMPANY)



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)



October 31, 2007 and 2006





1.

Nature of business:



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



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.



The Company currently operates as a developer of non-volatile magnetic memory technology.  The Company has not generated significant revenue through October 31, 2007 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 additional funds will be available in the future.



F-8

---



MICROMEM TECHNOLOGIES INC.

(A DEVELOPMENT STAGE COMPANY)



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)



October 31, 2007 and 2006





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



a.

Recurring operating losses

b.

Stockholders deficiency

c.

Working Capital deficiency



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



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.



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 specific applications, 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.



3.

Summary of significant accounting policies:



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



F-9

---



MICROMEM TECHNOLOGIES INC.

(A DEVELOPMENT STAGE COMPANY)



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)



October 31, 2007 and 2006





a.

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 intercompany balances and transactions have been eliminated upon consolidation.



b.

Use of estimates:



The preparation of consolidated financial statements in conformity with Canadian GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of income and expenses during the reporting period.  Actual results could differ from those estimates.  Examples of where estimates are used include the computation of stock option expense calculated in accordance with the Black Scholes option-pricing model and in the estimation of accrued liabilities.



c.

Cash and cash equivalents:



Cash and cash equivalents consist of all bank accounts and all highly liquid investments with original maturities of three months or less at the date of purchase.



d.

Property and equipment:



Property and equipment are recorded at cost less accumulated amortization.  Amortization is provided on property and equipment on a 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.



F-10

---



MICROMEM TECHNOLOGIES INC.

(A DEVELOPMENT STAGE COMPANY)



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)



October 31, 2007 and 2006





e.

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).



f.

Research and development expenses:



Research costs are expensed in the period incurred.  Development expenses are expensed as incurred unless they meet the criteria for deferral and amortization under Canadian GAAP which is the translation of research findings or other knowledge into a plan for the technology prior to commercial production or use.  The Company has determined that no development costs have met these criteria at the financial reporting date.



g.

Stock-based compensation:



The Company has a stock-based compensation plan, which is described in Note 8.    Stock-based compensation is recognized using the fair value method.  Under this method, the Black Scholes option-pricing model is used to determine periodic stock option expense.  Any compensatory benefit recorded is recognized initially as deferred share compensation in the consolidated statements of stockholders 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, 2000 - 2004 and the cumulative financial statements for the period from September 3, 1997 to October 31, 2004 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.



F-11

---



MICROMEM TECHNOLOGIES INC.

(A DEVELOPMENT STAGE COMPANY)



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)



October 31, 2007 and 2006





The stock-based compensation expense for options granted since November 1, 2004 have been reflected as an expense in the consolidated statement of operations in the period in which the granted options have vested.  As stock options are exercised, the Company records a charge to contributed surplus and a credit to share capital.  The amount reported in each case is based on the original expense recorded when the related options were granted.



h.

Income taxes:



The Company accounts for income taxes by the asset and liability method.  Under the asset and liability method, future tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.  Future tax assets and liabilities are measured using enacted tax rates and laws that are expected to apply when the asset is realized or the liability settled.  To the extent that it is estimated that a future income tax asset will not be realized, a valuation allowance is provided.



i.

Long-Lived Assets



The Company records the value of the long-term assets acquired at cost.   Such rights are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable.  In such circumstances an impairment loss is calculated as equal to the excess of the carrying value of the assets over their undiscounted estimated future net cash flows.



j.

Foreign currency translation:



The functional and reporting currency of the Company is the United States dollar.  The Companys wholly-owned subsidiaries are integrated foreign operations and therefore, the Company uses the temporal method whereby monetary assets and liabilities are translated into United States dollars at the rate of exchange in effect at the consolidated balance sheet dates.  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.



F-12

---



MICROMEM TECHNOLOGIES INC.

(A DEVELOPMENT STAGE COMPANY)



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)



October 31, 2007 and 2006





k.

Earnings or Loss Per Share:



Basic earnings (loss) per share is computed by dividing net earnings (loss) by the weighted average number of common shares outstanding for the year.  Diluted earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding plus common stock equivalents (if dilutive) related to stock options and warrants for each year.



l.

Unit Private Placements:



The Company has adopted the residual value approach in accounting for the value assigned to the common shares and the warrants which it has made available in a number of Unit private placement financings. In that the Unit private placement price is equal to the common share price at the issue date of the Unit, the Company has assigned 100% of the proceeds to the common shares and a nil value to the attached warrants.



m.

Warrant Repricing:



The Company records a non-cash charge to share capital and an offsetting credit to contributed surplus at the point in time that outstanding common share purchase warrants are repriced.  The amount reported is calculated based on the Black Scholes option-pricing model.

n.

Recent Accounting Pronouncements:



i.

Accounting Changes



Effective January 1, 2007, the Company adopted the new recommendations of the CICA Handbook Section 1506, Accounting changes.  Under these new recommendations voluntary changes in accounting policy are permitted only when they result in the financial statements providing reliable and/or relevant information.



These recommendations also require changes in accounting policy to be applied retrospectively unless doing so is impractical, require prior period errors to be corrected retrospectively, require enhanced disclosures about the effect of changes in accounting policies, estimates and errors on the financial statements and require disclosure of new primary sources of GAAP that have been issued but not yet effective.  The adoption of Section 1506 has no impact on the Company.



F-13

---



MICROMEM TECHNOLOGIES INC.

(A DEVELOPMENT STAGE COMPANY)



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)



October 31, 2007 and 2006





ii.

Capital Disclosures



CICA Handbook Section 1535, Capital Disclosures, requires disclosure of an entitys objectives, policies and processes for managing capital, quantitative data about what the entity regards as capital and whether the entity has complied with any capital requirements and, if it has not complied, the consequences of such noncompliance.



This standard is effective for interim and annual financial statements relating to fiscal years beginning on or after October 1, 2007.  The Company has not yet determined the impact, if any, of the adoption of this change on the disclosure in its financial statements.



iii.

Financial Instruments



Effective November 1, 2006, the Company adopted five new accounting standards that were issued by the Canadian Institute of Chartered Accountants ("CICA"): Comprehensive Income (Section 1530"), Hedges (Section 3865"), Financial Instruments-Recognition and Measurements ("Section 3855"), Equity ("Section 3251"), and Financial Instruments - Disclosure and Presentation ("Section 3861").These new Handbook Sections, which apply to fiscal years beginning on or after October 1, 2006, provide comprehensive requirements for the recognition and measurement of financial instruments, as well as standards on when and how hedge accounting may be applied. These accounting policy changes were adopted on a prospective basis with no restatement of prior period financial statements.



Comprehensive Income



Section 1530 requires the presentation of comprehensive income, which consists of net income and other comprehensive income ("OCI"). Comprehensive income is defined as the change in equity from transactions and other events from non-owner sources. OCI refers to items recognized in comprehensive income but that are excluded from net income calculated in accordance with generally accepted accounting principles.



F-14

---



MICROMEM TECHNOLOGIES INC.

(A DEVELOPMENT STAGE COMPANY)



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)



October 31, 2007 and 2006





Financial Instruments - Recognition and Measurement and Disclosure and Presentation Section 3855 establishes standards for recognizing and measuring financial assets, financial liabilities and non-financial derivatives. All financial assets and financial liabilities, including derivatives, are measured in the balance sheet at fair value, except for loans and receivables, investments held-to maturity and other financial liabilities, which are measured at amortized cost. Measurement in subsequent periods depends on whether the financial instrument had been classified as held-for trading, available-for-sale, held-to-maturity, loans and receivables, or other liabilities.  There has been no impact on the financial statements in adopting these policies.



Held-for-trading financial investments are measured at fair value and all gains and losses are included in net income in the period in which they arise. Available-for-sale financial instruments are measured at fair value with revaluation gains and losses included in other comprehensive income until the assets are removed from the balance sheet. All changes in the fair value of derivatives are recognized in earnings unless specific hedge criteria are met in accordance with Section 3865 which requires that a company must formally document, designate and assess the effectiveness of transactions that receive hedge accounting.   There has been no impact on the financial statements in adopting these policies.



As a result of the adoption of these standards, the Company classifies cash and cash equivalents as held-for-trading. Held-for-trading financial assets are measured at fair value with unrealized gains and losses recognized in the consolidated statement of Income.  There has been no impact on the financial statements in adopting these policies.



The Company classifies derivative instruments, such as foreign exchange forward contracts, as held for-trading unless the instruments meet all the criteria of a hedge. If the criteria is met, then any unrealized gains and losses will be reported in other comprehensive income.  There has been no impact in the financial statements in adopting these policies.



iv.

Financial Instruments  Disclosure



CICA Handbook Section 3862, Financial Instruments  Disclosure, increases the disclosure currently required that will enable users to evaluate the significance of financial instruments for an entitys financial position and performance, including disclosures about fair value.  In addition, disclosure is required of qualitative and quantitative information about exposure to risk arising from financing instruments, including specified minimum disclosures about liquidity risk and market risk.  The quantitative disclosures must also include a sensitivity analysis for each type of market risk to which an entity is exposed, showing how net income and other comprehensive income would have been affected by reasonably possible changes in the relevant risk variable.  This standard is effective for interim and annual financial statements relating to fiscal years beginning on or after October 1, 2007.  The Company has not yet determined the impact, if any, of the adoption of this change on the disclosure in its financial statements.



F-15

---



MICROMEM TECHNOLOGIES INC.

(A DEVELOPMENT STAGE COMPANY)



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)



October 31, 2007 and 2006





v.

Financial Instruments  Presentation



CICA Handbook Section 3863, Financial Instruments  Presentation, replaces the existing requirements on presentation of financial instruments which have been carried forward unchanged to this section.  This standard is effective for interim and annual financial statements relating to fiscal years beginning on or after October 1, 2007.  The Company does not expect the adoption of this standard to have any impact on the financial statements.



vi.

General Standards on Financial Statement Presentation



CICA Handbook Section 1400, General Standards on Financial Statement Presentation, has been amended to include requirements to assess and disclose an entitys ability to continue as a going concern.  This standard is effective for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2008.  The Company does not expect the adoption of these changes to have an impact on its financial statements.



vii.

International Financial Reporting Standards



The CICA plans to converge Canadian GAAP with International Financial Reporting Standards (IFRS) over a transition period expected to end in 2011.   The impact of the transition to IFRS on the Companys financial statements is not yet determinable.



F-16

---



MICROMEM TECHNOLOGIES INC.

(A DEVELOPMENT STAGE COMPANY)



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)



October 31, 2007 and 2006





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% interest in the patents which the Company did not own and a 40% gross profit royalty (Estancia Royalty),

in respect of certain ferromagnetic memory technology known as VEMRAM (previously known as MAGRAM) and covered by U.S. Patent #5,295,097 and the related patent applications (the Vemram Patents) described in the Agreement and all rights (the Technology) held by Estancia and Lienau under the Joint Ownership and Licensing Agreement dated September 17, 1997 among Estancia, Lienau and Pageant.  Under the terms of the Agreement, the Company was required to pay a maximum purchase price of $50,000,000 to Estancia 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 was received from Honeywell Federal Manufacturing & Technologies (Honeywell) that fully integrated, randomly addressable memory matrices of the Technology met certain stipulated performance standards, or (ii) the Company or any of its affiliates executed 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 would be paid in Micromem Shares valued at the close of trading on the date of receipt of such certification, sale or licensing; and



c.

$20,000,000 if and when the Company or any of its affiliates executed 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 would be paid in Micromem Shares valued at the close of trading on the date of execution of such sale or licensing.



F-17

---



MICROMEM TECHNOLOGIES INC.

(A DEVELOPMENT STAGE COMPANY)



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)



October 31, 2007 and 2006



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



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



1.

a 40% interest in the Vemram Patents;



2.

a 32% interest in the gross profit, less expenses agreed to by the parties, for each license of the Vemram Patents sold or otherwise transferred by Pageant; and



3.

a 32% interest of any unit royalties received by Pageant as a result of the license or sale of the Vemram Patents less reasonable expenses directly related to the obtaining of said royalties.



5.

Non-cash working capital balances:



A.

Deposits and other receivables



| |                                                                                                                                                        | 10/31/07 | 10/31/06
| | ------------------------------------------------------------------------------------------------------------------------------------------------------ | -------- | --------
| | Sales tax recoverable                                                                                                                                  | $ 47,792 | $15,110 
| | Receivables from companies where senior officers and directors of the Company

      exercise significant influence (Note 12(b)) and employee advances | 34,856   | 41,928  
| | Prepaid insurance                                                                                                                                      | 2,009    | 1,700   
| |                                                                                                                                                        | $84,657  | $58,738 



F-18

---



MICROMEM TECHNOLOGIES INC.

(A DEVELOPMENT STAGE COMPANY)



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)



October 31, 2007 and 2006





B.

Accounts payable and accrued liabilities



| |                                                                                       | 10/31/07   | 10/31/06
| | ------------------------------------------------------------------------------------- | ---------- | --------
| |                                                                                       |            |         
| | Deferred compensation to Chairman (Note 12(a) ii) and to senior officers (Note 12(c)) | $625,732   | $397,118
| |                                                                                       |            |         
| | Accrual of costs under technology development agreement (Note 13(b))                  | 289,863    | 289,863 
| |                                                                                       |            |         
| | Accounts payable and other accruals                                                   | 945,492    | 227,382 
| |                                                                                       | $1,861,087 | $914,363



Included in accounts payable are the following bridge loans:



a.

$100,000 which the Company secured from an arms length party on October 17, 2007.  The loan bears interest at 3% per month.  In November 2007, the loan was settled through the issuance of common shares (Note 17).



b.

$30,000 which the Company secured from a director in September 2007.  There are no specified repayment terms or interest on the loan.   In February 2008, this loan was settled through the issuance of common shares (Note 17).



6.

Property and equipment:



| |                         | 10/31/06       | Additions | 10/31/07  
| | ----------------------- | -------------- | --------- | ----------
| | Cost:                   |                |           |           
| | Computers and equipment | $       41,348 | -         | $   41,348
| |                         | $       41,348 | -         | $   41,348



| |                           | 10/31/06      | Amortization
Expense | 10/31/07  
| | ------------------------- | ------------- | -------------------- | ----------
| | Accumulated amortization: |               |                      |           
| | Computers and equipment   | $      41,348 | -                    | $   41,348
| |                           | $      41,348 | -                    | $   41,348



| |                         | 10/31/06 |  | 10/31/07 
| | ----------------------- | -------- |  | ---------
| | Net book value:         | $-       |  | $       -
| | Computers and equipment | $-       |  | $       -



F-19

---



MICROMEM TECHNOLOGIES INC.

(A DEVELOPMENT STAGE COMPANY)



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)



October 31, 2007 and 2006





During fiscal 2003, the Company contributed equipment and supplies with a net book value of $58,302 under the Equipment Transfer Agreement to the University of Toronto (U of T) (Note 13A(4)).  The net book value of the contributed equipment has been charged to the period as a research and development expense.



7.

Patents and trademarks:



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.   At the time the Company also assessed the remaining balances reported for patents and trademark applications registered in Canada and in the United States and expensed the residual net book value of $168,981 to reflect the uncertain nature of future events.



The Company continues to actively pursue and protect its patents and trademarks registered in Canada and the United States.  Current expenditures for patent-related activity have been expensed.



8.

Share Capital:



A.

Authorized and outstanding:



The Company has two classes of shares as follows:



i.

Special redeemable voting preference shares, 2,000,000 authorized, none are issued and outstanding.



ii.

Common shares without par value  an unlimited number authorized.  At October 31, 2007 the Company reports 72,946,167 outstanding common shares.   The Company had also issued 100,000 common shares which it held in trust at October 31, 2007 pending an anticipated financing and which shares are not included in the issued and outstanding total.   Subsequent to October 31, 2007, these shares were cancelled in that the anticipated financing did not materialize.



B.

Stock option plan:



The Company has a fixed stock option plan. Under the Companys Stock Option Plan (the Plan), the Company may grant options for up to 15,000,000 shares of common stock to directors, officers, employees or consultants of the Company and its subsidiaries.  The exercise price of each option is equal to or greater than the market price of the Companys shares on the date of grant unless otherwise permitted by applicable securities regulations.  An options maximum term under the Plan is 10 years.  Stock options are fully vested upon issuance by the Company.



F-20

---



MICROMEM TECHNOLOGIES INC.

(A DEVELOPMENT STAGE COMPANY)



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)



October 31, 2007 and 2006





A summary of the status of the Companys fixed stock option plan as at October 31, 2007 and changes during the periods ended on those dates is as follows:



|          | October 31, 2007              
|--------- | ------------------------------
|          |                               
|          | Outstanding, beginning of year
|Granted   | 775                           
|Expired   | (300)                         
|Exercised | (1,700)                       
|          | Outstanding end of year       



Cash proceeds realized during the year ended October 31, 2007 by the Company upon the exercise of a total of 1.7 million options by officers and directors totaled $552,000 (2006:  3,550,000 options for proceeds of $1,064,980).



The following options which have vested immediately have been granted after October 31, 2006:



i.

350,000 options were awarded to an outside director in April 2007
pertaining to technical and marketing services provided.   These options have a
strike price of $0.36 per share and expire in April 2012 if unexercised.



ii.

150,000 options were awarded to an arms length engineering consulting firm in June 2007 who has provided services to the Company.  These options have a strike price of $0.70 per share and expire on May 31, 2008 if unexercised.



iii.

50,000 options were awarded to an employee in June 2007.   These options have a strike price of $0.50 per share and expire on May 31, 2012 if unexercised.



iv.

225,000 options were awarded to employees and a consultant in October 2007.  These options have a strike price of $0.60 per share and expire on October 25, 2012 if unexercised.



F-21

---



MICROMEM TECHNOLOGIES INC.

(A DEVELOPMENT STAGE COMPANY)



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)



October 31, 2007 and 2006





At October 31, 2005 the cumulative stock compensation expense for stock options granted to employees has been calculated, using the Black Scholes option-price model, as $17,829,459 which expense had previously not been reflected in the consolidated statement of operations and deficit.  Effective November 1, 2004, the Company adopted the fair value method of accounting for stock compensation expense and, accordingly, restated the prior year financial statements as appropriate.



A reconciliation of the restatement of the prior year financial statements is as below:



| |                                                   | 2004              | 2003                  | Period from September 3, 1997 to October 31, 2004
| | ------------------------------------------------- | ----------------- | --------------------- | -------------------------------------------------
| |                                                   |                   |                       |                                                  
| | Stock compensation expense as originally reported | $          10,020 | $                   - | $          10,020                                
| | Restatement  expense using fair value method     | 1,369,950         | 318,000               | 19,551,201                                       
| | Restated stock compensation expense               | $    1,379,970    | $       318,000       | $   19,561,221                                   
| |                                                   |                   |                       |                                                  
| | Net 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)    



The fair value of each option used for the purpose of estimating the stock compensation cost is based on the grant date using the Black Scholes option-pricing model.  The unexpended stock-based compensation deferred over the vesting period is nil.



The fair value of all options granted since 2005 was estimated as of the date of grant using the Black Scholes option-pricing model with the following assumptions:



F-22

---



MICROMEM TECHNOLOGIES INC.

(A DEVELOPMENT STAGE COMPANY)



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)



October 31, 2007 and 2006





|                               | 2007           | 2006         | 2005      
|------------------------------ | -------------- | ------------ | ----------
|Expected dividends             | -              | -            | -         
|Volatility factor              | 51% - 97%      | 99%-111%     | 97% - 142%
|Risk free interest rate        | 4.5%  4.75%   | 3.25%  4.5% | 3.25%     
|Weighted average expected life | 1 to 1.5 years | 1.5 years    | 1.5 years 

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

Quarter Ending
  ExpenseJanuary 31, 2005
  $   202,203April 30, 2005
  -July 31, 2005
  903,040October 31, 2005
  616,499January 31, 2006
  143,786April 30, 2006
  -July 31, 2006
  -October 31, 2006
  1,914,774January 31, 2007
  -April 30, 2007
  96,945July 31, 2007
  33,914October 31, 2007
  52,873




The following table summarizes information about stock options outstanding as at October 31, 2007 (Note 17):



| | Options Outstanding     |                    |                                                        | Options exercisable            
| | ----------------------- | ------------------ | ------------------------------------------------------ | -------------------------------
| | Actual exercise price   | Number outstanding | Weighted average remaining contractual life (in years) | Weighted
Average exercise price
| | $                  0.30 | 200,000            | 1.7 years                                              | $0.30                          
| | 0.68                    | 100,000            | 3.3 years                                              | 0.68                           
| | 0.91                    | 100,000            | 2.3 years                                              | 0.91                           
| | 0.72                    | 2,400,000          | 2.5 years                                              | 0.72                           
| | 0.65                    | 1,800,000          | 2.5 years                                              | 0.65                           
| | 0.60                    | 300,000            | 3.0 years                                              | 0.60                           
| | 0.80                    | 4,600,000          | 3.7 years                                              | 0.80                           



F-23

---



MICROMEM TECHNOLOGIES INC.

(A DEVELOPMENT STAGE COMPANY)



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)



October 31, 2007 and 2006





| | 0.63 | 50,000     | 3.1 years | 0.63 | 50,000     | 0.63
| | ---- | ---------- | --------- | ---- | ---------- | ----
| | 0.36 | 350,000    | 4.5 years | 0.36 | 350,000    | 0.36
| | 0.70 | 150,000    | .5 years  | 0.70 | 150,000    | 0.70
| | 0.50 | 50,000     | 4.5 years | 0.50 | 50,000     | 0.50
| | 0.60 | 225,000    | 5.0 years | 0.60 | 225,000    | 0.60
| | 0.55 | 10,325,000 |           | 0.55 | 10,325,000 | 0.55



C.

Loss per share



Basic loss per share is calculated by dividing net loss by the weighted average number of common shares outstanding during the period.  Diluted loss per share reflects the dilution that would occur if outstanding stock options and share purchase warrants were exercised or converted into common shares using the treasury stock method and is calculated by dividing net loss applicable to common shares by the sum of the weighted average number of common shares outstanding and all additional common shares that would have been outstanding if potentially dilutive common shares had been issued.



The inclusion of the Companys stock options and share purchase warrants in the computation of diluted loss per share would have an anti-dilutive effect on loss per share and they are therefore excluded from the computation.   Consequently, there is no difference between basic loss per share and diluted loss per share.



D.

Warrants



Under the residual value accounting policy which the Company has adopted, 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 nil value, as outlined below.



On August 13, 2003, the Company issued 2,031,250 First Units at $0.08 each.  Each First Unit provided the holder with one common share and a warrant for one Second Unit at $0.08 each, exercisable for one year.  Each Second Unit provided the holder with one common share and a warrant for one common share at $0.08 each, exercisable for one year.



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.



F-24

---



MICROMEM TECHNOLOGIES INC.

(A DEVELOPMENT STAGE COMPANY)



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)



October 31, 2007 and 2006





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 realized proceeds of $50,000.



E.

Private Placements



Under the residual value accounting policy which the Company has adopted, the Company has allocated the net proceeds received from the Unit private placements outlined below to the common shares attached to the Units since the net proceeds equaled the closing trading value of the shares at the date authorized by the Board of Directors.  Accordingly, the warrants were allocated nil value.



i)

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 consisted of one common share and one Series A Warrant.  Each Series A Warrant entitled the holder to purchase one common share and one Series B Warrant for $0.11 until expiry 12 months from the date of issue.  Each Series B Warrant entitles the holder to purchase one additional common share for $0.11 until expiry 12 months from the date of issue.



In October 2004, the private investors exercised 200,000 Series A warrants and the Company thus issued 200,000 common shares and 200,000 Series B warrants and realized proceeds of $22,000.



In the quarter ended January 31, 2005 the private investors exercised the remaining Series A warrants and the Company thus issued 100,000 additional common shares and 100,000 Series B warrants and realized proceeds of $11,000. The investors then exercised 300,000 Series B warrants and the Company thus issued 300,000 common shares and realized proceeds of $33,000.



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.



F-25

---



MICROMEM TECHNOLOGIES INC.

(A DEVELOPMENT STAGE COMPANY)



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)



October 31, 2007 and 2006





Each unit consisted of one common share and one Series A. Warrant.  Each Series A Warrant entitled the holder to purchase one common share and one Series B Warrant for $0.08 until expiry 12 months from the date of issue.  Each Series B Warrant entitled the holder to purchase one additional common share for $0.08 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 received $617,000 as subscription proceeds for the sale and issue of 1,028,334 Units.  Each Unit consisted of one common share and one Series A Warrant.  Each series A Warrant entitled the holder to purchase one common share and one Series B warrant for $.60 until expiry 12 months from the date of issue.  Each Series B Warrant entitled the holder to purchase one additional Common Share for $.60 until expiry 12 months from the date of issue.

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 consisted of one common share and one Series A Warrant.  Each Series A Warrant entitled the holder to purchase one common share and one Series B Warrant for $.65 until expiry 12 months from the issue date.   Each Series B warrant entitled the holder to purchase one common share for $.65 until expiry 12 months from the issue date.

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 consisted of one common share and one Series A Warrant.  Each Series A Warrant entitled 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 entitled the holder to purchase one additional common share for $.75 until expiry 12 months from the date of issue.



F-26

---



MICROMEM TECHNOLOGIES INC.

(A DEVELOPMENT STAGE COMPANY)



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)



October 31, 2007 and 2006





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.   In June 2006, the Series A warrants were extended to September 30, 2006 and, concurrently, 771,883 warrants were exercised and the Company realized $485,548 of net proceeds.  The remaining terms of the Series A and Series B warrants were unchanged.



During the quarter ending January 31, 2007 the Company further extended the expiry date of the Series A and Series B warrants referred to in (iii)  (v) above to June 30, 2007 and has revised the subscription price in each case to $0.50.  The Company reported a non-cash credit to contributed surplus of $332,361 during the 3 months ended January 31, 2007 with respect to the repricing of these warrants.  In April 2007 the Company again revised the terms of these warrants  the term was extended to June 2008 and the strike price was reduced from $0.50 per warrant to $0.40 per warrant.  The Company reported a non-cash credit to contributed surplus of $800,299 with respect to the repricing of these warrants.



The fair value of the repricing of these warrants was estimated as of the date of the repricing using the Black Scholes option-pricing model with the following assumptions:



Expected dividends
  -Volatility factor
  51% - 97%Risk-free interest rate
  4.5% - 4.75%Weighted average expected life
  1 to 1.5 years




vi)

In May 2006, the Company completed a Unit private placement financing with two investors pursuant to prospectus and registration exemptions set forth in applicable securities laws.  Under the private placement the Company received $75,000 as subscription proceeds for the sale and issue of 150,000 Units.  Each Unit consisted of one common share and one Series A warrant.   Each Series A warrant entitle the investor to purchase one common share for $0.50 until expiry in April 2007.  These warrants expired unexercised.



F-27

---



MICROMEM TECHNOLOGIES INC.

(A DEVELOPMENT STAGE COMPANY)



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)



October 31, 2007 and 2006





vii)

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



viii)

Subsequent to October 31, 2007 the Company has completed additional private placement financings (Note 17).



F.

Financial advisory agreements



i.

On June 8, 2005 the Company entered into a financial advisory services agreement with an arms length entity and, as consideration, issued 1,000,000 purchase warrants.   Each warrant entitled the holder to purchase and subscribe for one common share at $0.70 per share.  These warrants expired unexercised in June 2006.  The Company reported a non-cash charge to share capital and an offsetting credit to contributed surplus of $264,000 representing the estimated fair value with respect to these warrants.



ii.

The Company entered into a second financial advisory services agreement on June 22, 2005 with an arms length entity and, as consideration, issued 800,000 purchase warrants.  Each warrant entitled the holder to purchase and subscribe for one common share at $0.70 per share on or before June 30, 2007.  The Company repriced the 800,000 warrants from $0.70 per warrant to $0.40 per warrant in June 2007 and extended the term to June 2008.  The Company reported a non-cash charge to share capital and an offsetting credit to contributed surplus of $193,648 in June 2007 representing the estimated fair value with respect to the repricing of these warrants.



The fair value of the warrants as reported in F(i) and (ii) above was estimated using the Black Scholes option-pricing model with the following assumptions:



F-28

---



MICROMEM TECHNOLOGIES INC.

(A DEVELOPMENT STAGE COMPANY)



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)



October 31, 2007 and 2006





| |                                | F(i)   | F(ii) 
| | ------------------------------ | ------ | ------
| | Expected dividends             | -      | -     
| | Volatility factor              | 96%    | 100%  
| | Risk-free interest rate        | 3.25%  | 4.25% 
| | Weighted average expected life | 1 year | 1 year



The outstanding warrants to acquire common shares arising from the 2004-2005 private placements are summarized as below (Note 8(e):



| | Financing     | Warrants | Number    | Exercise Price
| | ------------- | -------- | --------- | --------------
| | December 2004 | A        | 211,317   | $.40          
| | December 2004 | B        | 1,028,334 | $.40          
| | February 2005 | A        | 870,000   | $.40          
| | February 2005 | B        | 1,300,000 | $.40          
| | February 2005 | A        | 4,667     | $.40          
| | February 2005 | B        | 7,000     | $.40          
| |               |          | 3,421,328 |               



In addition 800,000 warrants to acquire common shares at a strike price of $0.40 per share are outstanding under the terms of a financial advisory services agreement.



On September 16, 2007 the Company secured a 30-day bridge loan from an arms length investor in the amount of $505,000.  The Company paid a 5% financing fee to arrange the bridge loan and issued 250,000 common share purchase warrants to acquire common shares at a strike price of $0.50 per share. The Company recorded a non-cash expense of $85,484 with respect to these warrants, representing the estimated fair value as of the issue date.  The warrants have a one-year term and expire in September 2008 if unexercised.  The bridge loan was repaid in October 2007.



The fair value of these warrants was estimated using the Black Scholes option-pricing model with the following assumptions:



Expected dividends
  -Volatility factor
  51% - 97%Risk-free interest rate
  4.25%Weighted average expected life
  1 year




F-29

---



MICROMEM TECHNOLOGIES INC.

(A DEVELOPMENT STAGE COMPANY)



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)



October 31, 2007 and 2006





9.

Contributed Surplus:



| | Balance at October 31, 2004                                                                         | $18,418,370
| | --------------------------------------------------------------------------------------------------- | -----------
| | Stock compensation expense relating to stock options issued                                         | 1,721,742  
| | Balance at October 31, 2005 as originally reported                                                  | $20,140,112
| | Reclassification from share capital relating to warrants issued for financial advisory services (i) | 264,000    
| | Balance at October 31, 2005 as revised                                                              | $20,404,112
| | Stock compensation expense relating to stock options issued                                         | 2,058,560  
| | Balance at October 31, 2006 as originally reported                                                  | $22,462,672
| | Reclassification to share capital relating to exercise of stock options (ii)                        | (1,026,738)
| | Balance at October 31, 2006 as revised                                                              | $21,435,934
| | Stock compensation expense relating to stock options issued                                         | 183,732    
| | Stock options exercised                                                                             | (340,122)  
| | Common share purchase warrants issued                                                               | 85,484     
| | Charge relating to repricing of warrants                                                            | 1,326,308  
| | Balance at October 31, 2007                                                                         | $22,691,336



i.

The Company has restated $264,000 from share capital to contributed surplus as of October 31, 2005 representing the fair value of the warrants issued under a financial advisory services agreement in 2005, estimated using the Black Scholes option-pricing model.



ii.

The Company has restated $1,026,738 from contributed surplus to share capital as of October 31, 2006 representing the fair value of the stock options exercised in 2005  2006, estimated using the Black Scholes option-pricing model.



The components of contributed surplus as reported at October 31, 2007 include:



| |                                                                    | 2007        | 2006       
| | ------------------------------------------------------------------ | ----------- | -----------
| | a.
Amount relating to loan forgiveness at inception of the Company | $   544,891 | $544,891   
| | b.
Stock options compensation related                              | 20,734,653  | 20,627,043 
| | c.
Common share purchase warrants                                  | 1,411,792   | 264,000    
| |                                                                    | $22,691,336 | $21,435,934



F-30

---



MICROMEM TECHNOLOGIES INC.

(A DEVELOPMENT STAGE COMPANY)



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)



October 31, 2007 and 2006





10.

Restructuring and write-down of royalty rights:



On July 29, 2002, the Company restructured its operations by closing its research and development facility and adopted a plan to focus its current resources to outsource its research and development activities as described in Note 13(a).  No major costs were associated with this restructuring.



As a result of the restructuring, the Company determined that there was significant uncertainty that any amounts would be payable to Estancia in the foreseeable future in respect of the Estancia Royalty as described in Note 4, and accordingly, the Estancia Royalty rights acquired in the amount of $10,000,000 were written off in fiscal 2002.



11.

Income Taxes:



Once the Company has completed all of its income tax return filings, it will have non-capital losses of approximately $15.8 million available to reduce future taxable income, the benefit of which has not been recognized in these consolidated financial statements.  As at October 31, 2007, the tax losses expire as follows:



| |              | Canada       | Other Foreign | Total      
| | ------------ | ------------ | ------------- | -----------
| | 2008         | 1,363,000    | -             | 1,363,000  
| | 2009         | 1,062,000    | -             | 1,062,000  
| | 2010         | 932,000      | 265,000       | 1,197,000  
| | 2011         | -            | 208,000       | 208,000    
| | 2014         | 746,000      | -             | 746,000    
| | 2015         | 2,249,000    | -             | 2,249,000  
| | 2016         | 1,996,000    | -             | 1,996,000  
| | 2017         | 2,371,000    | -             | 2,371,000  
| | 2023         | -            | 73,000        | 73,000     
| | 2024         | -            | 173,000       | 173,000    
| | 2025         | -            | 20,000        | 20,000     
| | 2026         | 1,959,680    | -             | 1,959,680  
| | 2027         | 2,370,915    | -             | 2,370,915  
| | Total losses | $ 15,049,595 | $739,000      | $15,788,595



F-31

---



MICROMEM TECHNOLOGIES INC.

(A DEVELOPMENT STAGE COMPANY)



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)



October 31, 2007 and 2006





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



| |                                                  | 10/31/07         | 10/31/06       | 10/31/05        
| | ------------------------------------------------ | ---------------- | -------------- | ----------------
| |                                                  |                  |                |                 
| | Consolidated accounting loss before income taxes | $(2,811,378)     | $(4,058,180)   | $(4,035,483)    
| | Add nondeductible items                          | 440,463          | 2,098,500      | 1,764,607       
| | Loss for tax purposes                            | (2,370,915)      | (1,959,680)    | (2,270,876)     
| | Statutory rates                                  | 36%              | 36%            | 36%             
| | Expected income tax recovery                     | 853,529          | 705,484        | 817,515         
| | Tax benefit not recognized                       | (853,529)        | 705,484        | (817,515)       
| |                                                  | $              - | $            - | $              -



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



| |                           | 10/31/07             | 10/31/06             
| | ------------------------- | -------------------- | ---------------------
| | Unused capital losses     | 47,566               | 47,566               
| | Unused non-capital losses | 4,052,162            | 3,786,154            
| | Other, net                | 275,571              | 275,571              
| | Total future tax assets   | 4,375,299            | 4,109,291            
| | Valuation allowance       | (4,375,299)          | (4,109,291)          
| |                           | $                  - | $                   -



12.

Management compensation and related party transactions:



(a)   (i)

Between 1999 and 2002, the Company 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 Canadian funds ($158,800 U.S. funds at October 31, 2007 exchange rates).  At the Companys option it can pay cash or issue common shares as compensation providing that the cumulative maximum number of shares that it can issue under the agreement is 2 million common shares.  The Company determined that the compensation expense in fiscal 2007 was $292,542 Canadian funds ($309,232 U.S. funds at current exchange rates) under this agreement.



F-32

---



MICROMEM TECHNOLOGIES INC.

(A DEVELOPMENT STAGE COMPANY)



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)



October 31, 2007 and 2006





The total compensation paid to the Chairman during the year is summarized as follows:



Cash Compensation
  Stock Option Expense2007
  $            309,232
  $             -2006
  133,600
  416,2502005
  133,600
  659,000




b.

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, 2007,
the Company paid expenses of approximately $20,000 in rent (2006: $1,000) and
$121,000 in salaries (2006: $154,000) and $3,000 in other expenses (2006:
 $3,000).



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.  The total compensation paid to such parties during the three months ended October 31, 2007 is summarized as follows:



Cash Compensation
  Stock Option Expense2007
  $563,000
  $       105,0002006
  $611,000
  $  1,165,0002005
  $639,000
  $  1,044,000




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



F-33

---



MICROMEM TECHNOLOGIES INC.

(A DEVELOPMENT STAGE COMPANY)



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)



October 31, 2007 and 2006





|                            | 2007       | 2006       | 2005       | Sept 3, 1998 to Oct 31, 2007
|--------------------------- | ---------- | ---------- | ---------- | ----------------------------
|Professional and other fees | $1,250,984 | $1,017,859 | $1,303,662 | $6,727,451                  
|Salaries and wages          | 111,109    | 172,169    | 152,628    | 10,392,835                  
|Stock compensation expense  | 269,216    | 2,058,560  | 1,721,742  | 21,301,242                  
|                            | $1,631,309 | $3,248,588 | $3,178,032 | $38,421,528                 



13.

Commitments:



A.

Research Collaboration and Infrastructure Agreements



1.

Materials and Manufacturing Ontario:



On October 24, 2002, Micromem entered into a two year Research Collaboration Agreement with Material and Manufacturing Ontario (MMO), a not-for-profit organization funded by the provincial government, the University of Toronto (U of T) and a researcher employed by U of T to

fund the research on Magnetic Structure development for Hall effect memory devices.



Under the terms of the agreement, the Company 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 (New Technology) under this research subject to payment of an annual royalty payable in perpetuity to MMO based on a percentage of revenues from the sale of products incorporating the New Technology.



F-34

---



MICROMEM TECHNOLOGIES INC.

(A DEVELOPMENT STAGE COMPANY)



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)



October 31, 2007 and 2006





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 was 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:



•

OCE released the Company and the University from the commercialization obligations set forth in all prior research collaboration agreements.



•

The Company acquired exclusive worldwide rights to the New Technology and technology and patent rights related to the MRAM technology developed at the UofT.



F-35

---



MICROMEM TECHNOLOGIES INC.

(A DEVELOPMENT STAGE COMPANY)



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)



October 31, 2007 and 2006





•

The Company has agreed to royalties and payments under the terms of the License Agreement as follows:



•

In consideration for the rights and licenses granted, the Company shall pay to the UofT:



i.

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);



ii.

1% of net sales thereafter.



•

If the Company sublicenses any rights granted herein to any non-affiliate:



i.

in combination or association with the Companys 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 and such Micromem intellectual property;



ii.

For all other sublicenses of the rights granted to any non-affiliate, the UofT shall receive 20% of any net fees and/or net royalties that may be received by the Company in respect of such sublicenses.



iii.

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 as otherwise noted above.



•

At any point after which the Company has paid the UofT five hundred thousand Canadian dollars (CDN$500,000), the Company may at its option buy out the obligation to pay royalties under the License Agreement by paying to the UofT a single lump sum payment equaling the greater of five hundred thousand Canadian dollars (CDN$500,000) and an amount equal to the total amount of royalties paid by the Company to the UofT in the preceding twenty-four months.  The Company shall be entitled to exercise such option by providing written notice to the UofT along with the required payment, after which time the Companys obligation to pay royalties as otherwise calculated shall be waived by the UofT.



F-36

---



MICROMEM TECHNOLOGIES INC.

(A DEVELOPMENT STAGE COMPANY)



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)



October 31, 2007 and 2006





•

As a condition to entering the License Agreement the Company has agreed to a further Research Agreement with a funding commitment of no less than five hundred thousand Canadian dollars (CDN $500,000), to continue the further research and development of the inventions and the Companys intellectual property.  In August 2005, the Company made an initial payment of CDN $250,000 (approximately $200,000 U.S. funds at the then prevailing exchange rates) and, in November 2005, the Company made the second payment of CDN $250,000 (approximately $200,000 U.S. funds at the then prevailing exchange rates) under the terms of this Research Agreement.



•

The Company believes that there are substantial market opportunities available for it to commercialize its technology in conjunction with strategic partners and it is currently pursuing such opportunities.  The Company plans to complete its research initiatives and enter into agreements with strategic partners so as to commercialize its technology under licensing and other arrangements.



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 $289,000 in accounts payable and accrued liabilities with respect to this agreement as of October 31, 2007 (2006: $289,000).



C.

Operating Leases:



The Company has operating lease commitments which expire in 2010 in respect of its head office.  The future minimum annual lease payments are approximately as follows:

| | 2008-2010 (annually) | $127,000
| | -------------------- | --------



F-37

---



MICROMEM TECHNOLOGIES INC.

(A DEVELOPMENT STAGE COMPANY)



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)



October 31, 2007 and 2006





D.

Employment and Consulting Contracts:



i.

The Company has entered into an employment agreement with the Chairman through September 30, 2009 as outlined in Note 12 (a)(ii) which stipulates an annual minimum obligation of $150,000 Canadian funds ($159,000 U.S. at current exchange rates).



ii.

The Company has entered into short-term contracts with:



a.

A U.S.-based consulting firm whereby it has committed to a monthly payment of approximately $45,000.



b.

A Canadian-based researcher whereby it has committed to a monthly payment of $5,000 Canadian funds ($5,300 U.S. at current exchange rates).



Both of these contacts expire in February 2008.



E.

CTO Contract:



In January 2005, the Company entered into a consulting contract with an arms length individual for her services as Chief Technology Officer (CTO) of the Company.  The agreement extended for 2 years with a cancellation clause which could be executed by the Company at any time with 4 months notice provided.  The base remuneration stipulated in the contract was $260,000 per year.



The Company also granted the CTO 100,000 options exercisable at $0.68 which expired on December 31, 2005; 300,000 options exercisable at $0.80 per share, which expired in March 2007; 100,000 options exercisable at $0.72 which expire in May 2008 if unexercised and 200,000 options exercisable at $0.80 which expire in May 2008 if unexercised.



In October 2006, the Company extended the consulting contract commencing in January 2007 on the same terms, conditions and cancellation clauses.  In November 2007, the Company served 4 months notice to terminate the contract effective March 2008.



In February 2008, the former CTO filed a claim, through counsel, with respect to alleged discriminatory employment practices in violation of the Sarbanes Oxley Act of 2002.  The Company vigorously denies these allegations. The Company and the CTO, through respective counsel, are now in the process of mediating this dispute  the mediation date has been set for April 21, 2008.



F-38

---



MICROMEM TECHNOLOGIES INC.

(A DEVELOPMENT STAGE COMPANY)



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)



October 31, 2007 and 2006





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.



As outlined in Note 13 (E) in February 2008, the Companys former CTO has filed a claim against the Company alleging discriminatory employment practices in violation of the Sarbanes Oxley Act of 2002.



15.

Financial instruments:



a.

Fair values



The fair values for all financial assets and liabilities are considered to approximate their carrying values due to their short-term nature.



b.

Foreign currency balances



The consolidated financial statements include balances/transactions that are denominated in Canadian dollars as follows:



| |             | 10/31/07     | 10/31/06    
| | ----------- | ------------ | ------------
| | Assets      | $    303,000 | $    240,000
| | Liabilities | 1,051,000    | 136,000     
| | Expenses    | 1,156,000    | 1,230,000   



F-39

---



MICROMEM TECHNOLOGIES INC.

(A DEVELOPMENT STAGE COMPANY)



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)



October 31, 2007 and 2006





16.

Reconciliation between Canadian GAAP and U.S. GAAP:



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



a.

Research and development expenditures



Under U.S. GAAP all research and development expenditures are expensed as incurred.  In that the Company has not deferred any research and development expenditures it is in compliance with U.S. GAAP.



b.

Other recent accounting pronouncements



Financial Accounting Standards Board (FASB) Statement No. 154 Accounting Changes and Error Corrections replaces APB Opinion No. 20, Accounting Changes, and FASB Statement No. 3, Reporting Accounting Changes in Interim Financial Statements, and changes the requirements for the accounting for and reporting of a change in accounting principle.  This statement applies to all voluntary changes in accounting principle.   It also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement includes specific transition provisions, those provisions should be followed.



APB Opinion 20 previously required that most voluntary changes in accounting principle be recognized by including in net income of the period of the change the cumulative effect of changing to the new accounting principle.  This statement requires retrospective application to prior periods financial statements of changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change.



In February 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial Instruments.  SFAS is an amendment to SFAS No. 133 and 140.  SFAS No. 155 improves financial reporting by eliminating the exception from applying SFAS No. 133 to interest in securitized financial assets so similar instruments are accounted for similarly regardless of the form of instruments.  SFAS No 155 is effective for all financial instruments acquired or issued after the beginning of an entitys first fiscal year that begins after September 15, 2006.  The Company does not expect the adoption of SFAS No. 155 to have an impact on its financial position or results of operation.  Also, SFAS No. 156 Accounting for Servicing of Financial Assets was recently issued but has no current applicability to the Company and has no effect on the consolidated financial statements.



F-40

---



MICROMEM TECHNOLOGIES INC.

(A DEVELOPMENT STAGE COMPANY)



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)



October 31, 2007 and 2006





In March 2006, the FASB issued SFAS No. 156.   This Statement amends FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, with respect to the accounting for separately recognized servicing assets and servicing liabilities.   This statement is effective as of the beginning of its first fiscal year that begins after September 15, 2006.



An entity should apply the requirements for recognition and initial measurement of servicing assets and servicing liabilities prospectively to all transactions after the effective date of this statement.



In September 2006, the FASB issued SFAS No. 157 and No. 158.  Statement No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements.  This statement applies under other accounting pronouncements that require or permit fair value measurements, the Board having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute.  Accordingly, this statement does not require any new fair value measurements.  However, for some entities, the application of this statement will change current practice.



In July 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48).  FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprises financial statements in accordance with SFAS No. 109, Accounting for Income Taxes.  FIN 48 prescribes a recognition threshold and measurement attributable for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.  FIN 48 also provides guidance on derecognizing, classification, interest and penalties, accounting in interim periods, disclosures and transitions.  FIN 48 is effective for fiscal years beginning after December 15, 2006.  The Company is currently reviewing the effect, if any, FIN 48 will have on its financial position and operations.



In September 2006, the FASB issued SFAS No. 157, Fair Value Measures.  SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), expands disclosures about fair value measurements, and applies under other accounting pronouncements that require or permit fair value measurements.  SFAS No. 157 does not require any new fair value measurements; however, the FASB anticipates that for some entities, the application of SFAS No. 157 will change current practice.  SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007.  The implementation of SFAS No. 157 is not expected to have a material impact on the Companys results of operations and financial condition.



F-41

---



MICROMEM TECHNOLOGIES INC.

(A DEVELOPMENT STAGE COMPANY)



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)



October 31, 2007 and 2006





In September 2006, the FASB issued SFAS No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans - an amendment of FASB Statements No. 87, 88, 106, and 132(R).  This statement requires employers to recognize the overfunded or underfunded status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income of a business entity or changes in unrestricted net assets of a not-for-profit organization.  This statement also requires an employer to measure the funded status of a plan as of the date of its year-end statement of financial position, with limited exceptions.  The provisions of SFAS No. 158 are effective for employers with publicly traded equity securities as of the end of the fiscal year ending after December 15, 2006.  The adoption of this statement is not expected to have any effect on the Company's future reported financial position or results of operations.



In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115.  This statement permits entities to choose to measure many financial instruments and certain other items at fair value.  The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions.  This statement is expected to expand the use of fair value measurement objectives for accounting for financial instruments.  This statement is effective as of the beginning of an entitys first fiscal year that begins after November 15, 2007, and interim periods within those fiscal years.  Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provisions of FASB SFAS  No. 157, Fair Value Measurements.  The Company is currently evaluating the impact of SFAS No. 159 on its financial statements.



In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51.  SFAS 160 clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements.  SFAS 160 is effective for the Company for the fiscal year beginning August 1, 2009, with early adoption being prohibited.  It is not expected that the new standard will have a material impact on the Companys financial position and results of operations.



F-42

---



MICROMEM TECHNOLOGIES INC.

(A DEVELOPMENT STAGE COMPANY)



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)



October 31, 2007 and 2006





c.

Valuation of Unit private placements



The Company has adopted the residual value approach in accounting for the value assigned to the common shares and the warrants which it has made available in a number of private placement financings.  Under U.S. GAAP, using standards which are analogous, the valuation of the shares and warrants would be determined using the relative fair value approach.  There is no change in aggregate shareholders equity.



A reconciliation of these valuations approach with respect to the Unit private placement financings completed by the Company is as follows:



|                                    | Note
8E(iii) | Note
8E(iv) | Note
8E(v)
|----------------------------------- | ------------ | ----------- | ----------
|Residual value                      |              |             |           
|Date of private placement           | 12/04        | 2/05        | 2/05      
|                                    |              |             |           
|Financing raised                    | $617,000     | $845,000    | $10,500   
|                                    |              |             |           
|Value assigned to common shares     | $617,000     | $845,000    | $10,500   
|                                    |              |             |           
|Value assigned to attached warrants | -            | -           | -         
|                                    |              |             |           
|Relative value                      |              |             |           
|Value assigned to common shares     | $509,000     | $697,000    | $8,000    
|                                    |              |             |           
|Value assigned to attached warrants | $108,000     | $148,000    | $2,500    
|Totals                              | $617,000     | $845,00     | $10,500   



F-43

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MICROMEM TECHNOLOGIES INC.

(A DEVELOPMENT STAGE COMPANY)



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)



October 31, 2007 and 2006





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



|                                                                             | Share
Capital | Contributed
Surplus
|---------------------------------------------------------------------------- | ------------- | -------------------
|As reported using residual valuation under Canadian GAAP at October 31, 2007 | $37,166,397   | $22,691,336        
|Adjustment required under relative value under U.S. GAAP                     | (258,500)     | 258,500            
|Restated to U.S. GAAP at October 31, 2007                                    | $36,907,897   | $22,949,836        



17.

Subsequent Events:



The following subsequent events are noted:



a.

A total of $103,702 representing the $100,000 bridge loan which the Company secured in October 2007 (Note 5 (B)) plus accrued interest was settled through the issuance of common shares at a price of $0.54 per share in November 2007.  The Company thus issued 192,041 common shares as settlement.



b.

$30,000 representing the bridge loan which the Company secured in September 2007 from a director was settled through the issuance of common shares at a price of $0.56 per share in February 2007.



c.

Between November 2007  February 2008 the Company completed a series of private placement financings with arms length investors pursuant to prospectus and registration exemptions set forth in applicable securities laws.



The Company received a total of $933,025 as subscription proceeds and issued a total of 1,871,497 common shares.  Additionally, an officer exercised 100,000 stock options and the Company realized $72,000 of proceeds.



d.

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



F-44

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MICROMEM TECHNOLOGIES INC.

(A DEVELOPMENT STAGE COMPANY)



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in United States dollars)



October 31, 2007 and 2006





e.

The Company served 4 months notice on November 18, 2007 to the CTO with respect to the termination of the previously executed consulting contract (Note 13(E).  In February 2008, the CTO filed a claim, through counsel, with respect to alleged discriminatory employment practices in violation of the Sarbanes Oxley Act of 2002.  The Company vigorously denies these allegations.  The Company and the CTO, through respective counsel, are now in the process of mediating this dispute  the mediation date has been set for April 21, 2008.





***************************************





F-45

---



Item 18. Financial Statements.

Not Applicable

Item 19. Exhibits.

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

|                |                                                                                                                                                                                                                                                                                                                                                                                      
|--------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. 1.1 | Articles of Incorporation of
    Micromem Technologies Inc. and amendments thereto in effect as of January
    11, 2000, (Incorporated herein by reference to the Company's Form 20-F filed
    with the Commission on January 11, 2000).                                                                                                                                            
|                |                                                                                                                                                                                                                                                                                                                                                                                      
|Exhibit No. 1.2 | Articles of Incorporation of
    Amendment of Micromem Technologies Inc. dated as of October 17, 2001
    amending the Articles of Incorporation of Micromem Technologies Inc. to
    increase the number of directors to a minimum of three and a maximum of ten,
    (Incorporated herein by reference to the Company's Form 20-F filed with the
    Commission on March 26, 2003);
|                |                                                                                                                                                                                                                                                                                                                                                                                      
|Exhibit No. 1.3 | Articles of Incorporation of
    Amendment of Micromem Technologies Inc. dated as of June 24, 2002 amending
    the Articles of Incorporation of Micromem Technologies Inc. to increase the
    number of directors to a minimum of 3 and a maximum of 12, (Incorporated
    herein by reference to the Company's Form 20-F filed with the Commission on
    March 26, 2003);        
|                |                                                                                                                                                                                                                                                                                                                                                                                      
|Exhibit No. 1.5 | By-Laws of Micromem Technologies
    Inc. in effect as of January 11, 2002, (Incorporated herein by reference to the Company's Form
    20-F filed with the Commission on January 11, 2000);                                                                                                                                                                                         
|                |                                                                                                                                                                                                                                                                                                                                                                                      
|Exhibit No. 1.6 | Amendment to the By-Laws of
    Micromem Technologies Inc. approved by shareholders on June 29, 2000,
    deleting the requirement from the By-Laws that the President shall be
    appointed from amongst the directors, (Incorporated herein by reference to
    the Company's Form 20-F filed with the Commission on March 26, 2003);                                             

57

---



|Exhibit No. 4.1* | Research Collaboration Agreement by
    and among Micromem Technologies Inc., the University of Toronto, Dr. Harry
    Ruda and Materials and Manufacturing Ontario dated October 24, 2002
    (referred to in this Annual Report at "Item 4.B  Business Overview  Recent
    Developments"), (Incorporated herein by reference to the Company's Form 20-F
    filed with the Commission on March 26, 2003);                                      
|---------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|Exhibit No. 4.2  | Asset Purchase Agreement by and among
    Micromem Technologies Inc., Pageant Technologies Incorporated, Estancia
    Limited and Richard Lienau dated December 10, 2000 (referred to in this
    Annual Report at "Item 4.A  History and Development of Our Company 
    Agreement to Purchase Estancia Limited Interests"), (Incorporated herein by
    reference to the Company's Form 40-F filed with the Commission on February
    2, 2001);
|                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|Exhibit No. 4.3  | Technology Development Agreement by
    and among Pageant Technologies Incorporated, Estancia Limited and Richard
    Lienau dated March 9, 2001 (referred to in this Annual Report at "Item 4.A 
    History and Development of Our Company  Agreement to Purchase Estancia
    Limited Interests"), (Incorporated herein by reference to the Company's Form
    40-F filed with the Commission on February 2, 2001);                            
|                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|Exhibit No. 4.4  | Infrastructure Agreement by and
    between Micromem Technologies Inc. and the University of Toronto dated
    November 1, 2002 (referred to in this Annual Report at "Item 4.B  Business
    Overview  Recent Developments"), (Incorporated herein by reference to the
    Company's Form 20-F filed with the Commission on March 26, 2003);                                                                                                     
|                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|Exhibit No. 4.5  | A second 2-year Research Collaboration
    Agreement, by and among Micromem Technologies Inc., Materials and
    Manufacturing Ontario and the University of Toronto dated November 12, 2003
    (referred to in this Annual Report at "Item 10.C  Material Contracts"),
    (Incorporated herein by reference to the Company's Form 20-F filed with the
    Commission on March 19, 2004);                                                        
|                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|Exhibit No. 4.6  | Equipment Transfer Agreement by and
    between Micromem Technologies Inc. and the Governing Council of the
    University of Toronto dated March 1, 2003 (referred to in this Annual Report
    at "Item 10.C  Material Contracts"), (Incorporated herein by reference to
    the Company's Form 20-F filed with the Commission on March 19, 2004);                                                                                               
|                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|Exhibit No. 4.7  | Collaborative Research Agreement by
    and among Micromem Technologies Inc., Communications and Information
    Technology Ontario, the University of Toronto and Dr. Harry Ruda dated
    December 10, 2002 (referred to in this Annual Report at "Item 10.C 
    Material Contracts"), (Incorporated herein by reference to the Company's
    Form 20-F filed with the Commission on March 19, 2004);                                           
|                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|Exhibit No. 4.8  | Revised License Agreement by and
    between Micromem Technologies Inc. and the University of Toronto dated June
    13, 2005. (Incorporated herein by reference to the Companys Form 20-F with
    Commission on February 28, 2006);                                                                                                                                                                                                              
|                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|Exhibit No. 4.9  | Employment Agreement by and between
    Micromem Technologies Inc. and Dr. Cynthia Kuper dated January 28, 2005.                                                                                                                                                                                                                                                                                                                                    
|                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|Exhibit No. 4.10 | Employment Agreement by and between
    Micromem Technologies, Inc. and Sam Fuda dated May 29, 2005. (Incorporated
    herein by reference to the Company's Form 20-F filed with the Commission on
    February 28, 2006);                                                                                                                                                                                                                          
|                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|Exhibit No. 12.1 | Officer's Certification pursuant to
    Section 302 of the Sarbanes Oxley Act, 2002 (filed herewith).                                                                                                                                                                                                                                                                                                                                               
|                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|Exhibit No. 12.2 | Officer's Certification pursuant to
    Section 302 of the Sarbanes Oxley Act, 2002 (filed herewith).                                                                                                                                                                                                                                                                                                                                               
|                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|Exhibit No. 13.1 | Officer's Certification pursuant to
    Section 906 of the Sarbanes Oxley Act, 2002 (filed herewith).                                                                                                                                                                                                                                                                                                                                               
|                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|Exhibit No. 13.2 | Officer's Certification pursuant to
    Section 906 of the Sarbanes Oxley Act, 2002 (filed herewith).                                                                                                                                                                                                                                                                                                                                               
|                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|Exhibit No. 14.1 | Independent Auditors' Consent of Schwartz
    Levitsky Feldman LLP.                                                                                                                                                                                                                                                                                                                                                                                 

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

58

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SIGNATURES

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

|                         |                                      
|------------------------ | -------------------------------------
|                         | MICROMEM
    TECHNOLOGIES INC.       
|                         |                                      
|                         | By:       /s/
    Joseph Fuda        
|                         | Name:  Joseph Fuda                   
|                         | Title:    Chief Executive
    Officer
|                         |                                      
|                         | By:       /s/
    Dan Amadori        
|                         | Name:  Dan Amadori                   
|                         | Title:    Chief Financial
    Officer
|                         |                                      
|Dated: February 29, 2008 |                                      
|                         |                                      

60

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